TENLAW 3rd meeting
Tarragona, June 19, 2013
„Interesting First Findings“
Estonia, Latvia, Lithuania
Prof Irene Kull (Estonia), team leader
Ave Hussar, mag iur (Estonia)
Julija Kolomijceva (Latvia)
19.06.2013
Plan
1. Socio-economic context of tenancy
relations
2. Legal environment of tenancy relations
3. Evaluation of first interesting findings
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2
1.1. Common inheritance
• Intensive apartment building 1960-1980
• Limited private ownership of (small)
residential houses
• By 1990 - number of dwellings per 1000
inhabitants EE- 412, LV – 369, LT – 312
(source: Kährik, Kõre 1996)
• Still shortage 5 % by 1989 (Estonia)
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1.2. Choices since 1991
• Tenants of restituted houses
– Estonia: regulated rent periods (until 2007), rent control
(until 2004), social housing options; 3 % of the population.
– Latvia: split property problem→compulsory lease of land;
problematic rent control. (In 2006 the Constitutional Court
declared rent payment restrictions in relation to tenancy of
house denationalised or returned to a lawful owner as
unconformable with the Constitution.)
– Lithuania: In 1991–2010, the number of tenant families
evicted amounted to 7,1 thousand - 46 % per cent of them
were accommodated in the dwellings provided by
municipalities, 54 % found other solutions (land plots to build
individual residential houses were granted etc.).
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1.2. Choices since 1991
• Privatised ownership
– Estonia: mainly flats, mainly non-Estonians families
– Latvia: privatisation and denationalisation - split propery
problem
– Lithuania: Most housing property eligible for privatization
had been privatized by the end of 1993.
Result: private ownership of dwellings – more than 90% of the
dwelling stock
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1.3.1. Structure and condition of housing stock
Number of dwellings per 1000 inhabitants
Source:
http://www.housingeurope.eu/www.housingeurope.eu/uploads/file_/HER%202012%20EN%20w
eb2_1.pdf; Statistics Estonia
EE - 505 (2011)
LV – 461 (2009)
LT – 400 (2011)
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1.3.1. Structure and condition of housing stock
Useful floor area of dwellings per capita, in sq m (1999-2011)
Source: National statistics,
http://www.seb.ee/sites/default/files/web/files/uudised/baltic_household_outlook_oct_2012.pdf
EE - 30,1 m2 (2011)
LV – 27,2 m2 (2009)
LT – 25,5 m2 (2011)
EU – ca 40 m2
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1.3.1. Structure and condition of housing stock
Distribution of population by dwelling type, 2011
Source: Eurostat (online data code: ilc_lvho01)
Live in flats:
EE - 64,5 %
LV – 65,4 %
LT – 57 %
EU – 41,8 %
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1.3.1. Structure and condition of housing stock
Condition of housing stock, 2011
Source: Eurostat (online data code: ilc_lvho01)
Overcrowding
rate (% of total
population)
EE – 14,4
LV – 44,4
LT – 19,7
EU – 16,9
Severe housing
deprivation rate
(% of total
population)
EE – 4,9
LV – 17,9
LT – 7,7
EU – 5,5
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1.3.2. Market share of different types of tenure, 2011
Source: Eurostat (online data code: ilc_lvho02)
http://www.seb.ee/sites/default/files/web/files/uudised/baltic_household_outlook_oct_2012.pdf
Owner occupied (%
of the population):
EE – 85,5 %
LV – 84,1 %
LT – 93,1 %
EU – 70,7 %
Private ownership
of housing stock (%
of housing stock):
EE – 97 %
LV – 97 %
LT – 89 %
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1.3.2. Market share of different types of tenure, 2011
Summary: ownership and tenure structure
•
Estonia
– Ownership structure of dwelling stock (2011): 95.7% residents of Estonia or
foreign country, 1.8% by state or local government.
– 64,5 % of the population live in flats
– Estimated rental market 4 -15 % (of which ¼ social housing)
– There is no general housing shortage - only 83.9% occupied .
– Considerably large part of the households (13 %) lack elementary sanitary
conditions .
•
Latvia: Approx. 84.9% of the whole the housing stock is in owneroccupied and 15.1 % are rental dwellings. 65,4 % live in flats (highest ratio
in EU!)
•
Lithuania the official housing rental market almost does not exist.
Private housing sector accounted for 97% (2001) of the total housing
stock, rest - social housing. Estimated share of people living in rented
dwellings is about 12 percent and 88 percent own a house or a flat
where they live.
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1.4. Influencing factors
1.4.1. Economic factors
Household expenditure:
Estonia (2010) - 19 %
Latvia (2011) - 16,6 %
Lithuania (2009) – 15,9 %
EU 27 (2009) – 22,9 %
Ratio of private loans to GDP:
Estonia: 44 %;
Latvia: 37 %;
Lithuania: 25 %.
Nordic pattern: proportion of
housing loans in the overall
portfolios: EE - 84 %, LV - 81 %,
LT - 79 %.
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http://www.seb.ee/en/news/2012-1023/household-debt-burden-lower-balticrepublics-nordic-countries
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1.4. Influencing factors
1.4.1. Economic factors
• „The sharpest drop in real terms occurred in Greece, where the
median equivalised disposable income fell by 12.3 %. It fell by
6.6 % in Bulgaria, 6.1 % in Latvia, 5.8 % in Spain, 4.8 % in
Estonia and 4.4 % in Portugal“. (Source: Economy and finance. Statistics
in focus 2/2013 http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-13002/EN/KS-SF-13-002-EN.PDF)
• Market slowly recovering
• Average interest rate of housing loans low (June
2012): EE - 2,9 % p.a, LV – 3,22 % p.a., LT - 3,5 %
p.a.
• City centre residental investent yield – ca 4-5 %
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1.4. Influencing factors
1.4.2. Urban and social factors
•
„Eastern Member States generally spent a higher than average
proportion on food and non-alcoholic beverages. Indeed, this share is
largest in Latvia and Estonia, with 20%, /…/. On the other hand, the
combined share of actual and imputed housing rentals is generally lower
in these countries, ranging from 7 % in Poland to 15 % in the Czech
Republic“(Economy and finance. Statistics in focus 2/2013
http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-13-002/EN/KS-SF-13-002-EN.PDF)
•
•
Lithuania: ca 60 percent of those who rented the apartment, live in the biggest
cities of Lithuania. The lease is preferred by 18-35 years old people, who have
not yet developed their family, who have lower-than-average. The market supply
of rental housing is sufficient. Number of social housing and municipality owned
shelters are not sufficient. Dwelling lease is assessed like a temporary solution
until own housing acquisition.
Estonia: While only in 1998 did 30.2% of the employed rural population work in
cities and 62% worked in the municipality of their residence, the respective
figures for 2004 were 38.5% and 50.7% .
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1.4. Influencing factors
1.4.3. Housing policy
•
•
•
•
•
Estonia: Social Welfare Act art 14, Constitution Art 28. The Estonian
National Housing Development Plan for 2008-2013.
Latvia: The state institution works out and sets goals of housing policy,
local municipalities realize housing policy as their exclusive function
through assistance in solving residential space matters. Local
municipalities are obliged to help inhabitants to solving housing
matters.
Lithuania: The Law on the Lithuanian state support for housing to
purchase or lease and apartment buildings renovation (modernization)
set two state support to individuals and families who have a permanent
residence in the Republic of Lithuania forms:
1)
Municipal social rented housing
2)
Support for housing purchase, construction (reconstruction).
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1.4. Influencing factors
1.4.4. Migration
•
•
•
•
Migration: first to east, then to west...
Estonia: negative – minus 5,5% (2000-2011)
Latvia: negative - 30 thousand against 7,2 thousand (2011).
Lithuania: negative - 222 thousand against 45,3 thousand immigrated.
In the context of other EU member states, Lithuania is distinguished by
the largest negative net migration per 1000 population.
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1.4. Influencing factors
1.4.5.Taxation
•
•
•
ESTONIA: problems connected with personal income tax (21 %):
– Landlord as a regular taxpayer has no possibility of deducting any expenses
from taxable income → official renting not attractive
– Landlord as a sole proprietor has an obligation to pay social tax from the
rental payments received → official renting not attractive
LATVIA: black market problems and tax evasion
– Landlord registered as self-employed person in the State Revenue Service
may deduct management expenses and other expenses connected with
economical activity from taxable income, including, but not limited to social
tax payments. Personal income tax amounts to 24%.
– Landlord may not register as self employed person, then only immovable
tax may be deducted. The tax rate is 10% in these cases.
LITHUANIA: The dwelling's owner must pay taxes from the rent income
received so the people do not conclude rent contracts and the lessees can not
register the place as their permanent place of residence. Income tax rate is 15
%
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2. Legal environment
2.1. General structure of legal framework
•
•
•
Estonia: Law of Obligations Act (2002), Part 3 Contracts for Use,
Chapter 15 Lease Contracts Art.-s 271-338
Latvia: Law on Residential Tenancy (1993, as lex specialis),Civil Law
(adopted 1937, restored 1991), Law on Social Apartments (1997), Law
on Assistance in Solving Apartment Matters (2004)
Lithuania: Civil Code (2000) Book Six Part Four Chapter XXXI Lease
of dwellings. General rules regulating the rent contract are applicable in
so far as the special rules of the dwelling’s rent contract do not
establish the special regulation.
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2.2. Selected topical legal issues
2.2.1. Degree of freedom of contract
•
Estonia:
–
–
•
Latvia:
–
–
•
Partly mandatory (for lessor) rules regarding the rights, obligations and liability of the parties
to a residential lease (Art. 275 of the LOA) – not applicable for social rental contracts!
Special rules for residential lease, e.g. limited right of termination, formal requirements of
termination, contestation of termination, limits to agreement of periodical increase in rent of
dwelling.
Tenancy law is liberal and many questions shall be regulated by a mutual agreement of
parties.
High degree of freedom of contract, but not absolute, mandatory provisions are connected
with payments for basic services (heating, cold water, sewerage, garbage disposal),
termination of rent by the landlord, eviction of the tenant etc.
Lithuania:
–
–
The majority of rules which are set in the Civil Code for the tenancy regulation are nonmandatory.
the Civil Code establishes some mandatory rules concerning conditions of the rent contract.
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2.2. Selected topical legal issues
2.2.2. Formalities
ESTONIA
LATVIA
LITHUANIA
Form
requirements
NO
Art 274 of LOA
Effect of format of
residential lease contract on
term of contract (= BGB §
550)
YES
Article 5 Para.1 of the
Law on Residential
Tenancy determines
that living dwelling rent
contracts shall be
concluded in writing.
However, court
practice recognizes
factual rental relations.
YES/NO
Art 6.579 of the CC contracts of
lease between natural persons may
be formed orally.
Only in written form:
(i) in the event where the lessor is
the state, municipality or a legal
person;
(ii) a fixed-term contract of lease of
a dwelling irrespective of who is the
lessor.
Registration
requirements
NO, but: (2) A notation
entered in the land register
ensures that the new owner
has no right to cancel the
contract. Without notation
the contract will also go
over but the new owner has
a right to cancel the contract
on the ground of own urgent
needs.
NO, rent contracts are
not registered. If a
landlord changes then
all residential rent
contracts concluded
by the former owner
are binding for the new
owner.
NO, but: a contract of lease of a
dwelling may be invoked against
third persons only in the event of it
being registered in the Public
Register
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2.2. Selected topical legal issues
2.2.3. Duration and termination of contract
Duration
ESTONIA
LATVIA
LIHTUANIA
No restrictions
No restrictions :
If contract with a term
exceeding one year is not
entered into in writing, the
contract is deemed to have
been entered into for an
unspecified term with
limitation not to be
terminated earlier than 1
year after the transfer of the
dwelling to the lessee.
Parties may
enter the rent
contract for a
specific period of
time or without
indicating the
duration of the
agreement
A contract of lease of a
dwelling may be formed for
an indeterminate term or for a
fixed term.
Either party may cancel a
lease contract entered into
for longer than 30 years
after thirty years, unless the
lease contract is entered
into for the life of the lessor
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There is no mandatory
minimum duration for limited
in time contracts, but there is
mandatory maximum duration
– in all cases the period of
lease may not exceed 100
years.
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2.2. Selected topical legal issues
2.2.3. Duration and termination of contract
Termination of
contract
by
lessor
(renter)
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ESTONIA
LATVIA
LIHTUANIA
1) open-ended contracts:
ordinary cancellation in 3
month notice;
2) fixed-term contracts: only
extraordinary cancellation
with „good reason“ + some
exemple grounds, .e.g:
breach of contract by
tenant; (immiediate) notice
in a format which can be
reproduced in writing;
contestation of cancellation
by lessee within 30 days
Only on the basis of the
grounds set by law, for
example, essential breach
of the rent contract;
demolition of the living
house; owner of
denationalized living
dwelling needs it for living;
unlawful sub-rent.
Termination proceeding
depends on termination
ground.
1) open-ended
contracts: notice 6
months in advance
2) In the cases when
the lessee breaches
the contract the lessor
can terminate the
contract only by the
court decision (after
written warning and
Nachfrist). Eviction
without other dwelling
being provided.
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2.2. Selected topical legal issues
2.2.4. Rent control
ESTONIA
LATVIA
LITHUANIA
NO fixed rent.
NO fixed rent.
YES/NO
Control by courts or
lease committee for
excessiveness of the
rent amount (special
regulation for residental
lease contracts).
Possible also control
under the general civil
law concepts (illegality
and immorality rules)
Courts control whether
management expenses are
justified and profit is
reasonable.
Basis – tenancy law, also
general Civil Law (good
faith, usury, violation of
bonos mores,
unconscionability; fairness
control in standard terms in
consumer law etc.
Theoretical limit of
maximal amount of
lease payable for
dwellings leased out on
commercial grounds by
enterprises, offices,
organizations and legal
persons.
Othewise – NO fixed
rate.
Reasonability control by
courts.
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3. Evaluation
• High private ownership of housing stock
• High owner-occupation and almost non-existent rental market
• People prefer having their own dwellings rather than living in a
rented house
• Dwelling stock in comparatvely bad condition (lack of
elementary sanitary conditions)
• Low (but growing!) housing expenditure
• No general shortage, regional diversities (cities vs rural areas),
concentration in Tallinn (Estonia)
• Shortage in social housing (competition between municipalities)
• Not only privatization and restitution, but also migration
• No considerable differences in regulation (generally liberal
approach)
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