Lease agreements can be entered into in a freely
chosen form at the discretion of the contracting parties.
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 customarily are rather limited and custo-
marily are expanded contractually in the lease agreement.
If the lease agreement is not registered with the Land Register,
the lease agreement would not be binding on the buyer of the
property.
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.
Î
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 therefore freely assign its
rights, including rights to the income stream, under the lease.
•
Latvian law recognizes the principle of transfer of business and,
if the tenant transfers its business, the lease contact 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 as the creditor 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 and tested by Latvian courts, the
lease contact can seek to establish that in the case of assi-
gnment 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.
Î
The environmental appendix
•
Latvian laws do not require any conformity certificates or “green
appendixes” to be addressed in commercial lease relations.
Î
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.
Î
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.
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TaX
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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.
Î
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.
Î
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, never-
theless, the risks of assuming contingent liabilities should also be
carefully evaluated on case by case basis.
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