NEW CONSTRUCTION REGIME IN LATVIA
EXPECT MAJOR LIMITATIONS TO DIVIDED PROPERTY
MOST RECENT SUPREME COURT FINDINGS ON ISSUES OF RESIDENTIAL LEASE
LATEST DEALS IN REAL ESTATE AND CONSTRUCTION
NEW CONSTRUCTION REGIME IN LATVIA
In the summer, the parliament adopted a new Construction Law at the final reading. The new law replaces the law adopted on 10 August 1995 and provides a vast range of changes in present construction regulation. The new law will come into force on 1 February 2014. Its wording determines and specifies a procedure for preliminary development sketch, design, responsibility and control, certification of construction specialists and issue of construction permits, classification of construction companies and scope of authority of state administrative institutions in the field of construction.
A new procedure for issue of construction permits
The main difference between the new and existing construction regulation lies in the fact that a construction permit or administrative deed with conditions on construction will be issued at the beginning of the construction process instead of the final stage, as occurred before. Issue of a construction permit itself does not give the right to launch construction works; it will only give the grounds and conditions for design drawings.
The new regulation prescribes that after issue of a construction permit, the regulations included in the construction permit shall be fulfilled ensuring development of the construction plan. Construction works can be performed only after the construction board has made a note in the construction permit that all the design conditions and conditions for launching construction works have been met and that the construction permit cannot be revoked any more.
APT and obligation to notify
As of next year, the construction board will no longer issue an architecture and planning task (APT). In future, an applicant for construction will apply to the construction board regarding a preliminary development sketch (būvniecības iecere) and provide other documents as laid down in regulations, whereof an institution or official appointed by the municipality will notify the general public within three days as of receipt of the application on the preliminary development sketch by publishing the information on the municipality’s home page and in the construction information system. The institution or official appointed by the municipality will notify the general public of a decision to issue or refuse a construction permit, as in the case of receiving the preliminary development sketch application. A construction permit or refusal to issue can be disputed or challenged under the procedure set in the Administrative Procedure Law within a month from the day given in the notification. The issuer of a construction permit can cancel it after it comes into force if the developer fails to observe the Construction Law and other regulations.
Upon receiving a construction permit, the developer must inform the general public within five days by placing a construction board on the site where construction permission is granted. The developer can also inform neighbours individually of having received a construction permit.
Challenging the construction permit does not suspend designing
Challenging or appealing a construction permit does not stop performance of designing conditions included in the construction permit. If the developer believes that the risk is minimal, the developer can continue designing during challenging or appealing of the construction permit. However, the new Construction Law does not provide for a more detailed explanation whether the interested third parties can challenge and appeal only against the decision of the construction board regarding issue of the construction permit, or also appeal against the note in the construction permit regarding performance of the conditions on designing and launching the construction works.
Deadline for municipal decision
Depending on the type of object, the new law sets three deadlines for the construction board to adopt a decision upon reviewing the application on the preliminary development sketch:
- to issue or refuse a construction permit – 1 month;
- to accept the preliminary development sketch by a note in the confirmation card or refuse to accept the sketch in a simplified procedure – 14 days;
- to accept the preliminary development sketch by a note in the explanations to the sketch or refuse to accept it – 7 days.
Construction principles
The new Construction Law is supplemented by a new section on five construction principles that regulate the construction industry. Those are: the principle of architectural quality, the principle of engineering quality, the principle of transparency, the principle of sustainable construction and the principle of an accessible environment.
Responsibility in construction
With regard to responsibility in construction, the regulation specifies who is responsible in the construction process and for what. For example, a land owner will be responsible for launching or performing construction works without a construction permit or before certain conditions are met, which should be noted in the construction permit, confirmation card or explanations. Likewise the land owner will be responsible for choosing the designer, contractor and supervisor. In turn, the designer will be responsible for compliance of the scope and content of the construction plan with the requirements of the developer and legal acts, as well as for author supervision. The law specifies also the responsibility of constructors, construction inspectors and construction experts.
The new regulation imposes additional obligations on the municipalities – to ensure accessibility of information in the construction information system and to inform the general public about the preliminary development sketch.
Further on, the municipality will have to prevent harmfulness of a building rather than organise or demolish a structure if the owner has failed to perform the municipality's decision to organise or demolish the harmful building.
Construction companies and construction specialists
The Law has been supplemented by a new section regarding classification of construction companies stating, to qualify for performance of construction works financed by the state, municipalities or the European Union, a construction company has to receive the classification document. Construction companies will be categorised by financial and economic indicators, technical criteria and professional experience.
The law introduces a new term “construction specialists” being architects and construction engineers, as well as includes requirements to enter the mentioned professions. Further on, a construction specialist's certificate will not expire, but it imposes a requirement to regularly increase the professional qualification. At present the certificates of construction practice or architect’s practice are granted for a period of time that does not exceed five years. The law specifies a transition period for persons with permanent rights of practice, if the person does not have the education stated in the law. Likewise the construction specialists’ definition, rights and obligations of the permanent practice are specified.
Adoption of regulatory enactments related to the Construction Law
For the new Construction Law to come into force, also other legal acts regulating a construction process must be adopted. The new law states that general construction regulations will be issued to determine processes that are common for all buildings and will not be regulated by the special construction regulations, that is:
- classification of buildings and division in groups depending on degree of construction complexity and potential effect on human life, health and environment;
- general procedure of the construction process depending on the respective building group;
- cases when engineering inspection must be performed;
- cases when the construction plan and its order of performance must be examined;
- cases when author supervision and construction supervision is required, as well as a procedure for the author and construction supervision and a procedure for drafting the plan of construction supervision and its content;
- procedure of the construction control and its conditions, as well as construction inspectors' rights and obligations;
- principles and documents providing basis to adopt the decision on organising or demolishing a building that has been fully or partially collapsed, is harmful or damages the landscape.
Development of the General Construction Regulations and Special Building Construction Regulations has been initiated, and these standards will be brought for approval this autumn.
The construction standards that must be re-issued together with coming into force of the new Construction Law are planned to be issued by 1 July 2014. It should be noted that the construction standards provide for technical requirements to be observed during construction designing, construction works or building inspection, and these requirements do not change by introduction of a new construction process. Of course, the construction standards should be reviewed by non-governmental organisations and specialists of the respective construction area because several construction standards have been issued a longer time ago and are morally out-dated, as well as do not comply with the present technical requirements and options.
Ģirts Rūda, Jūlija Verbicka
 Back to top
EXPECT MAJOR LIMITATIONS TO DIVIDED PROPERTY
To solve the present problems and minimise existence of the divided real estate, several draft laws have been reviewed at the Parliament.
Residential buildings cannot be built anymore on somebody else’s land
The draft law (available in Latvian) “Amendments to the law ‘On term and procedure of coming into force of the Introduction, parts of Inheritance Law and Property Law of the restored Civil Law of 1937 of the Republic of Latvia’” excludes the option to build residential buildings as independent objects of real estate on a land owned by other parties.
The already concluded agreements on land lease providing for construction of residential buildings as independent objects of real estate on the leased land will be governed according to the previous regulation, if a construction permit for construction of the building has been obtained before coming into force of the amendments.
Therefore in the case when a residential building is planned to be constructed as an independent real estate on a land owned by another party, the agreements must be concluded and the construction permits should be obtained by the end of this year because the new law is expected to come into force as of 1 January 2014.
To facilitate public-private partnership, as well as to ensure public needs, private parties will still be allowed to build residential buildings as independent objects of real estate on the land owned by the state or municipality within the scope of this partnership. Moreover, in a public-private partnership the land of the state or municipality will be transferred for a free-of-charge use, and the term of a partnership will not be limited by this draft law.
Developers will still have the option to construct non-residential buildings as independent objects of property rights on the land owned by other parties. Transaction parties should only take into account that they need to state in the lease agreement what happens to the constructed buildings when the concluded agreement expires.
Likewise it should be taken into account that the function of a non-residential building can be changed only after the building and the land are merged in a single real estate.
Construction right – new legal institute in the Civil Law
The draft law (available in Latvian) “Amendments to the Civil Law” provides for a new legal institute – construction right that operates in practice for twenty years already, but the lack of regulation causes significant legal and practical problems.
The construction right is provided to have the law-established right to construct and to obtain title to non-residential buildings and engineering constructions built on a land owned by another party. The construction right to be concluded on the basis of an agreement comes into force only after its registration in the Land Book.
As before, agreements on construction right shall be valid for more than ten years.
During operation of the construction rights, the person entitled to construction will be responsible for the land plot as its owner. The construction right can be alienated on the basis of law or the agreement. Constructions or buildings built under this procedure can be sold only together with the construction right. Moreover, after the sale, the responsibility towards the land owner does not expire. The previous and the new persons entitled to construction will be jointly and severally responsible. The practice will show how to register the alienation of construction rights in the Land Book.
After expiry of the construction right, the buildings and engineering structures built on the basis of this construction right will become an accessory of the land and the land owner’s property, therefore it should be initially agreed upon conclusion of the agreement on construction right regarding a procedure of transferring the construction right after expiry of the agreement, the payment amount and terms. Otherwise the title is transferred in compliance with the law without compensation.
It is expected that the construction right will facilitate companies’ options to construct non-residential buildings and engineering structures on the territories with limited options of land alienation, as well as facilitate public-private partnership.
At present both draft laws are accepted at the Parliament in the 1st reading. Their coming into force is expected in the beginning of 2014.
Ģirts Rūda, Lelde Laviņa
Back to top
MOST RECENT SUPREME COURT FINDINGS ON ISSUES OF RESIDENTIAL LEASE
Several cases of the Supreme Court have specified separate issues of residential lease decreasing the uncertainty between landlords and tenants.
In case SKC-177/2013 concerning terms of lease agreements, the Supreme Court has determined that a lease agreement with a fixed term can be turned into an agreement with an unlimited term only when both parties agree thereon especially. The court is authorised only to specify a new term, but it cannot change the character of the agreement from a fixed term to an unlimited term. Likewise where a regular term expires and parties fail to agree to continue lease relations, it should be considered that the lease relations are continued for a new term.
In turn, upon deciding a dispute on increasing a rent in case SKC-401/2012, the Supreme Court found that the landlord may not include planned but outstanding maintenance costs as the financial justification of increasing the rent. In the given case, the landlord sent the tenant a warning about increasing the rent and attached a financial justification for the following calendar year, indicating that the reason is the necessity of upkeep of the housing property and to perform the repair needed for the maintenance. The court indicated that a tenant may not be ordered to invest in the real estate owned by the landlord, and the financial substantiation should include only the incurred costs that the landlord can prove correspondingly.
Several buyers who have bought real estate at auctions organised by court bailiffs, have encountered tenants who appeared after the auction. Is the new acquirer obligated to search for the existing tenants? The case law (case SKC-46/2013) expresses an opinion that the tenant himself must be interested in notifying about the existing leasehold relations to the new owner in this case. A tenant may not claim that the new landlord violated the tenant's rights when the landlord uses his own real estate, if no circumstances have been established showing that a tenant resides in the real estate.
Ģirts Rūda
Back to top
LATEST DEALS IN REAL ESTATE AND CONSTRUCTION
VCA Baltic Retail Fund sells a top quality retail property in Riga
SORAINEN Latvia advised VCA Baltic Retail Fund, a Finland-based real estate investment and development fund managed by Vicus Capital Advisors, on the sale of a retail property in Riga, Latvia. The retail property is a top quality new building with lettable area of 11,600 m2 and 650 parking places.
The property is 100% leased on a long-term basis to Prisma, a subsidiary of the largest Finnish retailer S Group. It was sold to East Capital Baltic Property Fund II, a fund investing in commercial properties in the Baltic region.
By the deal size it is listed among Top 6 deals in the Baltics during the first six months of 2013.
The team was led by partner Eva Berlaus and senior associate Jānis Bite.
Embassy of the Kingdom of Norway sells its EUR 1.6 million worth Old Riga real estate
SORAINEN Latvia advised the Embassy of the Kingdom of Norway in Riga in the sale of a real estate it owns in the Old Riga for a total value of EUR 1.575 million. The real estate in the Old Riga consists of a land plot and a three-floor building. The Embassy has been using it since 1996. SORAINEN assisted the client by preparing purchase and brokerage agreements.
The client was consulted by partner Ģirts Rūda and senior associate Lelde Laviņa.
Vorbasse Hejnsvig Sparekasse deletes mortgage with a value of EUR 1.42 million
The SORAINEN Latvian office provided full assistance to Vorbasse Hejnsvig Sparekasse, a Danish saving bank, in connection with performed loan agreement and deletion of mortgages regarding 32 agricultural land properties in Latvia with a total mortgage value approx LVL 1 million (EUR 1.42 million).
The client was advised by partner Ģirts Rūda and senior associate Lelde Laviņa.
Hanzas Maiznīca moves its head office to new premises
SORAINEN Latvia advised Hanzas Maiznīca, a leading Latvian bread producer, in relation to the conclusion of a long-term lease agreement on office premises. The client moved its head office from its long-term location to new office premises in Riga.
The client was advised by partner Ģirts Rūda. |
