Real estate sales-purchase

In real estate sales-purchase transactions, initially there is a need to understand the following series of nuances:

if the real estate is for sale, is there a capital gains tax, since the sale of the real estate is regarded as profit;
if the real estate is for sale, whether the real estate was purchased during the marriage and is regarded as common property. Upon sale, the written consent of the spouse will be necessary;
if the real estate is going to be purchased, is it necessary to submit a request to the local municipality for the use of the right of pre-emptive purchase, in case of purchasing of a plot of land;
if the real estate is going to be purchased, is the purchaser a citizen of Latvia or another EU country. Non-citizens of Latvia, by purchasing a plot of land, shall receive the permission from local municipality;
if the real estate is going to be purchased, and it is a plot of land, what is its purpose of use and is there a land for agricultural purpose. Agricultural land has list of conditions and restrictions;
if the real estate is going to be purchased, whether the real estate is in common use and in ownership with other persons. Is it planned to buy a part of the real estate or the whole one?

And others.

A capital gains tax, which currently amounts to 20% of profit, is generated if there is a difference between the amount for which the real estate was purchased and the amount for which it is sold. The difference is recognized as a profit, and it is taxed.

If the real estate is owned for more than 60 months (5 years) and 12 months in a row, the owner was declared there, then there is no need to pay capital gains tax. The law” On personal income tax” provides for a number of exceptions, when the owner is exempt from paying capital gains tax, when selling real estate.

In each case, this nuance should be considered first.

When selling the real estate, it is vital to understand whether the real estate was acquired during the marriage and whether it is considered as a common property. Common property is considered if it was purchased during the marriage (in this case, it does not matter to whom exactly the real estate is registered in the land register).

The real estate may be separate if it was donated to a person or inherited. If the spouses have a prenuptial agreement on separate ownership, the real estate will be considered separate and the during the sell the consent of the spouse is not required.

III

When purchasing the real estate, namely if it is a plot of land, after the sales-purchase agreement have already singed, one copy of the agreement shall be submitted to the local municipality.

The municipality has the right of pre-emptive purchase or as it is called “the right of the first hand”. In other words, the municipality has the right to purchase the real estate on the same terms and at the same price as specified in the agreement of the parties.

The municipality considers the need for such plot of land and issues a decision-consent or refusal. The municipalities’ refusal to acquire means the parties ‘ deal can move on.

The refusal of municipality shall be submitted to the land register along with the rest of the package of documents. On average, it takes a week to a month to obtain a decision of a municipality, therefore this nuance also needs to be taken into account when calculating the urgency of purchasing the real estate.

Such commitment can also be avoided, which is often used to speed up the purchasing process.

Another nuance when purchasing a plot of land, which is often forgotten in practice, is whether the buyer is a citizen of Latvia or a citizen of the European Union. If the purchaser is not a citizen of Latvia or is a citizen of a third country (not EU countries), before the purchasing the real estate, the purchaser shall obtain foe a permission to acquire a plot of land.

The permit is issued by the municipality of the territory where a plot of land is located. The period of issuance of the permit is also up to one month. It is impossible to avoid this requirement, so it is worth taking into account when calculating the urgency of the purchasing.

It is well known, that agricultural land is a special purpose of use and the government controls who purchases such land and in what quantity.

Citizens of third countries are prohibited to acquire agricultural land in Latvia, as well as forest land.

Citizens of Latvia, non-citizens of Latvia, citizens of the European Union and legal entities can purchase a plot of land with agricultural land provided that the total amount does not exceed 4000 hectares per person.

There are ways to avoid purchasing directly agricultural land if its area is not significant in proportion to the total area of the land.

When acquiring the real estate, it is necessary to know whether the real estate is sold by one person or several, namely whether the real estate is shared with another person or persons. In this case, it is immediately necessary to determine whether all or only part of the real estate is being purchased. In the case of the second option, the new owner will purchase the thought part of real estate and will be a co-owner, which obliges the owner a lot of obligations and restrictions.

In case all real estate is purchased from several persons, all owners of the property shall participate in the transaction.

If only part of real estate is purchased, the other owner or the rest has the right of pre-emptive purchase. Only after the other co-owner or owners have refused to purchase, part of the real estate can be sold to a third party, in other words, to a person “from outside”.

There are other conditions and nuances that need to be considered in order for the transaction to go well, quickly and without any problems.

First of all, is the real estate have been commissioned? In the case of purchasing real estate that has not been commissioned, the new owner will have to deal with this issue.

The parties may agree that the current owner begins the process of commissioning into operation and after the process is finished, the purchase and sale transaction itself is carried out.

Secondly, it is necessary to agree on the method of payment of the purchase price, whether the deposit contract will be concluded, how the purchase price will be transferred-by bank transfer, through an escrow account with a notary or through a Bank deposit account.

If real estate has been purchased or is planned to be so in credit, banks usually offer a Bank deposit account or issue a “letter of Guarantee” to the purchaser.

Thirdly, whether real estate tax has been paid for the entire current year. When selling real estate, the owner must pay all tax for the whole year. The parties may agree that the tax is paid in half or in proportion to the number of months each party is the owner.

If the property tax is not paid in full, the land register will not accept the documents. Also, documents will not be accepted if there is a debt for tax.

And the last one, whether real estate is purchased or sold personally or by power of attorney.

In case a trustee will be involved in the deal, a notarized power of attorney for purchase or sale of the specific property / or a general one for purchase or sale of the property, will be required.

If it is planned that the authorized person completely independently carries out all actions in the transaction, the power of attorney should provide a list of specific actions, otherwise the authorized person will not be able to carry out certain actions, such as signing a petition to the land register on the transfer of ownership of property.

The real estate sales-purchase transaction is a complex process, and each case is individual in relation to the real estate itself, the method of payment, the parties and others.

25 Nov 2019