COBALT Real Estate and Project Development News in the Baltics
During the last few months number of laws and regulations have been passed in the Baltic region which have an impact on construction processes, investment in real estate and project development. Below is our summary of the most significant developments in each country.
In January 2021, amendments to provisions of the Law of Obligations Act regarding lease agreements took effect. The new law clarifies landlord’s termination right in case of transfer of a leased property in enforcement or bankruptcy proceedings, allows to agree on a compensation by tenant to cover normal wear and tear, allows limited contractual penalties on the tenant and allows the landlord to charge wider range of accessory expenses. Unfortunately, several pressing issues in respect of tenancy relationships remained unresolved, such as need for more efficient rights of the landlord in evicting the tenant and the landlord’s right to claim pre-agreed contractual penalty upon early termination of the lease.
Assessment of land
The Estonian Land Board is developing a new land valuation methodology on the basis of which the next land assessment will be carried out. The results of the valuation shall be made public in 2022 and new values will be applicable as the basis for assessing land tax as from 2024. According to the forecasts, the market value of the land has increased on average 7 times as compared to the last regular assessment from 2001. However, the law provides for mitigation mechanisms to prevent the exponential impact of the assessment on land tax and railway infrastructure charges.
Proposed amendments to the Rural Development and Agricultural Market Regulation Act
The Estonian Ministry of Rural Affairs has presented a proposal to regulate the use of valuable agricultural land. According to the draft legislation, agricultural land could be used only for its intended purpose. For instance, the amendments provide that the right to construct a new building on valuable agricultural land or expand an existing building onto agricultural land is limited. The proposed restrictions on using the agricultural land would primarily influence developers who wish to use the profit yielding land for purposes other than agricultural use.
Overhaul of the Residential Tenancy Law
New Residential Tenancy Law entered into force on 1 May 2021. The law introduces an obligation to conclude tenancy agreements with fixed end dates. Their corroboration shall be free of charge, and the entries automatically cease on the fixed end date without involvement of the parties. The corroborated agreements shall be subject to procedure of undisputed enforcement of obligations, thus significantly easing process of recovery of tenancy debts and eviction of debtors.
Amendments to the Construction Law
The latest amendments to the Construction Law become effective in the second part of May 2021. The most significant changes concern permit appeal process. Namely, neither appeal of a decision by the authority to uphold an earlier decision (f.e. to issue a building permit), nor appeal of a note on completion of construction commencement conditions, shall suspend operation of the building permits. The developer will be entitled to proceed at its own risk.
Green Corridor for Large Projects at the Riga City Development Department
As of November 2020, a Green Corridor has been instituted at the Riga City Development Department for qualifying development projects in order to ensure more speedy advancement of the largest projects. The Green Corridor procedures allow to apply for preliminary review of parts of the design, provide for shorter documentation review periods and entitle to an appointment of a designated project manager at the Development Department to deal with the particular developer’s issues.
A new General Plan of Vilnius
The approval of the General Plan of Vilnius on 2 June 2021 is a significant event for real estate developers. The plan provides long-awaited clarity and eliminates the highly unfavorable practice of the decisions related to new projects being influenced by subjective decisions by the municipality.
Green Corridor for Large Projects
The new package of laws (enacted in 2020) offers tax incentives for large-scale investment projects that meet the requirements of investing at least €20 million (€30 million when investing in Vilnius) and creating at least 150 new full-time jobs (200 when investing in Vilnius). Qualifying investments in manufacturing, data processing and internet server hosting services will enjoy 0% corporate income tax for up to 20 years.
Amendments to the Land Law
The amendments will take effect on 1 November 2021. They will expand the scope of rights of the state to acquire land for public needs. Going forward, the land for public needs can be acquired “for the creation and management of public individual green areas in cities, towns and resorts to meet the requirements of public individual green areas”.
More significant amendments to the Land Law are currently pending before the legislator, with the purpose to change the procedures for (i) terminating the state land lease agreements, (ii) altering the main purpose and method of use of leased state-owned land plots and determination of the remuneration for it, and (iii) permitting construction of new buildings and (or) reconstruction of existing buildings on the state-owned land plots.