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Legal Environment

GENERAL INFORMATION

Legal restrictions on ownership of real estate (interests in entities which own real estate) by particular persons

A foreigner willing to acquire the land into ownership must comply with the criteria of European and Transatlantic Integration. To meat the said criteria a legal person is required to be established in, or a natural person is required to hold the citizenship or a permanent residency of, one of the below listed states:

  • a Member State of the European Union or a state that is a party to the European Treaty (Association Agreement) with the European Communities and their Member States;
  • a Member State of the Organisation for Economic Co-operation and Development (OECD), a Member State of the North Atlantic Treaty Organisation (NATO) or a Member State of the Agreement on the European Economic Area.

In addition, the land may also be acquired into ownership by the non-Lithuanian citizens having permanent residence in Lithuania.

With certain minor exceptions, even when complying with the above-described criteria, the foreigners are not allowed to acquire agricultural and forestry land into their ownership until 1 May 2011 (i.e. until expiry of 7-year transitional period after Lithuania’s accession to the EU).

There are no restrictions imposed on foreign investors (irrespective of their origin) to acquire interests in Lithuania-based entities which own real estate.


Real estate (its ownership) registration

With certain minor exceptions, any kind of real estate, the ownership of real estate, rights in rem, such as mortgage, servitude, usufruct, etc., as well as legal facts, e.g. attachments, lawsuits, transactions related to real estate or restriction of rights thereto, are registered with the Real Estate Register. Only legally registered real estate may be sold or otherwise disposed of.


Can a legal owner lose the title to real estate due to restitution claims?

A person having become a legal owner of any type of real estate can not lose it due to restitution claims. Real estate that has been acquired into private ownership is not subject to in kind restitution and thus may not be returned to former owners. The State is obliged to redeem such real estate from the former owner.

Acquiring Real Estate

Are pre-acquisition agreements commonly used in Lithuanian jurisdiction?

Pre-acquisition (preliminary) agreements are quite common in Lithuania. Their content may vary from a very general (deadlines for due diligence and execution of the main sale-purchase agreement) to a very detailed (providing for the preconditions for closing, calculation of a purchase price, reps & warranties, elaborated termination and liability clauses, etc.).


However, preliminary agreements (letters of intent, heads of terms, etc.) may not be enforced in kind. For instance, if a seller refuses to sell property subject to a preliminary agreement (breaches the same), a buyer will only be entitled to claim damages caused by such refusal as well as a contractual fine if the latter is set forth in the agreement.
Under certain circumstances, a preliminary agreement may be recognised by the court as constituting the main sale and purchase agreement.
 

Formal requirements for the real estate sale and purchase

Any real estate which is subject to sale and purchase agreement must be registered with the Real Estate Register (except for some simple structures which are not subject to mandatory registration).


Every agreement on transfer/acquisition of any kind of real estate must be concluded in written form and certified by a notary public.


Although a real estate sale and purchase agreement is not subject to compulsory registration with the Real Estate Register, in case of absence of such registration the agreement may not be invoked (enforced) against third persons.


Does any third person (governmental authority, etc.) have a pre-emptive right to acquire real estate subject to a sale?

First of all, the co-owners have a pre-emptive right to acquire the parts of real estate owned and intended to be sold by another co-owner. In case of violation of this rule, the aggrieved co-owner has a right to demand, through the judicial procedure, the transfer of the buyer’s rights and obligations under the sale and purchase agreement to him.


The State has a pre-emption right in respect of the land plots that fall within the boundaries of certain protected territories (e.g. the territories that have been granted the status of Natura 2000, also certain areas of national parks, etc.). Nevertheless, the price to be paid by the State for the said land plot cannot exceed the average market value of the land plot determined through mass valuation, which normally is considerably lower than the actual market value of the land plot.


The pre-emptive right to acquire privately owned land plot is granted to a person holding a title to the structures or facilities on such land plot.

Certain qualified farmers or users of agricultural land have the pre-emptive right to acquire it into ownership.


The moment of acquisition of title to real estate

The title to real estate passes over as of the moment of its transfer, which has to be documented by a transfer-acceptance deed to be executed by the parties in addition to the main agreement (sale and purchase, exchange agreement, etc.). Upon agreement of the parties, the agreement itself may serve as a transfer-acceptance deed (in the latter case no separate transfer-acceptance deed has to be executed).


Seller’s warranties v.s. buyer’s due diligence: what is the common practice?

Despite various due diligence carried out in the course of real estate investment, the buyer (either in case of a share or asset deal) seeks to have full set of reps & warranties in the real estate sale and purchase agreement. The seller, in its turn, seeks to limit the scope of reps & warranties by the facts disclosed to the buyer during the due diligence (i.e. the facts that the purchaser should have been aware of as a result of due diligence).


The seller is bound by a statutory obligation to disclose to the buyer all third person rights, mortgages, attachments and other encumbrances in respect to a real estate subject to a sale. If the seller fails to comply with the latter obligation and is not able to prove the buyer being aware of respective encumbrances, the buyer becomes entitle to claim for the reduction of a purchase price or termination of the sale and purchase agreement.


The buyer cannot rely on the encumbrances over real estate and invoke remedy measures against the seller if the buyer could have learned of such encumbrances from the public registers (such as Real Estate Register, Hypothec Register, Register of Attachments).


The effect of transfer of real estate on contractual and other rights, obligations and warranties. Do these pass over along with the title to real estate?

Generally only the agreements that have been registered with the Real Estate Register will remain effective upon sale of real estate. Any other agreement will have no effect on the buyer.


Transfer of statutory warranties (e.g. construction warranties) is normally documented by additional statement in a sale and purchase agreement or a transfer-acceptance deed declaring the transfer of all the seller’s rights under such warranties to the buyer. The guarantees issued to the seller by third persons (e.g. bank guarantees, guarantee letters of insurance companies, etc.) normally should be reissued in the name of a new owner (or additional statement among the guarantor, former owner and the new owner should be executed).

Lease of Real Estate

Formal requirements for the execution of lease (form, registration, etc.)

Any real estate lease must be executed in written form.


Any agreement on lease of buildings, structures or land has to be registered with the Real Estate Register in order to be enforceable against third parties. The same requirement is applied to the lease of other real estate when the lease term exceeds 1 year.


Statutory restrictions limiting the maximum term of a lease

In general, the maximum term of any lease may not exceed 100 years. Special rules are applied to the lease term of the State-owned land: it can not exceed 25 years for the State-owned agricultural land and 99 years for any other State-owned land.


Tenant’s statutory right to renew its lease

A tenant having duly performed its obligations during validity of a lease, upon its expiry has a priority right against third parties to renew the lease for a new term (of course, if a landlord intends to further lease the property).
A landlord is obliged to inform a tenant of its right to renew the lease prior to its expiry.


Rent and its adjustment: statutory restrictions on amount of rent. General market practise

Generally, there are no such restrictions. Nevertheless, all transactions between related parties should be effected based on the arm’s length principle. This means that transactions between related parties should be made under such (market) conditions (including rent) as if the parties to the transaction were not related.


The rent charged for the State-owned land which has been leased without an auction procedure is calculated based on the fixed tariffs. These may vary depending on the location of land and some other aspects.

Usually, rent is established as a fixed fee payable on a monthly (rarely on a quarterly) basis in advance. Establishment of the rent as a percentage of the tenant’s turnover is characteristic to shopping centres. In addition to the turnover rent a minimum fixed rent is usually set forth in order to secure the landlord’s interest if the tenant’s turnover does not reach the expected level.

In case the rent is established in a national currency (Litas), it is quite often pegged to Euro. Normally, the rent is adjusted annually based on the local or EU consumer price index.


Alienation: rights of tenant and landlord with respect to assignment, sub-letting or placing a charge over a lease

Typically, the following alienation rules are applied:

  • a landlord is free to sell the leased property, also pledge receivables from the lease or assign the landlord’s rights to them;
  • a tenant has to obtain a prior written consent of a landlord for:
    (i)subleasing of the property to third person (in office sector exceptions from this rule are frequently applied for the sublease to related persons (parent, sister companies, etc.);
  • (ii)pledging or otherwise encumbering the lease right;

except for the above-mentioned, neither party has a right to assign all or any part of its rights and/or obligations under the agreement to any third person without a prior written consent of the other party.


The common form of eviction of tenant

Generally, a landlord seeking eviction of a tenant has to apply to court. If the tenant fails or refuses to vacate premises after adoption of the final decision in favour of the landlord, the latter will need to apply to a bailiff for enforcement of the court decision.


Restrictions on the transfer of title to or creation of a lien on real estate subject to lease

A landlord is free to sell or otherwise transfer or encumber the leased property, unless otherwise set out in the lease agreement. A landlord must, nevertheless, disclose to tenants the intended sale or other transfer of leased property.


The transfer of real estate affection to the tenant’s rights and obligations

Tenants have a statutory right to unilaterally terminate any lease in case of change of the owner. Further, upon change of the owner of real estate, its lease agreements will remain valid provided they have been registered with the Real Estate Register.

Construction

General stages of construction (development) process, including permits involved

  • Territorial planning. Usually, it is necessary to prepare respective detailed plan of the site establishing particular requirements for the construction works (density and intensity of construction, the maximum allowed height of the structures, etc.).
  • Environmental impact assessment will need to be carried out if the planned constructions fall within the list of particular activities established by the laws.
  • Design of a building is prepared in accordance with the design conditions (planning permit) issued by a local municipality. For certain buildings the expertise of the design should be carried out.
  • Construction permit must be issued within 10 to 15 days from application and is valid for 10 years. The construction permit becomes null and void if construction works have not been started within 3 years or the structures concerned have not been built and recognised as suitable for use within 10 years after the construction permit was issued.
  • Construction works. In the process of construction works, design, technical and State supervision is performed.
  • Occupancy permit. A newly constructed or reconstructed building or a building after its major repairs can be operated only after recognition of the building as suitable for use by the State commission, which recognition results in issuance of the occupancy permit for the building.