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Changes in Real Estate law: higher lease fees, but no more cash transactions

Latvia’s constitutional court brings back higher lease fees for real estate owners – but cash payments in real estate transactions are banned.

As an exception to the principle that land and the buildings erected on it belong to the same person, Latvian law foresees the unusual possibility that the owner of a building or an apartment and the owner of the land on which it stands can be two different persons. The building owner, however, must pay a compulsory lease fee to the owner of the land plot.
This peculiarity originates from land restitutions to former owners after the republic regained its independence. The issue of the compulsory lease/fee has been a cause for a number of long-lasting conflicts between landowners and building owners. In 2017, the Latvian parliament addressed this issue, adopting a gradual reduction in the lease fee rate: 5 % of the cadastral land value in 2018, 4 % in 2019 and 3 % in 2020, in cases where the parties cannot agree on a lease fee rate.
On the one hand, apartment and building owners are protected by law from excessive lease fee rates. On the other hand, the landowner neither has the right to freely decide and choose the tenant, nor the possibility to claim a lease fee at his discretion. In particular, according to critics, the contested norms did not provide a balanced legal relationship between landowners and building owners.
In April 2018, the Latvian Constitutional Court decided that the rate reduction violates the fundamental right to property and that the amendments will expire on 1 May 2019. The compulsory lease fee will again amount to 6 % of the cadastral value.
Moreover, starting from 1 May 2019, transactions involving immovable property can no longer be for cash. Before recent changes to the law on Taxes and Duties, cash transactions up to € 7 200 were permitted. Real estate transactions before 1 May 2019 which are to be fully or partially executed in cash will be subject to the regulations on non-cash transactions as of 1 January 2020. The Law on Taxes and Duties has been amended in order to avoid the risk of fictitious and fraudulent activities, as well as in the Government’s fight against money laundering.