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Dear clients and cooperation partners,
As the heading suggests, case law has been supplemented by a significant judgment in case No SKC-102/2016 (Judgment (in Latvian)), adopted by the Civil Cases Department of the Latvian Supreme Court (Senate) on how to set fair compensation for properties compulsorily purchased by law.
The judgment deals with a case where the Latvian Ministry of Finance (FM) wanted to acquire a property for the needs of the Terehova border control point. The FM offered to purchase the property for LVL 9,000 (EUR 12,805.85). However, the seller did not agree because he thought that the property was worth at least LVL 59,000 (EUR 83,949.44). Both values were justified by evaluations from certified valuers. As a result, the parties went to court to seek a solution. The Court-appointed valuers gave a significantly lower (approx. 90 times lower) value to the property to be sold. As a result, the court of second instance set the sale price at LVL 5,500 (EUR 7,825.79). However, the FM did not agree and submitted a cassation claim. The claim served as a basis for the Judgment.
Compensation was fixed at LVL 5,500 (EUR 7,825.79) because the owner of the property under compulsory purchase failed to challenge it. According to the findings of the Judgment, the owner had a legitimate expectation of receiving compensation not less than the amount initially offered by the FM (namely, LVL 9,000). This conclusion is rooted in the first finding below stressed by the Senate, which explains why the Judgment should be considered a significant addition to case law on setting fair compensation in cases of compulsory purchase of property. That is, the Senate determined that:
- An institution (FM) that has set and offered fair compensation cannot later withdraw from this promise to the detriment of the private party. This means that the seller can rely on the initial offer from the institution and in fact, as long as the seller acts in good faith (that is, reasonably considers that the property could be more valuable), the potential compulsory purchase litigation could include decreased risks for the seller (for example, it is not likely that the property would be sold at a lower price) because the institution would be “bound” by its offer. An exception – significant circumstances that the institution could objectively have been unaware of due to the owner’s behaviour, such as, for example, false data provided by the seller.
- On offering fair compensation, the institution does not need to act as a buyer in the real estate market – in relation to the particular case, this finding should be interpreted as a criticism of the FM because the latter refused to conclude a settlement with the property owner for LVL 9,000, as it considered that the property could have been obtained for less. This finding imposes an obligation on institutions that perform compulsory purchase. They have to ensure proportionality between state and private interests to achieve a fair result.
- Compulsory purchase procedure is fair if it does not cause material damage to the owner – this finding was used to substantiate why the litigation costs have to be covered by the claimant (FM), although it won the case (the property was compulsorily purchased). Again, keeping in mind the principle of good faith that needs to be observed by the owner of property under sale would strengthen the idea that litigation involves fewer risks for the defendant (owner of the property) than for the claimant (the institution that undertakes the compulsory purchase).
To summarise, we can conclude that the Judgment repeatedly emphasises the need of an institution that performs compulsory purchase for public needs to carefully assess the circumstances of each case and to offer the maximum fair compensation to the owner of the property to be sold.
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