The real estate market in all three Baltic States is closely related and, although the legal systems vary a bit, buyers face the same or similar issues. Although important details concerning the purchase of real estate are brought forth in the sale contract drawn up by a notary (in Estonia and Lithuania) or attorney at law (in Latvia), in practice various nuances still tend to be left unattended.
The quality of real estate sale contracts depends directly on the knowledge of the buyer and the buyer’s ability to ask the right questions, and where necessary, fixing these questions in the agreements. Often, the parties agree on the content of some clauses of the contract at the time of concluding the transaction, but vague wording can lead to disputes in the future. It is, therefore, advisable to entrust the negotiations of the terms of the purchase contract to an experienced and professional lawyer.
Recommendations for real estate buyers vary depending on the targeted property. For example, if you buy a land plot with the intention of erecting a building, it is very important to investigate construction possibilities. If you want to buy a newly built apartment or house, construction quality, building, and registration completion are important. Different nuances should also be taken into account if you buy a property for your individual needs, as opposed to commercial purposes.
Nonetheless, in this article we aim to name the 12 most important aspects for buyers that need to be taken into consideration before executing a real estate purchase contract:
1) First of all, investigate public registers to find out all possible information on real estate encumbrances, mortgages, servitude rights, agreements on usage order of the property, co-owners (i.e., anything that may apply to you as a new owner);
2) It is always necessary to look into the territory plans of the property and its surroundings, such as municipality general plans, detail plans, and others. There you can find information on the possible usage of the property, new construction possibilities, building intensity, whether it is possible to split the land plot, how tall can the building or surrounding buildings be built, etc. Territory planning documents also give information on new roads, other infrastructure, or demolition plans in the neighborhood for the next few years. If, for example, it’s expected that certain nearby land will be acquired for public needs, it’s likely that certain public services will be provided in that area;
3) Take a look at the envisaged or existing transport and infrastructure schemes to find out about possible problems in reaching the plot or building, and pay attention to the availability of electricity, water, sewerage, gas, and other necessary infrastructure;
4) If you buy a land plot, you should always check the state registers concerning ecological and other buffer zones (e.g. water, forest, infrastructure protection zones, biological reserves, etc.), and thoroughly analyze their content and influence on the property itself. For example, an ecological reserve can prohibit setting up a local sewage treatment system, and, therefore, the water supply can be restricted in some places. In most cases, these restrictions may include the prohibition to build or excavate, logging prohibitions, etc. One should also be cautious about protected birds and animals who might inhabit the area of the property (i.e. forest land), and make sure to analyze the concrete restrictions concerning their breeding;
5) Investigate what the intended use of the nearby property is, as this can have a direct influence on the price of real estate. For example, for someone who is in search of a peaceful environment, a restaurant, nightclub, or a pub in a neighboring building can be a major problem. A new factory construction next to the village can be an unpleasant surprise for newcomers. At the same time, establishing a new mall, parking house, or a commercial building can, conversely, raise the value of certain existing property;
6) If a property is bought for commercial use, it is important to find out about the neighbors’ plans and how likely is it to have a competitor next door;
7) In case of purchase of a building or other built property, use the opportunity to invite construction experts to determine its technical condition. Buyers pay more and more attention to heating, conditioning, recuperation systems, as well as on sustainability, eco-friendly solutions, comfort level, etc. All these technical conditions of the property can be examined by experts. If it is not possible to investigate certain parts or qualities of the property, such as laid infrastructure lines, or fully checking heating systems in summer, always ask the seller to state in the contract that everything is built following all legal requirements and is suitable for use;
8) There are many examples when a property is built in former manufacturing areas, therefore, it is important to investigate if all dangerous substances have been cleaned from the area and to include provisions on the seller’s liability in case it turns out that some dangerous substances are left, and the property needs cleaning;
9) When buying a property with a sea or forest view, it is important to confirm how many other registered land plots there are between the sea or forest and the property to be purchased, and what is permitted to be built on them;
10) Although utility expenses might seem irrelevant to consider at first, in reality, the conditions and prices of utilities differ significantly in different municipalities and for different properties;
11) In Latvia, as a result of privatization processes, there are properties where the buildings are built on land owned by another person. Most often in such cases, there is a ‘forced lease relationship’ between the owners of the land and those of the building. This can lead to disputes regarding the terms of the lease and other aspects. Therefore, it is advised to clarify the ownership of the land before purchasing the building. Take into account that in some situations where land is separated from the building the owner of the building can lose their rights to the real estate in favor of the land plot owner;
12) In Latvia and Lithuania, never underestimate the importance of the preliminary agreement. Many make the mistake of thinking that everything can be renegotiated when signing the main agreement in the notary office. The seller can legally argue that what was agreed in the preliminary agreement should go into the main contract. This is not as relevant in Estonia, where even preliminary agreements have to be notarized.
It is useful to take the time to examine all the above-mentioned nuances or include experts who will do it for you. This will save you time and any expenses incurred from possible future disputes.
Finally, to find out what construction is being planned or performed nearby, check the website www.citify.eu, which provides information on real estate projects under development in Riga, Tallinn, Vilnius, Kaunas, and Klaipeda.
By Marge Manniko, Managing Partner and Head of Real Estate and Construction, Lextal Estonia, Jolanta Liukaitye-Stoniene, Partner and Head of Real Estate and Construction, Ilaw Lextal Lithuania, and Janis Esenvalds, Managing Partner and Head of Real Estate and Construction, RER Lextal
This Article was originally published in Issue 8.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.