Real Estate in Lithuania

These are the highlights if you want to know more about Real Estate in Lithuania.  This entry was drafted by STRATEGUM FIRM for”E-IURE COMPENDIUM” 2019. Link to e-IURE Network.

This collaboration is a brief step-by-step guidance. In no case it can be considered as legal advice. If you want -or need – legal advice, ask for a lawyer or a law firm. In that case “STRATEGUM” is an excellent option in Lithuania.

Real estate in Lithuania

The concept of real estate in Lithuania includes the land, parts of land, including air over it and land under it, as well as the buildings. Construction sector, as well as organizations or companies founded by persons to manage their real estate as optimally as possible are closely related to real estate.

Requirements for the transaction

The parties to the contract on sale and purchase of real estate may be any entities of civil law, i.e. natural persons or legal entities of the Republic of Lithuania and foreign countries, except for the exceptions provided for by law regarding the acquisition of land parcels.

In Lithuania, a contract for the purchase-sale of an immovable thing shall be subject to notarial certification, regardless of whether the transaction involves a natural or legal person. The non-compliance with the notarial certification of the contract invalidates the contract. The requirement of a notarial certification for the contract on purchase and sale of real estate makes the contracts on purchase and sale of real estate complicated, and results in additional costs since the services provided by a notary should be paid.

The essential terms and conditions of each contract on purchase and sale of real property are the subject of the contract (the thing to be sold/purchased and its quantity is indicated) and the price of immovable thing. Each contract on sale and purchase of immovable thing must contain the following data describing the immovable thing: the type of immovable thing (land parcel, building, facility, etc.), address, total area, main purpose of use, unique number in the public register. If a land parcel is being bought, the cadastre number of the land parcel should also be indicated. If these conditions are not indicated in the contract on sale and purchase of immovable thing, the contract is deemed not to have been concluded.  Although the price of immovable thing is fixed by agreement between the parties, the parties, when fixing the price, must take into account the value of the immovable thing to be purchased on the market since by the contract on sale and purchase, they intend to obtain a monetary equivalent corresponding to the value of the thing, and therefore, the price, clearly not corresponding to the value of the thing contradicts the nature of the transaction to be repaid and the principle of reasonableness. Such a price is the basis for challenging the contract on immovable thing due to the real will of the parties to the contract.

Taxes associated with the purchase and sale of real estate

When selling real estate in Lithuania, a 15% of income tax of individuals is applied. This tax will be calculated as the difference between the incomes from the sale of the real estate and the acquisition price of the property, together with the deduction of compulsory payments made for the purchase of this property and the costs of repairing this property. Such a restriction eliminates the possibility of avoiding the resale of real estate caused by the income tax of individuals. The Law on Personal Income Tax provides for cases when it is not necessary to pay income tax on the sale of real estate:

• if such property was acquired or inherited 10 years before;
• if the property is sold at a lower price than the acquisition price (value);
• if the housing for 2 years was the place of residence of the individual declared (applied only when selling flats, residential houses);
• if the housing for 2 years prior to the sale was the place of residence of the individual declared, but within one year of the sale of this housing he buys and declares his place of residence in the other housing, he does not need to pay taxes on the sale of housing (applies only to the sale of flats, residential houses).

Land tax is levied on private land owned by the natural and legal persons in the Republic of Lithuania, with the exception of forest and agricultural land, where the forest is planted in accordance with the procedure established by laws and other legal acts of the Republic of Lithuania. Land tax is paid annually and is calculated in accordance with the rates established by the government. Land tax rates depend on the location of real estate in the territory of the municipality and range from 0.01% to 4% of the taxable value of the land.

The object of the real estate tax is immovable thing located in the Republic of Lithuania. The real estate tax rate, ranging from 0.3% to 3% of the taxable value of the real estate, is determined by the municipalities taking into account one or more of the following criteria: the purpose, use, legal status of the immovable thing, technical characteristics thereof, the state of maintenance, categories of taxpayers (size or legal form, social status) or the location of the immovable thing. Non-taxable part of the property – property worth EUR 220 000.

Joint community property

A joint community property right is exercised when the parts of the ownership of each owner in the joint community property are defined, and the joint community property ownership is when the parts of ownership are not explicitly defined (for example, all property is presumed to be joint community property of spouses property shall be presumed to be joint community property and the shares belonging to them are not indicated separately).

Joint partial community property may be of two types, respectively. First, parts of co-owners can be expressed in partial terms (e.g. 50 percent, 1/3 and 2/3, equal, etc.) or by determining the parts of the thing belonging to them (for example, in the case of a residential housing property, different rooms belong to different co-owners).

In practice, there are a number of disputes between co-owners in relation to the use of joint community property. If the co-owners disagree about the procedure for the use of their property, it shall be determined by the court at the request of one of the co-owners. It is also possible to partition a share of the joint common property judicially. In this way, the thing is divided and the relationship of co-owners ends.

Priority right of co-owners to buy shares held in co-ownership

The seller of a share commonly owned shall inform the other co-owners in written form about the intention to sell his part to others than the co-owners, indicating the price and other conditions of sale. When a share of an immovable thing commonly owned is sold, such information shall be given through a notary. When the other co-owners renounce their priority right to buy the share or fail to use such right to the immovable thing within one month, and to other thing, within ten days from the day of receipt of such notification, provided the co-owners have not agreed otherwise, the seller shall have the right to sell his share to any person. The social purpose of this legal norm is to create conditions for the ending of the co-ownership, since it is always preferable when the owner of the thing is one person; on the other hand, this requirement restricts the right of a person to choose freely a buyer of immovable property. The problematic application of this requirement arises from the fact that the right of pre-emption is valid only when concluding a sale and purchase contract, and in the cases of transfer of other share of property (exchanges, donations, etc.) does not apply.  For example, a person can transfer a share of the property to the company as a shareholder’s contribution and then sell the company’s shares that have become more expensive. Also, a person can falsely donate/exchange the thing and reclaim the benefits of the transaction by other means. Thus, the pre-emptive right of co-ownership is avoided. Such a wording of the law in practice raises a number of disputes where the transactions concluded by the co-owner are sought to be declared void motivating that transactions are concluded only “for show”.

Real Estate Servitudes

In practice, situations arise where the use of an immovable thing of another is inevitably required in order to use real estate according to its purpose (in most cases, land parcel). In this case, a person may apply to the owner of that thing and enter into a servitude transaction or apply to the court and demand the establishment of the servitude. A servitude is a right in respect of an immovable thing of another that is granted for the use of that thing (the servient thing) or a restriction of the right of the owner of that thing in order to ensure a proper utilisation of the thing in favour of which the servitude is established (the dominant thing). This is property in rem, which “follows the thing”. If a subject of ownership of a servient or a dominant thing changes, the servitude fixed remains. Servitude provides the servitude holder with specific rights to use particular thing of another or withdraws specific rights to use that thing from the servitude holder, and therefore the determination of the land servitude is to be regarded as the transaction of restriction of the immovable thing. Such examples can be the use of the land parcel of another for access to the public road, resting of one building structure onto another belonging to other owner’s immovable thing. Since the servitudes restrict the rights of the owner of the servient thing, such a person may claim a fair remuneration for the restraint of his property rights. Such questions are usually resolved in courts, but can also be determined by transactions. Servitudes are compulsorily registered in the Register of Real Estate; therefore, the servitude fact is public.

Litigation on Real Estate

In Lithuania, claims for tangible rights to real property, regarding use of real property (except for applications regarding distribution of spouses’ property in the cases of dissolving marriages, regarding recognising seizure on real property to be void) shall be under the jurisdiction of a court in the same location as the real property or the main part thereof.

Types of Land Use

According to the main target purpose of land use, the Land Fund of the Republic of Lithuania comprises:

• Land for aquaculture purposes is the land used or suitable for the use in the production of agricultural products, including the areas built-up with residential buildings and outhouses owned by the land user, as well as forest areas and water bodies on the land parcel.
• Land for forestry purposes is the land occupied by the forested area (stands), as well as cleared areas, perished stands, nurseries, forest roads, sections, technological and fire-prevention strips, timber storage points, other facilities and equipment related to forest, leisure sites, game feeding points, land designated for afforestation purposes, other land use located in between the forest land, including agricultural lands.
• Land for conservation purposes is the land of protected territories, which includes reserves, land parcel occupied by cultural heritage objects.
• Land for other purposes is the land classified into the types of parcels by their method of the use specified in the territorial planning documents: residential, public areas, common use, industrial and warehousing, commercial facilities, engineering infrastructure areas and for the exploitation of mineral resources, storage of waste, national defence and other purposes.

Construction may only be permitted if the use of land is agricultural (on the basis of a rural development project of a farmer’s farmstead) or on other land. Persons in Lithuania are obliged to use land according to the main purpose of its use, and if persons do not comply with this requirement, they may be held liable.

Restrictions on the purchase of the land for agricultural purposes

The land for agricultural purposes is a special object of ownership, the acquisition of which is strictly regulated by the legal acts of the Republic of Lithuania.

In Lithuania until 2014, the restrictions were imposed on foreigners regarding the acquisition of the land of agricultural purposes in Lithuania. Such restrictions have attracted the attention of the European Union institutions, as they are contrary to fundamental principles of the European Union – restrict the investments in the land of agricultural purpose, and thus violate the free movement of capital. In 2014, the amendments to the Law on the Acquisition of Agricultural Land were adopted, laying down somewhat softer restrictions. However, the European Union did not consider such changes to be sufficient, and claims were made against Lithuania for non-compliance with the requirements. At 2017, further amendments to the law were adopted, and restrictions on the acquisition of the land for agricultural purposes by foreigners were removed.

Currently, only up to 10 hectares of the land for agricultural purposes can be acquired in Lithuania without restrictions. If persons or companies acquire a larger area of ​​the land, they must ensure that it is used for agricultural activities for a minimum period of 5 years from the acquisition of this land, whose minimum annual activity per hectare of land is determined by the Minister of Agriculture of the Republic of Lithuania. Person or legal entity, who does not comply with this obligation, can be held liable.

Another restriction on the purchase of agricultural products is related to the amount of acquired land and applies jointly to the citizens of the Lithuania and foreigners. A person or related persons can acquire insomuch land in the territory of Lithuania that the total area of ​​their agricultural land purchased from the state would not exceed 300 hectares. A person or related persons may acquire such quantity of land on the territory of Lithuania that the total area of agricultural land belonging to them and acquired from the State and other persons does not exceed 500 hectares. Related parties are considered the spouses, parents (adoptive parents) and their minor children (adoptees), as well as legal persons who control 25% of the shares of the other legal entity that acquired the state land, or a natural person who controls 25 % of shares of the legal person who acquired the state land.

Acquisition of the land for agricultural purposes in Lithuania were simplified by the latest amendments, although there are still a lot of paper work to go through. Persons can purchase agricultural land only after obtaining the consent of the National Land Service division according to the location of the land, therefore, in order to implement this right, it is recommended to apply to professional persons for the provision of legal services.

Taking land for public needs

When the land in the Republic of Lithuania is recognized as necessary for meeting the needs of the public, and this land belongs to private persons, the National Land Service under the Ministry of Agriculture adopts a decision on the land parcel to be taken from landowners. On this basis, a lease or land for use contracts of private land shall be terminated before the deadline.

When a private land parcel is taken for public needs, the land owners and/or other user must be fairly remunerated:

• In case a private land parcel is taken for public needs, the land owner and/or another user must receive a fair compensation in cash amounting to the market price, or, upon a written agreement of the owner of the land, he is given a parcel of a state-owned land adjacent to the taken land parcel for public needs;
• The value of plants within this land parcel taken for public needs, the volume of timber, the lost harvest and invested funds for growing of agricultural production and afforestation, the amount of losses that were incurred due to taking of the land parcel for public needs as well as structures and facilities constructed or being constructed on that parcel, and the plants growing therein for public needs shall be compensated to the land owner or another user.

Most of the disputes about land taken for public needs arise precisely because of the fair compensation for the property being taken. Faced with the procedure for taking an immovable property for public needs, landowners often disagree with the proposed compensation for property being taken by the public need and are inclined to raise litigious disputes over the established incorrect remuneration for the property taken for public needs. The main evidence in the cases of compensation for land taken for public needs is the property valuation report or an act of examination of property valuation. The value of land taken for public needs is to be determined on the day when a decision is adopted to take the land for public needs. The value of property is usually determined by the price of identical or similar property transfer transactions.

Legal registration of immovable property

Newly formed parcels and newly erected buildings in Lithuania are registered in the Public Register of Real Estate. The changes of the owners of the land parcels and buildings are registered in the Public Register of Real Estate as well. The amendments to the legislation providing for the mandatory registration of buildings came into force only in 2015. The amendments aimed at encouraging persons to complete the construction started and validate them both by construction completion acts and their registration in the Register of Real Estate.

After completion of construction procedures, the building and property rights to it must be registered in the Register of Real Estate not later than within 3 months from the date of receipt of the act on completion of construction, the date of approval and registration of the declaration of completion of the construction or the date of signing the declaration of completion of construction (when it is not approved and not registered). An unfinished or reconstructed building must also be registered in the Register of Real Estate at the latest within 3 years from the commencement of construction. Such changes limit the ability of real estate owners to avoid paying taxes or conceal the value of their property.

Construction of real estate (real estate development)

All buildings in Lithuania are classified as immovable property. The construction sector is one of the largest and most important branches of Lithuanian economy. The construction sector accounts for about 10 percent of the national gross domestic product. Due to this, from a legal point of view, the construction in Lithuania is a wide area; the legal regulation of construction is exhaustive.

The main legal acts regulating construction in Lithuania are the Technical Regulations for Construction. They specify the detailed requirements for the construction works, i.e. permissible dimensions of the building, distance to other structures, materials that can be used in construction, etc. The biggest problem with technical regulations for construction is the high volume of them (for example, currently 64 technical regulations for construction are in force), which is growing, the technical regulations for construction as well as their names are often modified.

In Lithuania, the problematic aspect of construction has long been the responsibility of persons involved in construction to the purchaser of real estate. There was a lack of guarantees given to purchasers, responsibility for improper quality of construction was not regulated sufficiently and the circle of responsible persons was very narrow. Considering this fact, in 2017, the legal regulation regarding the responsibilities of the persons engaged in the construction and the persons participating in them has changed. For a long time, the general contractor was the main responsible person for construction according to the law, but in practice, the purchasers of real estate used to ask whether they could contact the contractor directly relating to the removal of defects. It was explained that it was necessary to contact the seller, who would require the contractor to rectify the defects. The amendments to law that entered into force in 2017 provide for that the purchaser may directly contact the contractor and demand that the defects should be removed, for he is liable as a person who carried out the construction works and is obliged to provide legal guarantees for the result of his work. In addition, the amendments provide for the liability of the joint liability of the builder (real estate developer) and the contractor for defects revealed during the warranty period. This means that, after having revealed the defect, purchasers of housing can also contact the seller (the real estate developer) within the warranty terms. The terms of the warranty provided by the contractor are five years; ten years, in existence of hidden constructions of the structure (structures of construction works, pipelines, etc.); twenty years, in existence of intentionally concealed defects.

In addition, the amendments introduce new requirements for security of performance of obligations during the warranty period. It has been established that the contractor must provide security of obligations and specify his minimum size (five percent of the price of the construction of the building) and the expiry date (the first three years of the warranty period of the building). The developer of a real estate must provide the purchaser of a building (part thereof) with security of performance of obligations for the failure of contractor to fulfil improperly fulfil his obligations during the warranty period, which corresponds to the requirements for securing the obligations submitted by the contractor. Such changes have extended the guarantees to the purchaser of real estate and increased the method to demand responsibility from responsible persons for construction defects.

Construction permit

In Lithuania, a construction permit for construction works is a mandatory document. Construction without permission is punishable by a fine provided for in the laws, a suspension of construction and possible demolition of buildings if the construction permit is not obtained after the suspension of illegal construction. In order to obtain a construction permit, a digital version of a ready-made house project must be placed on a common information platform. After placing the project on the website, the representatives of the municipality and other interested institutions verify the project. If the design solutions are appropriate, all institutions approve the project and the municipality issues a document allowing the construction. If any of the institutions have comments on the project, those comments will be submitted to the designer and the latter will have to take decisions on the revision of the project in the light of the content of the comments.

Whether the building permit is needed or not is determined by the number of inhabitants in the settlement. If the land parcel is located in a regional park, protected area, water protection zone or in another publically sensitive area, the harmonization period related to the construction permit is long, and the process itself is complicated. Construction permit is not required for individually built structures up to 80 square meters, including a summerhouse, sauna, etc. (if the land parcel is not located in a protected area or city).

Associations of owners of multi-apartment residential buildings

In Lithuania, it is popular for the residents of the multi-apartment building to rally into the associations of the owners of multi-apartment residential buildings. An association of the owners of multi-apartment residential buildings is a legal entity (a simple organization or company) that has the right to engage in home maintenance activities by the laws. The members of the association of the owners of multi-apartment residential building elect a collegial management body representing the residents who have joined the association. Such an association is created with the purpose of administering the building, administering payments of fees, supervising the technical condition of the building and regulating the provision of utilities. Advantages of association: Systematic assessment and optimization of the fees paid for using a multi-apartment residential building; moreover, the decision-making process is more optimal and professional, as the statutes of the association provide for decision-making procedures, the residents are involved in the decision-making procedures and can express their opinion.

Gardeners’ societies

Owners of land parcels belonging to the territory of gardens can rally gardeners’ societies. In general, the gardeners’ society is very similar to the association of the owners of multi-apartment residential building, which is a legal entity (a simple organization or company), which is entitled to engage in activities related to the maintenance of the land for general purposes, use of buildings and facilities for general purposes (fences, gates, resting areas, beaches, forests, water bodies, etc.) and general engineering facilities. Having established the gardeners’ society, the fees to be paid are optimized, the owners of land parcels are involved in the decision-making procedures regarding the land for general use, engineering buildings, equipment; the decision-making procedure becomes faster and more professional.

Lease of state land parcels

In Lithuania, state-owned agricultural land parcels are leased to natural persons and legal entities of the Republic of Lithuania and foreign countries or other foreign organizations for a maximum period of 25 years. Leasing of state-owned agricultural land parcel is an alternative to foreign nationals or legal entities that do not comply with the requirements specified in the Law on the Acquisition of Agricultural Land (as already mentioned above, the persons or companies that have carried out agricultural activities for at least three years already can acquire the land plot bigger than 10 ha).

Lease of premises

The lease agreement in Lithuania for a term longer than one year must be in writing. A lease of immovable things concluded for a term longer than one year may be used against third persons only if it is registered in the public register in accordance with the procedure established by laws. The lease agreement may be of a fixed or indefinite duration, but in all cases the term of the agreement may not exceed one hundred years. The term of the lease agreement is determined by the agreement of the parties. If the term of the agreement is not specified thereafter, the lease agreement is considered to be termless. If, after the expiry of the term, the lessee continues to use the property for more than ten days, and the lessor does not object to this, the agreement is considered to be termless. The lessee, who has performed the duties taken in accordance with the lease in an orderly manner, has the right of priority to renew the agreement after the termination of the agreement comparing with the other persons.

The agreement may be terminated before the deadline on the lessor’s initiative and in accordance with the laws of the Republic of Lithuania, and the lessee is evicted only in the following cases:

• the premises are not used for the purpose specified in the agreement;
• the lessee deliberately worsens the condition of premises;
• the lessee delays the payment of the rent or the cost of the provided utilities under the agreement for more than thirty calendar days.

The lessee shall have the right to bring an action to a court for dissolution of a contract of lease before time, if:

• the lessor does not do the repairs that he must do;
• the thing becomes unusable due to the circumstances beyond the control of the lessee;
• the lessor does not transfer the thing to the lessee, or hinders the use of the thing according to its purpose and terms of the agreement;
• the transferred thing is defective, which the lessor has not discussed and this fact was not known to the lessee, and due to these defects the thing cannot be used according to its purpose and terms of the agreement.

If the lease agreement is for an indefinite period, both parties shall have the right to terminate the agreement at any time by giving notice to each other one month before the termination, and in case of lease of immovable things – three months before the termination. The lease agreement may also specify longer notice periods.

Legislation in Lithuania provides for the lessee to sublease the leased thing only with the written consent of the lessor.

Restoration of ownership rights of the citizens of Lithuania to the existing immovable property

In view of the historical events – the occupation and forced accession of the Republic of Lithuania to the USSR, a unique institute for the regulation of restitution relations and implementation of the restoration of ownership rights has been established in Lithuania. According to the laws of the USSR (LSSR), the real estate of a large number of Lithuanian citizens was nationalized or otherwise illegally expropriated, and therefore, after regaining of Lithuania’s independence, the citizens of Lithuania were granted the right to restore property rights to expropriated immovable property.

Acquisitive prescription of real estate

In Lithuania, a physical or juridical person who is not the owner of a thing but has acquired the thing in good faith and has possessed it in good faith, legitimately, openly, continuously as his own immovable thing for at least ten years, when during the entire such period the owner of the thing had the legal possibility to implement his rights to the thing, but has not used them once, shall acquire ownership right to such thing. The fact of acquisition of ownership by acquisitive prescription shall be established by court. Ownership by acquisitive prescription shall not apply to things obtained by force or in a clandestine manner, irrespectively of whether the person who has obtained the thing by force or in a clandestine manner way himself or somebody else seeks to acquire ownership right in this manner. Acquisitive prescription shall not apply to ownership right to things that are property of the State of a municipality, or things registered on another person’s (not the possessor’s) name. A person acquiring property by acquisitive prescription must act not only in good faith, that is, by possessing the thing he must be convinced that nobody else has more rights to the thing he is, but he must also remain a possessor in good faith during the entire period of acquired prescription, and even upon acquiring the thing in ownership he must not know about impediments that hinder his acquiring the said ownership, if such impediments existed.