The Constitutional Court abolishes the 4% cap on land rent in cases of shared ownership. What does this mean? Read the article.
Let's start with what exactly is compulsory shared ownership? It is a legal situation in which the land and the structures on it are independent objects of ownership, or simply put - the land belongs to one owner and the structure to another.
For context, in cases where the owner of the flat and the owner of the land cannot agree on the rent of the plot, the compulsory ground rent in 2017 was set at 6% per year of the cadastral value of the land. In 2017, the Parliament adopted an amendment in its final reading, which provides for a gradual reduction of the compulsory land rent. In 2018, the Constitutional Court declared unconstitutional amendments to laws that reduced compulsory rent in divided estates from the beginning of the year. The Court ruled that the amendments would expire on 1 May 2019, a decision taken because the Constitutional Court did not consider that the Saeima had properly assessed the impact of the restriction on fundamental rights on the situation of landowners.
This decision in 2019 made the legislator think about how to solve the problem of shared ownership, which has persisted for more than 25 years. The problem is that properties are increasingly being divided, leading to disputes over high rents, and the Constitutional Court has now ruled that the rent payable to a landowner cannot be forcibly reduced. The Saeima had two possible options - whether to expropriate the land compulsorily or whether it should be bought back by the state. So in 2019, the Ministry of Justice drafted a law that set a "ceiling" on compulsory leases at 4% of the cadastral value, previously they ranged from 1.65% of the cadastral value up to 9%. In 2021, the Parliament approved a reform of compulsory leasehold which set a fixed land use charge of 4% per year of the cadastral value of the land for all cases of compulsory shared ownership. Thus, the rent previously fixed by agreement between landowners and building owners or by court judgment was no longer valid.
Thus, following applications by a number of individuals owning land or dominant interests in land, the Constitutional Court initiated 9 cases, which were consolidated into a single case. One of the contested norms concerns the above-mentioned 4%. The fee - 4% of the cadastral value of the land - consists of two components, one of 1.5% of the cadastral value being the land tax, and the other of 2.5% being the remuneration or income from the property. In May this year, the court declared this provision on land use charges unconstitutional. "The Constitutional Court found that when cadastral values change, the amount of the payment also changes. The cadastral value base is frozen at the value of the real estate that existed in 2012. It is obvious that the economic situation has changed, especially in recent times, when inflation percentages are a well-known fact. The Constitutional Court concluded that the 2.5%, which as a result was allocated as compensation to landowners, did not fulfil the function of compensation," explained Aldis Laviņš, President of the Constitutional Court. The unconstitutional norms were declared null and void as of 1 July 2024. According to the State Cadastre Information System for Real Estate, 206 000 buildings and around 70 000 land units are under shared ownership.
🔴What does this really mean? Until 1 July 2024, landowners cannot ask for more than the nationally regulated 4% in rent, but after that date landowners will be able to set their own rent, unless the Parliament (which is tasked with this duty) drafts a new law before then to regulate this and fairly balance the rights of landowners and owners of structures.
Thus, when buying, for example, an apartment for which you do not own the land, you have to take into account the land rent, so always check the status of the land before you buy. But if you work with us, you don't have to worry about that because we will find that out for you and many other important things and then report back to you so you can save time and make an informed decision!
📌 For all the information on the Constitutional Court's decision, visit LSM -
https://www.lsm.lv/raksts/zinas/ekonomika/02.05.2023-satversmes-tiesa-atcel-4-zemes-nomas-maksas-griestus-dalita-ipasuma-gadijumos.a507122/
