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This newsletter provides information which might help stimulate business and avoid legal hurdles. Daily practice shows that issues which might seem insignificant may later be a decisive factor. Therefore, we draw your attention to some of those issues in these pages. We will also give a brief overview of amendments adopted or planned for the legal framework regulating the real estate sector.
1. SORAINEN ORGANISES DEBATE ON EXPERT OPINIONS IN CONSTRUCTION INDUSTRY In March, SORAINEN organised a business breakfast centred on real estate and construction law, with the construction law section of the meeting mainly addressing expert opinions in the construction field. This choice of topic was mostly prompted by the uneven quality of expert opinions available on the construction market. Participants were debating whether amendments were needed to regulate conduct of expert opinions and if so what exactly needs changing. In his presentation, Kristjan Tamm of SORAINEN concentrated on expert opinions as evidence in judicial proceedings as well as requirements established for expert opinions to be used as evidence. Karl Õiger, professor with the Tallinn Technical University Faculty of Civil Engineering, and Kaarel Sahk, lecturer with the Estonian University of Life Sciences, explained the requirements which must be met when presenting proper expert opinions. These are the most consistent problems in practice relating to this theme as well as how the regulatory framework needs changing. As regards the evidential aspect of expert opinions in judicial proceedings, the point was made that an expert must act within the limits of their competence so that giving legal and other advice outside the limits of that competence is prohibited. An expert giving evidence who is asked for information which falls outside the limits of that competence should decline to do so. As regards expert opinions, Tallinn Circuit court ruled in its decision No 2-08-5421 that answering questions related to legal assessment falls outside the competence of an expert so that only the court can assess any such questions. The court considers the following as questions related to legal assessment: reasonable cost of construction works, conformity of the amount and quality of construction works to the construction contract, construction works agreed in the construction contract but not carried out by the contractor, and others. Verifiability of the content of expert opinions was identified by speakers as another vital requirement. While evaluating the reliability of an expert opinion the court must have a clear understanding of the presumptions the expert opinion was based on as well as how the expert drew final conclusions. In this relation, the Supreme Court in its decision in case No 3-3-1-63-08 listed the following information as mandatory in the main part of the expert opinion; description of the survey, data regarding evaluation of survey results and supporting arguments for the opinion. These data should be included in the report as it allows the parties to ensure the validity and soundness of the expert opinion and follow the process of compiling it. All the presenters agreed on the real need for amendments to the regulatory framework on expert opinions. These amendments are in the process of being introduced. According to plans, the right to give expert evidence will be tied to a requirement to hold a certain top vocational qualification: chartered engineer level 8. This should ensure that individuals authorised to give expert opinions in construction matters hold appropriate qualifications, which will be regularly monitored.
2. ACQUISITION OF REAL ESTATE MAY APPEAR NOTIONAL AND RESULT IN TAX DEBT! This is the outcome of a recent court decision which should therefore come as a warning to all companies active in the real estate field. The decision is an extension of the so called buyer-seller case. In a regular buyer-seller case taxation of the buyer occurs after the seller has failed to properly fulfil its obligations, e.g. the seller fails to pay VAT associated with the transaction. It is often the case that the seller also fails to submit eg VAT returns. Even if according to case law such breaches by the seller should not lead to taxation of the buyer, they may be seen as sufficient to initiate fiscal control of the buyer. As a result, the tax authority often concludes that due to the seller’s shortcomings, the transaction between the seller and the buyer indicated on the invoice cannot be regarded as materially plausible. The Tax Board may rule that the party to the transaction is an unknown third party and as a result require the buyer to pay VAT and often income tax as well as interest. These circumstances should not justify taxation of the buyer. However, we do see that such tax decisions are a fairly common practice and contesting them is time consuming. This argument and the outcome – a third unknown person should be regarded as the seller – is ruled out as regards registered immovables because the owner can be verified from the land register. However, the tax authority has found a way to tax these transactions if it finds them apparent. Conceptually, this approach means that regardless of the entry in the land register the buyer has not become the owner of the immovable. However, these are the conclusions of the tax authority and the court regarding the above case. The seller had concluded a loan agreement with the bank and as a result the immovable was encumbered with a mortgage. Upon entry of the buyer in the land register the encumbering mortgages remained in force. After a while the bank enforced the mortgages and collected all monies due. To settle such situations the legislator has foreseen reverse charge taxation applicable in exceptional circumstances. The same can be applied to gold, metal scrap and registered immovables. As regards registered immovables this form of taxation can be used in situations where VAT has been added to the transaction voluntarily – at the time of enforcing a right of option – (we will concentrate on the subject in greater detail in our next newsletter). The problem remains unsolved in cases of mandatory taxation, e.g. sale of a land plot. We suggest exercising caution in situations where the sale transaction differs from a regular transaction, e.g. the buyer does not pay the actual sale price and payment of the sale price is made on account of an outstanding debt-claim or the seller and the buyer are bound by other relations besides the contract – eg their employees or representatives have a personal relationship or they were at school together. We also suggest caution if the seller appears to be in dire economic circumstances and as a result it is likely that state fees will not be paid. Caution is also advisable in situations where upon acquisition of an immovable the mortgages on it remain in force and may later be enforced. If any of the above circumstances exist, a binding preliminary decision may be requested from the Tax Board. This would minimise tax risks even before concluding the transaction.
3. WRAPPING UP LAND REFORM In March, amendments entered into force to the Land Reform Act and other related acts by which the State aims to speed up completion of land reform which has been in progress for over 20 years and to fix shortcomings in the process. One of the more prominent amendments constitutes the final opportunity for acquiring land on a first priority basis for individuals owning a structure constituting a movable on state owned land. The land remained unprivatised for a great number of these structures by 2006 when the period for accepting applications for privatisation of land by right of pre-emption ended. Under the Act previously in force, constituting a right of superficies was initiated in such cases as regards state owned land. The new regulation enables privatisation of the land plot instead of enforcement of the right of superficies. An application for acquisition must be filed by the county government that initiated constitution of the right of superficies. It is vital for the owner of the building to react immediately as the law requires a reply within one month. After the decision on privatisation has been adopted, a contract should be concluded swiftly. If a contract is not concluded within three months as of adoption of the decision, the right to acquire land on a first priority basis will be forfeited. Individuals for servicing of whose structures the right of superficies has already been constituted on state land under the Land Reform Act may apply for privatisation of that land under the new regulation stipulated in the State Assets Act. For this, an application must be filed with the county governor before the end of 2013. After expiry of this deadline, the right to privatise land on a first priority basis is forfeited and the superficiary will be left with a right of pre-emption on the land. Another substantial change to the Land Reform Act was the inclusion of a new chapter. This concerns pieces of land that appeared in the process of land reform as a result of measurement errors and unifying them with registered immovables. Under the new regulation, these land plots, which lack independent means of use due to their small size or irregular shape, may be unified with neighbouring immovable properties. The process of unification may be initiated by the owner of a registered immovable by filing an application or by a local government authority on its own initiative. When necessary, the local government authority will settle disputes regarding ownership of these land plots between the owners of registered immovables. Unifying land plots may be carried out indefinitely. As regards other amendments, also notable are specifications on how to finalise acquisition of land adjacent to a structure in common ownership in a situation where any of the co-owners does not wish to acquire the land or where some of the co-owners are entitled to return of land while others to acquisition of land. Moreover, the Act specifies set deadlines for local governments to apply for municipal ownership of unreformed land or constitution of the right of superficies and through conclusion of land reform as above.
4. NEW RULES ON TRANSACTIONS WITH STATE OWNED LAND On 20 March, the Government-initiated Act on Amendments to the Nature Conservation Act and the State Assets Act (289 SE) was passed by a majority of 50 votes. The aim of the Act is to provide a clear and understandable framework for transactions involving state land to ensure proper use of public money and creation of a common basis for paying compensation for restrictions applied under the Nature Conservation Act. The amendments eliminate the possibility, provided for in the nature Conservation Act, of transferring to the state an immovable with a nature conservation restriction acquired before 1 April 2007 if the owner was aware of the nature conservation restrictions at the time of acquiring the immovable and no stricter protection procedures have been established subsequently. The amendments also eliminate the possibility of offsetting the cost of assets acquired on transfer of state assets by public auction against an immovable with nature conservation restrictions into the ownership of the winner of the auction. Application of this regulation has often been uncertain and problematic giving rise to questions as regards the intended and reasoned use of public money and ensuring equal treatment of individuals.
5. SORAINEN JOINS INDUSTRY GREEN BUILDING COUNCIL FOR COMPANIES WITH A SUSTAINABLE OUTLOOK SORAINEN is pleased to have joined the Estonian Green Building Council (GBC). The GBC is the industry organisation representing sustainable development, construction, design and renewable energy in Estonia. It is a part of the global Green Building Council organisation. The GBC has planned a series of courses during 2013 to achieve Green Building Professional Certification. SORAINEN will be co-presenting the course “Legal requirements and Voluntary Certifications” on 3 June. We look forward to meeting you there! For registration, please contact info@gbc.ee or info@sorainen.ee.
6. KAIJA RIISMAA JOINS SORAINEN REAL ESTATE TEAM Kaija Riismaa has been practicing law since 2007. Before joining SORAINEN, Kaija worked as an advisor mainly concentrating on law of obligation issues at the Private Law Division of the Legislative Policy Department of the Ministry of Justice. With SORAINEN Kaija will be dealing with labour law and real estate matters. Kaija has participated in developing several legal acts, e.g. the Employment Contracts Act and transposition of the Consumer Credit Directive into the Law of Obligations Act. She has also participated in development of several legal acts yet to be debated in the Parliament – eg the new Motor Third Party Liability Insurance Act. Additionally, Kaija was responsible for drafting national positions for meetings of various European Commission and Council of the European Union working groups on issues related to law of obligations, such as the working groups for draft Regulation of a Common European Sales Law as well as representing Estonia at meetings. While at the Ministry, Kaija completed a five-month internship at the Directorate-General for Justice Contract Law Department as a national expert. Since 2012 Kaija Riismaa has been a lecturer at the University of Tartu faculty of law in Tallinn. She holds lectures and seminars on the general part of civil law. Kaija acquired additional training from the University of Konstanz in Germany. Kaija’s BA thesis addressed the essence of an acknowledgement of an obligation and associated practical problems and her MA thesis the institution of transfer of ownership as security in bankruptcy proceedings. As of May 6, Kaija is a member of the SORAINEN Real Estate team advising clients mainly on issues concerning lease agreements.
7. SEMINAR ON “CONSTRUCTION AND LIABILITY” TO BE HELD ON 8 MAY AT THE UNIVERSITY OF TARTU, FACULTY OF LAW IN TALLINN On 8 May a seminar on “Construction and liability” will take place at the University of Tartu faculty of Law in Tallinn, when SORAINEN Real Estate team members Urmas Volens and Kristjan Tamm will give presentations. Urmas Volens will concentrate on construction liability under the contractor’s warranty in the light of a recent Supreme Court decision, in which the Court explained that the conditions of a warranty for construction work can be agreed differently to that stipulated by law, including exclusion of a warranty. The decision removed the long prevailing understanding that the minimum duration of a warranty for construction work is two years. Kristjan Tamm will be discussing issues regarding designer’s liability for non-eligibility of construction works. For registration please contact airi.annama@ut.ee (limited number of participants). |
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You have received this e-mail with the SORAINEN news because you are in the SORAINEN database. Please note that SORAINEN newsflashes are compiled for general information purposes only, free of obligation and free of legal responsibility and liability. They do not cover all laws or reflect all changes in legislation, nor are the explanations provided exhaustive. Therefore, we recommend that you contact SORAINEN or your legal advisor for further information. Electronic versions of SORAINEN newsflashes are available and can be subscribed to on the SORAINEN website – www.sorainen.com. © SORAINEN 2013 |
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