Guide to buying property in Latvia
May 29, 2020
The legal part to any real estate purchase transaction is as important as the presence and technical condition of the property you are willing to acquire. A regular property purchase transaction in Latvia will normally consist of the following stages:
In complex cases a few more stages may be added to the above list. For instance, in a case where the property is held as a security by third parties or it is being acquired with the use of a loan, or where the parties wish to enter into an earnest money agreement (deposit). The earnest money agreement or a deposit is normally used in cases where the performance of the transaction cannot be carried out immediately. For that purpose the buyer deposits a certain amount of the purchase price to secure that the transaction will be performed.
1. Search for the property
This step requires understanding of the legal status of a particular property. In the case with an apartment building the buyer needs to ascertain whether he or she buys the apartment in the form of a separate residential property or in the form of a share in the undivided joint property. If the apartment building was partitioned into separate residential properties, then the buyer gets the apartment as a separate property. However, there are many buildings in Latvia, which have not been partitioned, also among the so called new buildings. In the latter case the buyer becomes a co-owner of a share of the apartment building. Owning an apartment in the form of a share in a joint property has a number of disadvantages and associated risks, of which the buyer is recommended to become aware before entering into such a transaction.
Another common problem is the unauthorized reconstruction (lack of permission at the Latvian building authority). In case of any suspicions that there may have been reconstruction works carried out in the apartment, the buyer should request the seller to produce the documents confirming that all works have been performed in accordance with the law and all necessary approvals have been obtained. The correspondence of the cadastral survey file with the actual layout of the apartment does not necessarily mean that the reconstruction works were authorized by the local building authority in Latvia. If the reconstruction was not approved, the consequences of unauthorized works may become the responsibility of the new owner after purchase. Worth mentioning that in some cases certain reconstruction works within the apartment may require the permission of the owners of other apartments in the building, which may be impossible to obtain.
When buying a house or land it pays to take a look into the spatial development plan of the city or area in question in order to understand the local construction conditions and type of use of the neighboring land plots.
2. Negotiating and signing the purchase contract
The property purchase transaction consists of a number of consequent steps. Failure to perform by one of the parties of the obligations related to a particular step may lead to disagreements and the termination of the transaction. Disputes will be heard through interpreting the terms and conditions of the purchase contract to which the parties at times do not pay proper attention. It is important, therefore, that the purchase contract takes account of your interests and possible risks.
Some of the important clauses to pay attention to are the termination conditions and the procedure for the payment of the purchase price. As for the payment procedure one needs to keep in mind that the registration of the buyer’s ownership right does not happen simultaneously with signing of the purchase contract. So should the purchase price be paid before or after the registration of ownership right? To protect both the buyer and the seller an escrow account opened at any Latvian bank or Latvian notary deposit can be used. Latvian non-residents who do not have a bank account with any Latvian bank should consider this well in advance because the opening of the escrow account may get delayed due to lengthy anti-money laundering checks.
At this stage of the transaction the parties also sign a notarial request to register the ownership rights of the buyer with the land book (property register) in Latvia.
3. Ownership registration
As soon as the purchase contract and notarial request is signed, these documents can be submitted to the land book. A state fee is payable for the registration of the ownership in the amount of 2% of the purchase price (in some specific cases the amount of the state fee can be lower). Full list of documents required for submission will depend on the circumstances of a particular transaction. For instance, a permission to sell may be required from the spouse of the seller.
According to Latvian laws the owner of the property is one who is registered as such with the land book. However, the registration of the buyer’s ownership may take up to 10 days of the moment of filing. As long as the buyer is not registered as the new owner he is not considered as such and, therefore, may only claim for the contract to be performed. This is the main reason why it is important to set the proper payment procedure or use an escrow account. Within the said 10 days some circumstances may arise making the registration of the buyer’s ownership impossible. If the buyer has transferred the full price to the seller before his/her ownership is registered, then it may be too complicated or even impossible to recover the money from a dishonest seller. But if an escrow account was used and buyer’s ownership was not registered for some reason, then the bank simply returns the purchase price to the buyer.
4. Closing – handing over the keys
At closing the seller actually hands over the property to the buyer together with the keys to the property and all associated paperwork. At this stage the parties acknowledge the meter readings for utilities and also any defects which could have been done to the property during the period of transaction. Any such defects shall be specified in a so called delivery and acceptance document which is signed at closing. Up until the closing of the transaction the seller must keep the sold property with greatest care until the delivery of the property and, therefore, is liable for the consequences of any negligence.
Belyaev & Belyaev is a full service Latvian law firm also specializing in the area of real estate law with experience in performing real estate transactions of different complexity. If you require help with real estate purchase or sale, please feel free to contact our firm through the form below or by email.
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