Real estate acquisition
Real estates as individual subjects may be divided into following groups:
- land plots;
- apartments;
- buildings.
The Land Book which nowadays is also available electronically holds records also on encumbrances, mortgages and contain of the real estate.
Step-by-step process on acquiring real estate in Latvia by private individual or legal entity
Title to the real estate is handed over by signing the private transaction (for example purchase agreement), however a person may be regarded as fully rightful owner of the real estate by registering ownership in official registry – the Land Book. Only the owner of the real estate registered in the Land Book will be granted with all rights of true title holder – such as selling, mortgaging rights etc.
In order to change any record of the Land Book or to register a new owner, persons must visit notary public, presenting concluded transaction and sign special application addressed to the Land Book. The Land Book official is reviewing the transaction and application and within 10 days adopts a decision on registering or refusing to register requested record. In order to register new records in the Land Book state fee payments must be paid.
It must be noted that there are some cases when specific type of real estate requires particular procedure to be performed prior to acquisition of real estate (in case of alienation of whole building, municipality has to be informed and may use pre-emptive rights, if an ideal parts are alienated then other joint owners will have pre-emptive rights, if state monuments or objects in natural parks are alienated then the state has to be offered with rights of prior purchase) or even some types of real estate may not be acquired by foreigners non-EU residents (specific preserved natural areas, agricultural areas). In order to avoid risks connected to planned transaction it is a common practice to order simple due diligence of a lawyer to be performed and examining specific real estate and possible restrictions/ procedures to be observed.
It must be noted that in case of real estate transactions and relevant purchase price payment it is a common practice to secure the transactions for both parties to use an escrow account. The buyer transfers purchase price to an escrow account, then the real estate is re-registered in acquirer’s name and only after the registration the seller is entitled to receive the purchase price. If the registration fails to be finalized, then the purchase price is returned to the buyer. The same procedure as with escrow account organized by the bank may be done with assistance of notary public. In this respect it shall be mentioned that due to the strict AML requirements – foreign buyer will have to provide clear evidence on source of funds to be used for a purchase price.
If the parties decide not to secure transaction as described either the seller undertakes a full risk to register real estate on acquirer’s name without guarantee of receiving the price or the buyers undertakes full risk of paying full purchase price without guarantee that the real estate will be registered on its name. From legal point of view – this is a tough and time-consuming process, to claim back money or real estate if one of the abovementioned risks occur. Real estate transactions without having escrow account or notary’s services for transferring purchase price once registration is done in practice are concluded between trusties and relatives in transactions where identified risks are not expected.
Pursuant to practice in real estate acquisitions, we may identify following steps that are commonly taken:
- Due diligence of real estate to confirm that the real estate may be acquired without restrictions or special procedures;
- Receiving approvals for transaction from secured creditor (if the real estate has been mortgaged by previous owner);
- Drafting purchase agreement, negotiating stage;
- Signing purchase agreement, escrow account agreement or agreement with notary on purchase price payment as registration is done;
- Offering priority rights to third persons to be executed within one month if such are applied to the particular transaction (municipality whole building is alienated, state – alienation of property in preserved areas, other owner if ideal parts of joint property is alienated) – please note that there will be no priority rights in selling apartments, and state usually is not using priority rights if buildings are sold and provides refusal within 5-10 days;
- Payment of purchase price into escrow account or notary’s account;
- Signing applications for Land Book in notary’s office requesting to register title of the buyer, submitting application to the Land Book, payment of state fee (fee rates in section 3.2.), a spouse of seller shall approve the transaction as well;
- Receiving Land Book certificate (10 days after requests are filed in the Land Book) and purchase price payment to seller.
Please note that above-mentioned stages are only general and most common as there might be some specifics of the transactions or real estate slightly changing the description. If a buyer is attracting financing to the purchase, then the creditor will ask for mortgage to be registered simultaneously with registration of the title in favor of the new owner. If the seller has mortgaged the real estate due to received financing, then secured creditor will allow alienation only by concluding a tripartite agreement where part of the purchase price from escrow account will be paid for covering remaining credit.
As observed in real estate transactions the most simple and rapid transactions are when separate apartments are sold. However, there also might be a case when apartments despite the fact that they may be separately used and are technically divided are not separated and regarded as separate apartments from legal point of view. In such case each apartment of the house is regarded as ideal parts and each person owning the parts are joint owner of the house itself. In such case the real estate acquisition may be longer and more complicated.