Month: February 2024

Is there a public land rent charge for a shelter under public land?

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You own real estate - a warehouse, a shelter or a garden shed. However, the property is on or under public land. You have not entered into any agreement to lease the state land, but one day you receive a notice that you have not complied with your obligation to pay the rent, even though you are not the lessee of the state land. Viktorija Dubovskienė, a lawyer at AVOCAD, explains what your obligations are and what the legal framework is.

The Law on Land Reform of the Republic of Lithuania stipulates that the users of state land plots, who have been granted land plots in accordance with the procedure established by legal acts or who have been allowed to use the land by decisions of the land administering authorities during the period of the land reform, shall pay the land rental fee for the use of the land in accordance with the procedure established by the Government, before the lease or sale-purchase contracts are concluded, except for the land transferred for use. 

According to the Land Law, a land user is the owner of the land or another natural or legal person, foreign organisation, branch of a legal person or foreign organisation, who uses the land on the basis of laws, administrative acts, court decisions, transactions or other legal basis.

The Supreme Court of Lithuania, interpreting the application of the Land Reform Law, points out that the obligation to pay land rent for the use of state land arises not only from the state land lease agreement, but also from law. The Court of Cassation has noted that the actual user of the land may not obtain more privileges than the person with whom the land lease agreement is concluded.

It is therefore clear that immovable property located on State land for which no lease agreement has been concluded does not exempt the owner of the immovable property from the payment of State land rent, nor does it constitute any exception to the non-payment of the abovementioned State land rent.

The Land Reform Law establishes the obligation to pay the state land rent tax not only to those users of state land who use only the state land plot formed in accordance with the procedure established by the legislation and registered in the Real Estate Register, but also to other users of state land who use state land on a legal basis for the actual use of the state land, except for the gratuitous grant of the use - the use.

Is there a public land rent for an underground shelter?

And how would the situation be assessed if the property in question was real estate - a shelter not on public land but under it? According to the Building Act, a building is an immovable object with load-bearing structures, all of which are erected on the site of the building during construction work. According to the same law, a building is a roofed structure, the main part of which consists of premises. 

A shelter is an independent object of legal relations and is included in the concept of basic objects within the meaning of the Civil Code. Therefore, it is the shelter that does not fall within the exceptions set out in the Land Law, which prevent the lease of public land without auction.

It should also be noted that neither the above-mentioned norm of the Land Law, nor any other provisions of laws or other legal acts link the possibility of renting state land, as well as the obligation to pay the state land rent fee, with the fact whether the building is above or below ground. An underground building, like an aboveground building, requires a land plot of an appropriate size for its construction and operation. The term 'built-up' as used in the Civil Code and in the Land Law is to be interpreted as covering the use of public land when both above-ground and underground structures (buildings or installations) are built on it.

Therefore, the Court of Cassation in its practice has stated that the fact that the structures (buildings) located on state land are underground does not negate the use of state land necessary for the operation of such structures in accordance with their intended purpose and this circumstance does not constitute a reason to exempt the owner of such structures from the obligation to pay the rent of the state land.

So, whether your property is on or under state land, and whether or not you have a state land lease, the legal obligation to pay state land rent is not eliminated, and you must always comply with this legal obligation.

Transactions that don't benefit the company - when is the CEO liable?

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Žygimantas Klizas, Senior Associate at AVOCAD

As one of the main bases for the creation of obligations, the conclusion of transactions is a normal part of a company's day-to-day business operations.

By entering into transactions, companies achieve their business objectives. In particular, business practice often leads to situations where, in order to develop their business, the management bodies of companies have to take risky decisions or enter into transactions that often do not work as well as planned and, consequently, cause material damage to the company or even lead to insolvency situations. Moreover, even in the face of business cycles, economic fluctuations and other factors beyond the company's direct control, a company cannot guarantee that every transaction it enters into will be economically advantageous.

In many cases, when negative consequences arise from the activities of a legal entity, the search for the guilty is often directed towards the decisions taken by the head of the company's management bodies or the members of the board of directors of the collegial management body, as well as the other actions taken by these individuals. In more than one case, this becomes part of the plan and a way to get the person in charge out from under the helm of the company.

The Civil Code of the Republic of Lithuania establishes the general duties of members of the management bodies of a legal person, otherwise known as fiduciary duties - to act honestly, reasonably, to be loyal, to observe confidentiality and to avoid conflicts of interest. It also stipulates that a member of the management body of a legal person who fails to perform or improperly performs the duties referred to in this Article or in the instruments of incorporation shall be liable to compensate the legal person in full for the damage caused, unless otherwise provided by law, the instruments of incorporation or the contract.

Civil liability requires a set of conditions set out in the law: unlawful acts of the manager (except for exceptions set out in the law), a causal link between the unlawful acts and the loss, fault on the part of the manager (except for the exceptions set out in the law or the contract), and damages. The burden of proving the totality of these conditions rests on the company or the shareholder of the company seeking civil liability, which is the shareholder's non-pecuniary right under the Law on Companies.

In disputes concerning the liability of members of the management bodies of public limited liability companies, it is recognised in case law that even if a particular business decision could lead to a loss, this does not mean that the decision was unlawful. As the Supreme Court of Lithuania has clarified in its case law, the mere fact that a transaction entered into by the company's manager turned out to be unprofitable and caused damage to the company or its creditors does not in itself provide grounds to consider the actions of the company's manager as unlawful, provided that the manager of the company has acted in good faith and with due care, has not breached any duties imposed on him by the law or the company's operating documents, and has not clearly exceeded the normal economic and commercial risk in the company's business.

The Supreme Court of Lithuania, in developing the practice of application of the liability of members of the management body of a legal person, also states that participation in business involves a risk that the decisions taken may be not only beneficial but also detrimental. If the members of the management bodies of a company were to be held personally liable for every decision that caused a loss, it would hamper their initiative and entrepreneurial spirit, limit their freedom of action in situations requiring quick and decisive decisions, and encourage shadow management of the companies. In order to protect members of a company's management bodies from damages claims, the business judgment rule applies, which presumes that they are acting in the bona fide best interests of the company they lead. This presumption is intended to protect the directors of a company from personal liability for business decisions made in good faith and in accordance with the standards of the duty of care. Therefore, it is not sufficient for the person seeking damages to prove the fact of the damage caused, but it is also necessary to prove a breach of the fiduciary duties of the members of the company's management bodies (loyalty, honesty, reasonableness, etc.), a manifest disregard of a reasonable commercial risk, a manifest negligence or an excess of powers.

It should be noted that it is the business judgment rule that ensures that the governing bodies of a legal person can take risky decisions that may lead to business development, bring about highly successful results of economic and commercial activities, and thus ensure the interests not only of the legal person but also of its shareholders. Moreover, this rule also protects the members of the management bodies of the legal person from strategic lawsuits, which are very often used in shareholder disputes as a means of exerting pressure on a shareholder who is also a member of the body of the legal person.

Thus, the question of compensation for damages is decided on a case-by-case basis, after assessing the totality of the circumstances, the reasons and motives for the respective decisions of the manager or the collegial management body, and other relevant circumstances which reveal whether the management body of the legal person has fulfilled or breached its fiduciary duties. It is precisely if it is established that a member of the management body of a legal person has breached his or her fiduciary duties by concluding a transaction that is manifestly unfavourable to the legal person and that has led to the occurrence of the damage that the manager of the legal person should be obliged to compensate for the damage caused by his or her actions.