Buying property in Latvia
The process of buying property in Latvia can follow different paths, depending on what kind of real estate you are interested in. However, the general procedure can be summarised in the following steps (assuming you have already found a property you are interested in):
- performing due diligence
- preparing documents
- transferring payments
- registering with a Land Book
Due diligence is a process of acquiring information about the property with the aim of making sure that it is legally safe and sound. It involves checking relevant documents, as well as whether the piece of real estate is registered with all the necessary government agencies, such a Land Book. This type of legal assessment also checks if all the parts of the property have been properly legalized, e.g. whether the buildings on a land plot have been built in accordance with all the rules. You can read a detailed description of the procedure in the dedicated article on due diligence.
Ordering a due diligence is a vital first step in buying a Latvian property. Skipping it might turn very badly in the long term, as well as make you spend more money than you should have spent. Unassessed property can also bring serious legal consequences, as any violations of the law and improperly prepared documents are the liability of the owner of the property. Once you become an owner, you assume full responsibility for everything. This is why it cannot be stressed too much, that the 1st step of buying a property is ordering a due diligence process.
The main document for buying a Latvian property is, of course, a purchase agreement. However, besides it, there are other documents which might be necessary, depending on a specific deal. In total, these are:
- promissory note (in Latvian: rokas naudas līgums)
- purchase agreement
- Land Book registration application
- property deed (Land Book certificate)
A promissory note also known as a letter of intent is a preliminary agreement between the buyer and seller of real estate, in which they declare their intentions to complete the transaction and to fulfill certain obligations. Usually it involves the buyer paying a certain sum of money upfront, and the seller promising not to offer the property in question to anyone else. This is only the basis, however, and actually the promissory note can include any conditions that ensure that the purchase deal will indeed be completed in the future. For example, it may stipulate that the buyer will first receive a mortgage loan and then buy the property. Or that the seller will demolish an additional structure that has been built with legal violations.
After a promissory note is secured, a purchase agreement is prepared. In it, both parties specify exactly what property and/or its parts are being sold, and for what amount of money. They also describe their liabilities and provisions for not following their liabilities, such as fines. It is crucial for the buyer to see what kind of guarantees and declarations the seller makes, and it is strongly advised to hire a property legal aid agency to oversee the preparation of the contracts. This information will be your safeguard in case legal problems are detected after you have made the purchase. Please, also note, that the purchase agreement is not the final proof of ownership. It is only a basis for the next step.
The next and the last document in the purchasing process is the title, also known as property deed. This is the step when the ownership title is actually transferred to you via registering you in the appropriate Land Book. For this, you will need a Land Book registration application (in Latvian: Nostiprinājuma lūgums). It is freely available on the official Land Book website, and requires various information about you and the property you have purchased, as well as documents that prove the deal, i.e. a purchase agreement. After your application has been approved, you are legally considered to be the owner of the property.
To prove your ownership in the future an official note from the Land Book is required. It acts like the aforementioned title or deed, and in Latvia is considered to be the only valid proof of ownership.
Payments and fees
When buying a piece of real estate, the following payments and fees are in place:
- the price of the property itself
- a sum paid as part of the letter of intent (if applicable or if not part of the property price)
- state fee for registration with a Land Book
- stamp duty for registration with a Land Book (0.5% - 3% depending on the circumstances, in most situations it is 2%)
- notary fee for drafting a purchase agreement
While government/notary fees and duties are paid on the spot, there is a number of ways to transfer the payment for the property:
- at the time of signing the purchase agreement
- at the time of signing the letter of intent (promissory note)
- in part before signing the purchase agreement, and the other part after that
- via an escrow account (in Latvian: darījumu konts)
The first three options are quite self-explanatory, and it is only advisable to do that in the presence of a lawyer or other authorized agent. As for an escrow account, it is a bank account that is opened especially for the deal, and the payment is transferred to that account to be stored until the deal is concluded. After the ownership title is transferred to the buyer, i.e. he/she is registered as such in the relevant Land Book, and sufficient proof is delivered to the bank, the money is automatically transferred to the seller. This guarantees that the buyer will receive the property before actually parting with the money, and gives incentive to the seller to fulfill his/her part of the deal, as without it the money shall be returned.
Security and safety measures
As buying a property potentially involves significant sums of money and risks, there is a number of safety measures which can ensure that the transaction goes smoothly and does not cause long-term problems.
First, due diligence must be performed. As it was mentioned before, due diligence makes sure that the property is legally sound - all the documents are prepared correctly, all the parts of real estate are registered, and no parts have been built with violations of the law. Most of the legal and technical issues are uncovered on this step, which is why it is highly advised to employ a legal assessment agency to perform a qualitative due diligence procedure. It will also be beneficial, because the agency will give actual advice on how to deal with these issues, or even solve them for you.
Secondly, draft a letter of intent. While not obligatory, it is highly recommended to secure the deal in this way. Most importantly, it helps you ensure that the property will not be offered to other buyers, which is especially important if you need to apply for a mortgage or formalize any documents. Additional benefits are that you can stipulate basically anything in the letter of intent, as long as the seller agrees, providing you with any level of security you need.
Next, use an escrow account. It is by far the most secure way to transfer any payments, as a bank is an uninterested party, which act according only to instructions, which maximizes the security of your money. Moreover, it guarantees that the seller will not back off at the last moment, and it also gives him/her the incentive to actually close the deal, because there is no other way he/she will receive the money.