Month: July 2024

What do I need to know when buying a loft?

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The first wave of lofts in Lithuania broke out more than a decade ago. At that time, it was mostly admired by people looking to buy their living space at a slightly cheaper price, as well as by artists looking for unconventional spaces. The low price and space outweighed all other doubts and uncertainties.

The new owners faced a number of problems when they bought the premises - the premises were often registered as administrative or other uses, which led to property tax charges for the owners, people were unable to declare their place of residence, credit institutions applied less favourable financing conditions, and changing the status of the premises took a long time and was often not possible at all.

"So, before you buy a loft, the first thing you should do is to make sure what you are buying and that it is not a non-residential premises," says Laurynas Staniulis, Partner at AVOCAD, Lawyer

The Code of Administrative Offences stipulates that the use of a building and its premises for a purpose other than its intended use is punishable by a fine of between €280 and €3,000. Repeated use of the use of the premises is punishable by a fine of between €400 and €6,000. "It is quite difficult to detect the offence and so far there have been no fines in practice, but anyone acquiring non-residential premises and intending to live there permanently should be aware of this possibility," warns the lawyer.

According to Laurynas Staniulis, in addition to the above-mentioned concerns, owners of lofts may face even more complex issues regarding the maintenance of common-use objects or objects owned under shared ownership and subject to a set procedure for use.

For example, some time after the first renovation, questions arise: who is supposed to maintain and take care of the common structures of the building where the lofts are located, and whose money is needed to organise roof repairs, or to replace or repair the plumbing and sewage networks?

According to the lawyer, on the one hand, it seems very simple and understandable - the Civil Code clearly states that owners of flats and other premises are obliged to manage, properly maintain, repair or otherwise manage the common use objects. Decisions in such cases can be taken by majority vote. However, this applies only when independent premises are formed and registered.

However, in some cases, lofts are not sold as separate properties but as shared ownership with a set of rules for use. In this case, any maintenance or repair of the property must be decided unanimously, except in the case of emergency repairs.

In this case, the legal rule is that the object of joint ownership is managed, used and disposed of by agreement between the co-owners and, in the event of disagreement, the procedure for management, use and disposal is determined by a court order, following an action brought by any of the co-owners.

"So if you decide to repaint the walls of a staircase, replace a faulty lock or carry out other minor work that is not related to remedying the emergency, you will need to get the consent of all the co-owners, and if you don't give your consent, not only will you not be liable for the costs, but you could also be in danger of interfering with the work," warns the lawyer.

The situation is even more difficult if you decide to carry out works that require a building permit, as a building permit is only granted at the request of all co-owners, and you cannot force a co-owner who refuses to do so, even in court.

According to Laurynas Staniulis, this certainly does not mean that a loft cannot be used as a residence, but when deciding to buy a non-residential property, especially when acquiring a share of the property, it is necessary to consider all the pros and cons of such an object.

 

Are you entitled to a credit reduction when you buy a car?  

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To buy a car, we often use a variety of financing instruments. Some of the most popular are car rental or leasing contracts. Eimantas Čepas, Senior Associate at AVOCAD, comments on what you need to know about these contracts and what misunderstandings often arise when you want to buy a financed car early in the hope of saving money .

According to the lawyer, when concluding a car rental or leasing contract, the buyer of a car can usually choose between paying only monthly instalments during the contract period and not buying the car at the end of the contract, or paying the residual value of the car and taking personal ownership of the used car.

It is important to note here that this refers to rental or leasing contracts between a consumer and a trader. In a consumer contract, the trader undertakes to transfer the ownership of the goods or services to the consumer and the consumer undertakes to accept the goods or services and pay the price. A consumer is a natural person who enters into transactions for purposes other than his business, trade, craft or profession. The consumer is considered to be the weaker party to the transaction when concluding a contract with a trader, which is why the law provides for additional safeguards to protect the rights of the consumer.

The Consumer Credit Act is one of the tools designed to protect the interests of consumers who are considering taking on financial obligations. The Consumer Credit Act enshrines the consumer's right to discharge all or part of his obligations under a consumer credit agreement at any time. If he does so, he is entitled to a reduction in the total cost of the consumer credit, consisting of interest and costs for the remaining period of the consumer credit agreement, calculated from the date of repayment of the consumer credit or part thereof.

Thus, if a contract is concluded and the owner decides to take ownership of the financed car before the final contractual maturity date, it is common practice to expect to save on the interest part of the lease or hire purchase agreement. However, there are occasions when, after expressing such a wish, the car financier asks to pay not only the residual value of the car, but also the interest for the entire pre-agreed period of the contract.

"Such situations have been created by the provisions of the Consumer Credit Act, according to which this Act applies to consumer credit agreements, but not to lease or hire-purchase agreements, where these agreements or a separate agreement do not stipulate an obligation to purchase the object of the agreement, in this case a car," says Čepas.

Financing agreements are usually drawn up in advance by the lender. The condition that at the end of the contract it will not be necessary to buy the car for the remaining value and that it will be up to the buyer's wish to do so, may seem attractive to many consumers. However, a financier who takes advantage of this, by formally stipulating in a standard rental or leasing contract that the consumer is not obliged to acquire the car, or only acquires the right to acquire the car by expressing his/her will in a separate notice, may seek to avoid the application of the provisions of the Consumer Credit Act, which enable the consumer to save money by early repayment of the contract, without having to pay a portion of the interest. Such a provision is undoubtedly advantageous for the creditor, as it ensures that the consumer, even if he decides to repay the credit early, will have to pay the full amount of the pre-agreed interest for the entire term of the contract.

The Supreme Court of Lithuania, which has established uniform case law in Lithuania, has pointed out that when assessing whether the financier in such contracts, by not imposing an obligation on the buyer to purchase a car, does not intend to evade the application of the Consumer Credit Law and to make a potentially unjustified profit from the consumer, the purpose for which the buyer enters into the contract should be taken into account. In this case, the consumer's purpose is usually clear, namely to purchase a car by spreading the payments over a period of time.

In the Court's view, where the contract in question does not contain a clause requiring the consumer to acquire ownership of the car and these circumstances have not been individually discussed with the consumer, or where other circumstances suggest that the terms of the lease or hire-purchase agreement were intended to avoid the application of the Consumer Credit Act, the provisions of the Consumer Credit Act must apply to such contracts and the consumer's rights to discharge all or part of his obligations under the consumer credit agreement and to reduce the total cost of the consumer credit at any time must be protected.

Nor should the consumer's right to discharge all or part of his obligations under a consumer credit agreement at any time be confused with a modification of the credit agreement. This means that the consumer may decide on his own to prematurely discharge all his credit obligations, in which case he may not be required to renegotiate the terms of the financing provided.

According to Eimantas Čepas, attorney at law at AVOCAD, notwithstanding the possible unfair behaviour of creditors in not stipulating the obligation to purchase a car in rental or lease agreements, in order to formally avoid the application of the Consumer Credit provisions, a consumer who decides to redeem the car subject to the agreement before the due date is entitled to a reduction of the total price of the consumer credit, i.e. to the conversion of the interest rate at the time of the redemption of the car, thus lowering the overall price of the interest payable.

 

 

Disagreements between shareholders: can a manager restrict information?

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One of the fundamental rights that shares give their holders is the right to participate in the management of the company. In order to participate in the management of a private limited liability company, a shareholder naturally needs to have access to the company's documents and information that may be relevant to decisions relating to the management, development and investment of the company. When relations between shareholders and the company's management bodies are good, based on trust and the pursuit of common objectives, everything is simple. But what about when the relationship is complicated - does the company's CEO or board of directors have the ability to restrict shareholders' right to information? Sandra Mickienė, Associate at AVOCAD, talks about this .

Although shareholders invest their own funds in the company's capital and should, for this reason alone, seem to have a right to all information relating to the company's activities, the reality is that shareholders' right to information is not unlimited. The law provides for three types of information that shareholders may request:

First, a shareholder is entitled to information of a general nature specifically listed in the Law (such information includes: the Articles of Association, the annual and interim financial statements, the minutes of the general meetings of shareholders and any other documents of the company that are required to be made public by law). As this information is publicly available, it should not be classified as a company's business or trade secret or confidential information and should not be refused by the company to a shareholder. This means that the company is obliged to make this information (these documents) available to the company's shareholders at all times.

Second, a shareholder is entitled to other information and documents that are specifically set out in the company's articles of association. In other words, if the company's articles of association specify additional company documents to which shareholders are entitled to have access, the company will be obliged to make these documents available to shareholders if they so request.

Third, the information and documents that the shareholder needs to comply with other legal requirements. This category includes all documents relating to the company's business secrets and confidential information. A shareholder seeking this type of information from the company should justify the legal requirements for which the information is needed. If the shareholder does not demonstrate (justify) the need for the confidential information to fulfil the legal requirements, the company may refuse to provide the shareholder with this information.

Therefore, the answer to the question whether the director of a company has the possibility to restrict the shareholders' right to information is as follows: the law provides for the possibility for companies to refuse to provide information and documents when the latter relate to the company's commercial or industrial secrets or confidential information.

Probably the most serious problems with the implementation of the shareholders' right to information arise when companies operate in accordance with the model articles of association. First of all, the model articles of association do not provide for any additional documents to be made available to the shareholder on request. Although the Model Articles of Association provide that the shareholder is entitled to have access to all documents of the company, they also provide, in another sentence, that the company may refuse to give the shareholder access to and/or copies of documents relating to the company's business secrets or confidential information. In other words, the Model Articles provide for the same restrictions on the provision of information to shareholders as the Act. Therefore, a shareholder would only be able to receive publicly available documents without restriction under the Model Articles, and in respect of all other information, the company has the right to refuse to provide the shareholder with the additional information and documents requested.

So, if a company operates under the model articles of association and there are only two shareholders (one of whom is not only a shareholder, but also a director of the company with, for example, a larger or equivalent shareholding), whose relationship is in a state of disrepair, it is obvious that, such model articles of association, on the basis of which the company operates, enable the shareholder, who is also the manager, to manipulate the situation by withholding from the other shareholder all the information he has requested under the pretext of the protection of confidential information, including trade/production secrets. A shareholder with a minority/equivalent shareholding does not even have the possibility to remove such a manager from office. Obviously, such shareholders are in an unequal position: one shareholder, being also the manager of the company, has access to all the company's data, including financial documents, trade secrets, etc., whereas the other shareholder may be (reasonably or unreasonably) restricted in this respect.

How can you protect yourself from such situations?

In particular, we would suggest that companies should not be set up on the basis of model articles of association, but on the basis of individualised articles of association, which could extend the list of information or documents that must be provided to shareholders. Individualised articles of association would not only benefit shareholders in this respect, but also in order to limit the powers of the manager, which are quite broad under the model articles of association (for example, the manager of a company may, on the basis of the model articles of association, enter into any contract for the transfer, investment, lease, acquisition, mortgage, pledge, hypothecation, guarantee or warranty of fixed assets, irrespective of the carrying amount or the selling price of those assets, without the need for the approval of a general meeting of the shareholders).

If shareholders find the model articles of association convenient due to simpler procedures for amending them (amendments can be made electronically through the self-service system of the Centre of Registers) and lower costs (amendments do not need to be notarised when made through the self-service system of the Centre of Registers), another option to expand the list of information to be provided to shareholders would be the conclusion of a shareholders' agreement. It could not only extend the list of information to be provided to shareholders, but also regulate the procedure for the disposal of the information, establish the division of shareholders' competences, limit the manager's competences by specifying which decisions require the approval of, for example, all shareholders, provide for the specific conditions of the procedure for the replacement of the manager to enable those shareholders who have a smaller or equivalent shareholding to take action, etc.

If the drawing up of both the individualised articles of association and the shareholders' agreement is not possible due to conflicting shareholder relations or other circumstances, if the company refuses to provide the shareholder with the information requested by the shareholder, the shareholder has the right to apply to the court and ask the court to oblige the company to provide the information he or she requested.

When to go to court?

In this context, the Supreme Court of Lithuania has provided significant interpretations that are worth considering when deciding whether to apply to court and whether to protect one's rights as a shareholder:

  • Although the law gives the company the right to refuse to give a shareholder access to and copies of documents relating to the company's trade secrets or confidential information, this right is not absolute. It is not sufficient to state declaratively that the documents requested by the shareholder relate to trade secrets or confidential information. The company bears the burden of proving that the information or documents which the shareholder requests to be disclosed relate to its trade secrets or confidential information. The courts will assess in each case whether the information is reasonably capable of being classified as a trade secret or confidential information.
  • The data constituting the content of confidential information are not always trade secrets. Information that can be classified as a trade secret is essentially subject to three requirements: secrecy, value and reasonable efforts to preserve the information. Information shall be regarded as a trade secret if it has actual or potential commercial value by reason of the fact that it is not known to third parties and cannot be freely accessed by the owner of the information, or by any other person to whom the owner has entrusted the information, by reason of the fact that he or she has made reasonable efforts to preserve the secrecy of that information. Thus, for confidential information to qualify as a trade secret, it must first have some value and the fact that the information is not made public does not mean that it has commercial value.
  • The company should also justify that such provision of copies of information or documents relating to its trade secrets or confidential information to the shareholder would be prejudicial to the company or otherwise prejudice its legitimate interests.
  • The term 'compliance with the requirements of the law' includes the shareholder's interest and need to obtain information also for the purpose of exercising his right as a shareholder to participate in the management of the company, and therefore the claimant, when applying to the court for an order to require the company to provide the information he has requested, may simply refer to his right to participate in the management of the company as a basis for his claim in the abstract, in other words, it is not necessary to specify the specific provision of the law on which he is requesting that the company provide the information he has requested.

Underage work in summer: what do businesses and parents need to know?

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Summer holidays are a time when many pupils and students are looking for temporary work to gain experience, earn money and spend their time productively. Summer jobs for minors are becoming increasingly popular. Laurynas Staniulis, partner at AVOCAD, reminds businesses and parents who employ minors about what they need to know.

According to the lawyer, Lithuanian legislation strictly defines the working conditions of minors and seeks to ensure that their working environment is safe and their working hours are reasonably limited. This is necessary to protect the health and development of young people. Employers offering temporary jobs to minors must comply with strict rules and requirements to ensure that the work experience is not only rewarding but also harmless.

 

What must be included in the employment contract?

Fixed-term contracts are a popular way of employing minors during the summer. These contracts are usually for a limited period of time and stipulate specific working conditions and duration. Lithuanian law stipulates that minors can work from the age of 14, but the hours and nature of their work are strictly regulated. Outside the school year, minors under 16 can work up to 6 hours a day, 30 hours a week. During the school year, up to 12 hours per week. Meanwhile, adolescents aged 16 and over may work up to a maximum of 8 hours per day and 40 hours per week. The nature of the work must be light and without risk to health.

The employment contract must clearly state the duration of the work, the pay, the duties and the conditions of work. It is also important that the employer provides a safe working environment and all the necessary information and training on workplace safety.

The lawyer also points out that minors aged between 14 and 16 need the written consent of a parent or other representative of the child. The employer must provide the child with a medical certificate issued by a health authority stating that the child is fit for the job in question. During the school year, minors aged between 14 and 16 need written consent not only from their parents but also from the school where the child is studying. From the age of 16, neither consent is required.

Regulation and protection

Minors' work is regulated by the Labour Code and other legislation, which details working conditions, working hours and ensuring that working conditions comply with safety and health requirements. Employers who fail to comply with these requirements can face serious consequences, including fines and other legal action. The State Labour Inspectorate carries out regular inspections to ensure that employers comply with all legal provisions and that minors work in appropriate conditions. In addition, minors and their parents have the right to contact the labour inspectorate or other responsible authorities if they consider that working conditions are inadequate or that their rights are being violated.

 

What minors cannot do?

Lawyer Laurynas Staniulis points out that the general rule is that children are not allowed to work, except in light work that is compatible with their physical abilities and that does not adversely affect the child's safety, health, physical, mental, moral or social development. For example, they are not allowed to work in jobs involving alcohol.

When employing minors and providing them with safe and healthy working conditions, the employer must be aware that minors are prohibited from working in work that is harmful to their health or dangerous.

It is also important to remember the working hours of children in light work. During the school year, minors under 16 can work up to 6 hours a day, 30 hours a week. During the school year, up to 12 hours per week. Meanwhile, adolescents aged 16 and over may work up to a maximum of 8 hours per day and 40 hours per week.

Summer work for minors can be a great opportunity to gain valuable work experience, but it must be regulated and safe. This is the only way to ensure that young people can fulfil their potential and prepare for their future careers without harming their health or their education.