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• There is no statutory requirement as to the term of
commercial lease. Minimum term for the lease with
independent construction right of the tenant is 10 years.
The lease becomes effective as of the date indicated in the
lease agreement.
• The law does not provide for the rights of a lessee to extend
or renew the commercial lease term; however, such rights
could be individually agreed upon in the lease agreement.
• The statutory grounds for termination of the lease by either
the tenant or the landlord are rather limited and customarily
are expanded contractually in the lease agreement.
• If the lease agreement is not registered with the Land Register,
the lease agreement is not be binding on the buyer of the
leased property and may be terminated by the buyer. The
former landlord is liable for losses due to early termination.
• If the tenant terminates the lease prior to its term without
lawful grounds, the rental payments shall be paid through the
lease term, unless agreed otherwise in the lease agreement.
Transfer of business
• Under the principles of Latvian law only the rights, but not
the obligations, may be assigned without consent of the other
contracting party. The landlord may freely assign its rights,
including rights to the income stream, under the lease.
• If the tenant transfers its business, the lease contract would
be deemed included in the transferred undertaking and the
transfer binding on the lessor. The transferor and transferee
remain jointly liable to the lessor for liabilities created prior
to the transfer and coming due within five years after the
transfer.
• Validity of restrictive clauses:
–– transfer or assignment of the lease itself, without transfer
of the business, may be prohibited contractually;
–– although not customary, the lease contract can seek to
establish that in the case of assignment of the lease, the
original tenant remains jointly and severally liable with the
assignee for the tenant’s obligations under the lease, in
particular for the payment of rent and charges.
The environmental appendix
• Latvian laws do not require any conformity certificates or
“green appendixes” to be addressed in commercial lease
relations.
Evolution of the rent during the initial lease
• There are no statutory restrictions on the amount of the rent
under commercial lease contracts. Parties usually agree on
a fixed fee payable on a monthly (sometimes on a quarterly)
basis in advance. Turnover rent quite often is introduced in
major retail leases in addition to the fixed (base) rent.
• It is a common practice in Latvia that the rent is adjusted
annually based on the consumer price index or other formula
agreed individually by the involved parties.
Term of the renewed lease
• There are no statutory requirements applicable to any
renewals of the lease or the term of such renewal, regardless
of the term of the original lease. The parties can agree upon a
right to renew the lease after its expiration and on the rental
fees applicable to such renewed lease period.
TAX
Direct acquisition of a property
• Upon acquisition of the real property a state fee for the
registration of title is payable in the following amounts:
–– 2 % of the value of property consisting of land and
buildings or property consisting only of a non-residential
building or buildings and engineering installations
associated therewith, but capped at EUR 42,686.15;
–– 6% of the value of the residential property (apartment), if
the acquirer is a legal entity conducting business;
–– 1% of the value of the real estate if it is contributed to the
share capital of a capital company;
–– 3% of the value of the real estate acquired on the basis of
a gift agreement.
• The state fee is multiplied by factor 1.5, if the purchase
agreement is submitted to the Land Register later than within
6 months from the execution date.
• The sale of unused real estate is subject to 21% VAT on the
sales price, while taxable value for sale of unfinished buildings
is the difference between sales value and acquisition price.
If a refurbished building is sold within one year of completion,
VAT is charged on the difference between its selling price and
value prior to refurbishment.
• Sale of land under development is subject to 21% VAT.
• Capital gains of the seller (legal entity) are taxed as ordinary
income except for gains from the sales of shares which are
exempt from taxable income.
• If real estate (or shares in a company with Latvian real
estate constituting 50% or more of its assets in the year of
sale or in the previous year) is sold to a Latvian resident by
a non-resident, the resident purchaser must withhold 2%
withholding tax from the entire purchase price.
Acquisition of shares in a company holding a property
• In case of purchase of shares in a real estate holding company
the above mentioned state fee for registration of title does
not apply, as it is a fee for recording the title changes in the
Land Register. The transfer of shares of real estate holding
company is not VAT taxable transaction. Capital gains from
the sale of shares by Latvian resident company are exempt
from taxable income.
Asset deal vs. share deal
• There are clear cost and tax saving benefits in case the real
estate in Latvia is purchased by way of share deal. Share deal
also allows for automatic transfer of all the contracts and
rights (such as lease, construction, design) related to the
real estate, nevertheless, the risks of assuming contingent
liabilities should also be carefully evaluated on case by
case basis.
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Investors Guide to Europe 2015