Winds of change for builders on leased land

Latvia: Construction of non-residential buildings only will be allowed on land in Latvia belonging to another person from 2017

Under a basic and historical (1937) principle of Latvian civil law, a building erected on land is recognised as part of the land. In legal terms, the idea behind the principle is that the owner of land owns buildings attached to the land. However, an exception to the rule was made in 1997 in order to produce a solution for complicated ownership renewals and related situations. In particular, according to that exception, any building erected on leased land could be acknowledged as a separate ownership object during the term of the lease. Intended as an exception, separate ownership of land and buildings has become a widespread practice, thereby raising several problems, for example, the issue of who a residential building belongs to after a land lease agreement expires.

In order to reduce the scope of those problems in future, laws have been amended this spring so that only non-residential buildings will be allowed to be built on another person’s land from 2017. This will eliminate separate ownership of residential buildings being built in future.

In addition, the amendments stipulate detailed rules on the rights of those who seek separate ownership of future non-residential buildings. In particular, there is an explicit rule that after expiry of a land lease agreement a non-residential building or engineering structure becomes an essential part of the land, and accordingly the owner of the land acquires it without compensation, unless compensation was explicitly agreed.

Under transitional provisions for the changes, lease agreements concluded (and related construction permits received) before 2017 are subject to the current rules. Nevertheless, it is important to remember to include an explicit provision in the agreement regarding ownership of the building after expiry of the lease.

Source:Latvian Civil Law

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