Category: Real estate and construction law

Let's imagine a situation that is very common in today's real estate market. A buyer finds a home, agrees on a price, signs a preliminary purchase agreement, pays a deposit, and waits for the documents for the main contract to be prepared. The parties communicate, agree on terms, sometimes even extend agreements or make additional payments. However, the market changes—prices rise, another buyer appears who is willing to pay more. Then one party terminates the pre-contractual relationship, returns the advance payment, pays the contractual penalties, and considers the matter resolved. But is it really?

This seemingly mundane situation was recently assessed in detail by the Supreme Court of Lithuania, which clearly stated that once pre-contractual relations have been terminated, the issue of compensation for losses cannot be resolved formally. It must be assessed according to specific and clear criteria, and the mere payment of penalties does not necessarily mean the end of liability.

Viktorija Dubovskienė, a lawyer at the AVOCAD law firm, notes that this ruling is significant in that the court very clearly distinguished between two situations – when the termination of pre-contractual relations only has contractual consequences and when it results in an obligation to compensate for additional losses.

"The LAT essentially said that the termination of pre-contractual relations does not in itself mean an automatic right to compensation for any losses. However, if the termination is unfair and the other party suffers real losses as a result, they must be compensated," says the lawyer.

In the case under consideration, the court assessed a situation where the seller, having concluded a preliminary contract for the sale of property for EUR 124,000, failed to perform it and subsequently sold the same property to a third party for EUR 190,000. The key issue was not the fact of the termination of the agreement itself, but why it happened and what consequences it had for the other party. The Supreme Court of Lithuania found that the main contract was not concluded due to objective obstacles, but because of the seller's decision to take advantage of the changed market situation and obtain greater economic benefits.

"The criteria highlighted by the court are particularly important in this case: whether the party acted in good faith, whether the pre-contractual relationship actually continued, whether the other party had a reasonable expectation of concluding the main contract, and whether it suffered actual losses as a result of the termination," emphasizes Viktorija Dubovskienė.

The Supreme Court also clearly stated its position on the nature of the losses. Acting in good faith and having a valid agreement, the buyer had a real opportunity to purchase the property at the agreed price. Upon termination of the preliminary agreement and increase in market prices, he lost this opportunity. The court recognized that this loss was not hypothetical—it was a real pre-contractual loss that had to be compensated if it was a direct consequence of unfair conduct.

"This ruling is also important because it clearly shows that losses in pre-contractual relations are not assessed automatically, but rather through the criteria of causality, good faith, and actual consequences. If one party terminates the agreement solely in order to obtain a higher price, and the other party objectively loses the opportunity to acquire the property as a result, such benefit may become compensable damages," emphasizes the AVOCAD lawyer.

This ruling by the Supreme Court of Lithuania sends a clear signal to the market that preliminary agreements are not "temporary" or "without consequences." They create legitimate expectations, and their termination must be considered responsibly. Price changes or more favorable market conditions do not in themselves justify unilateral withdrawal from the agreement, and the issue of compensation for losses will be decided not formally, but according to the actual behavior of the parties and the consequences thereof.

The last days of summer and the month of September are a time when cities are buzzing with students and house hunters. Getting your first lease or changing your home may seem like a simple formality, but this is where costly mistakes are often made. Unrecorded housing conditions, verbal agreements or ill-considered contract terms are often the cause of lengthy court disputes.

According to Karolína Briliūtė, Senior Associate at AVOCAD, the most important first step in this process is a proper inspection of the property before concluding the lease agreement.

She points out that if there is a dispute about who damaged the property, the essential evidence is the condition of the property before the rental agreement was concluded. The essential protection for proving one's position is provided when the condition of the property is recorded. "In such a case, it is advisable for both the landlord and the tenant to film the premises prior to the conclusion of the lease, recording the date on which the recording is made, and reviewing the condition of the premises, identifying any damage or defects already present prior to the lease. The recorded defects must be included in the lease agreement, clearly discussing them", advises K. Briliūtė.

Otherwise, the landlord may take the position that certain defects in the property were caused by the tenant, either during the lease or after its expiry. According to the general rules of evidence, the burden of rebutting such allegations lies with the tenant. In the absence of visual evidence, the tenant risks not being able to defend itself against the claims made against it and having to pay for the damage caused to the dwelling, even if it existed before the contract was concluded. Accordingly, the recording of the condition of the property also makes it easier for the landlord to meet the burden of proof by claiming that it was the tenant who caused the damage during the rental period and thus caused the damage for which it is liable.

AVOCAD's lawyer also identifies a second important step - the conclusion of a written contract. "Although the law provides that a lease agreement can be concluded orally, case law and the volume of disputes that arise confirm that one should not be tempted by its simplicity," warns Karolina Briliūtė.

In the absence of a written contract as evidence and, for example, if the tenant fails to pay the rent, it is difficult for the landlord to prove that the tenant even lived on the premises, and it is also difficult to prove the true intention of the parties as to what was agreed in the lease contract (the price, the term of the lease, the liquidated damages, the penalties, the termination procedure, the termination notice periods etc.). This makes proof difficult, as the parties' explanations or the testimony of witnesses are given decisive weight, and this bureaucratic burden is particularly burdensome in court for the parties themselves. The additional hassle can be avoided by drawing up a written lease agreement and by discussing all the terms of the agreement in as much detail as possible, so as to leave no room for interpretation by the parties.

In this respect, she says, it is advisable to weigh up the potential risks and potential disputes and not be tempted to enter into a written contract in order to avoid taxes.

Lawyer Karolina Briliūtė also points out that subletting is only possible with the owner's consent. It is quite common for several tenants (students) to rent one apartment, but then one of the tenants decides to move out and "sublet" the room to another. In this case, an additional step is necessary to obtain the landlord's consent to sublet the property. If this is not done and disputes arise between the parties, the subletting contract may be invalidated. As in the case of a head lease, it is advisable to keep a record of the condition of the premises in the form of a visual record. This is to protect both the tenant and the sub-tenant in the event of any later questions as to whose fault any damage to the premises was.

You should also be aware of an additional protection for the tenant - the possibility to request a declaration that the terms of the lease are unfair.

In this case, if the lessor is a legal person, the lessee, as a consumer, is clearly entitled to the additional protection afforded to consumers, namely the possibility of requesting the annulment of the provisions of the lease. "It should be borne in mind that a natural person may also be considered an entrepreneur if the rental of residential premises is his/her usual (frequent) activity, the income from which is derived or a certain part of the rental income constitutes the landlord's income. In this way, the tenant is entitled to the additional consumer protection that applies to consumers," she stresses.

According to Karolina Briliūtė, unfair terms can be defined as terms that substantially unbalance the rights and obligations of the landlord and the tenant, putting the tenant in a significantly worse position than the landlord.

For this reason, it is preferable to prove the agreed circumstances where there is a written contract, rather than relying solely on oral explanations in the event of a dispute as to what was agreed between the landlord and the tenant.

In conclusion, the lawyer says that when concluding lease agreements, it is advisable not to avoid concluding them in writing, agreeing on all the terms of the agreement in as much detail as possible in order to avoid any interpretation of such provisions, recording the condition of the premises for both the landlord and the tenant prior to the conclusion of the agreement, making sure that the terms of the agreement do not distort the balance of the parties' rights and duties, and that any change of one of the tenants in the contractual relationship is only possible with the landlord's agreement.

 

 

The Supreme Court of Lithuania (SCL) has issued a significant ruling on real estate agency contracts - unilaterally drafted brokerage contracts, which provide for obligations to pay commissions and for non-performed services, are considered unfair to consumers.

The case concerned a dispute over the amount of €1,500 claimed by a real estate agency as commission for its services, even though the property was eventually sold through the owner's own efforts and not to a buyer found by the agency. The Supreme Court ruled in favour of the consumer, annulling the judgments of the first and appellate instance which had upheld the broker's claim.

This is a signal to the whole property sector

As the provision of real estate agent (broker) services is not separately regulated by Lithuanian legislation, the Supreme Court's case law is of particular importance when assessing whether the contracts concluded and services provided by brokers are in line with the legitimate interests of consumers.

According to Eimantas Čepas, attorney at AVOCAD, this case sets an important precedent, in which the court has made it clear: the usual contracts used by brokers are in a standard form and do not automatically imply that the consumer has agreed to their content knowingly or has individually discussed them in detail.

"The court in this case stated that the contract drawn up by the broker was pre-formed, template-based, and therefore subject to the criteria of protection of consumer rights and fairness, and the burden of proving that the terms and conditions were individually negotiated rests on the entrepreneur - the broker", - notes E. Čepas.

Where a fee is claimed for the mere fact of a contract

One of the key aspects of the dispute is that the broker demanded payment for services even when the actual services were not provided. The client sold the property herself and the agency did not find a buyer, but the broker argued that the sale was advertised on websites and internet sites and other means, and that therefore the costs were incurred and the broker was entitled to remuneration for the services. In this context, the agency claimed a fee of EUR 1 500 on the basis of several clauses of the contract.

LAT pasisakė aiškiai: „tikrieji Sutarties šalių ketinimai – atsakovė siekė ieškovės pagalba parduoti žemės sklypus, o ieškovė – surasti atsakovės žemės sklypų pirkėją, sudaryti su juo avansinę sutartį ir gauti už tai iš atsakovės 2000 Eur atlyginimą… <…> ieškovė atsakovės žemės sklypų pirkėjo nesurado, avansinės sutarties su pirkėju nesudarė, žemės sklypai buvo parduoti be ieškovės pagalbos, taip pat byloje nėra duomenų, kad ieškovė būtų atlikusi kokius nors veiksmus atsakovės naudai vykdydama Sutartį. Dėl nurodytų priežasčių nėra pagrindo konstatuoti, kad ieškovei priklauso atlyginimas pagal Sutarties 8 punktą…“

The Supreme Court noted that "the terms of the contract are not clear and sufficiently comprehensible, do not comply with the requirement of transparency, and are therefore unfair". In the Court's view, there is no reason to conclude that the consumer would have agreed to the condition that the broker's remuneration would be fixed, irrespective of whether the broker had fulfilled its obligations under the contract.

The onus is on the trader to prove that the contract is fair

The Court of Cassation has also clarified that service contracts cannot impose an obligation to pay merely on the basis of the fact that a contract has been concluded, as this does not impose any real responsibility on the service provider for the quality of the performance. Moreover, the agency did not impose any obligation on the basis of the contract to provide information on what it had done specifically for the consumer.

"The mere fact that a contract has been signed does not prove that the services have actually been provided, and if it has not been proven what services have been provided and what costs have been incurred, no remuneration can be claimed," stresses Eimantas Čepas.

In its ruling, the Court identified as many as five contractual provisions that are unfair to the consumer:

• Prohibition to sell the property or change the price without the broker's knowledge.
• Obligation to pay commission even if the broker has not fulfilled the contract and found a buyer.
• The requirement to pay a fixed commission of €1,500 even if no services are provided.
• Prohibiting the consumer from communicating with the buyers found by the broker.
• Provision that the broker is not obliged to provide any information about its actions.

"This is one of the clearest signals from the Supreme Court on consumer protection: service providers cannot hide behind template contracts. If you want a reward, you have to prove that you have actually worked and provided a benefit to the client", says lawyer E. Čepas.

Recommendation to estate agencies to review contract models

According to the lawyer, this case sets an important precedent. “Consumer rights are not a formality. Even if a contract has been signed, it must be fair, clear, and reflect the actual agreement. We invite real estate agencies and brokers to assess whether the contracts they use comply with the principles of fairness, clarity, and transparency and, if necessary, to update them," summarizes Eimantas Čepas.

 

A farmhouse that has been abandoned for decades: the roof is caved in, the walls are crumbling, but the foundations are still visible. The ruins of a factory in the centre of the town: some of the structures have collapsed, but some of the walls still remain. Do such buildings still exist legally or are they considered extinct? These questions are important not only for the owners, but also for the courts in disputes over property rights. The situation is complicated by the fact that there is no concept of extinction in the law.

According to Eimantas Čepas, attorney at law at AVOCAD, the right to property is one of the fundamental rights enshrined in the Constitution. "The inviolability and protection of property means that the owner has the right to perform any act on his property except those prohibited by law, to use his property and to determine its fate in any way that does not infringe the rights and freedoms of others," he reminds the lawyer. As a form of property, it is compulsory to register any building, whether created or existing, in the real estate register. The question is, can a structure disappear?

"According to the provisions of the legislation governing the registration of objects, rights in rem and legal facts, the public register must record, among other things, the fact of the extinction of a former object. Thus, it is obvious that the legal extinction of a building can and must be recorded in the public register," says Čepas. However, according to the lawyer, a strange situation arises, as there is no concept of extinction of an object in the legislation. The Supreme Court of Lithuania has also noted this in its practice.

The concept of extinction of an object is, in principle, only established by the rule of case-law that it is only after the fact of total collapse, destruction or demolition of a structure has been established, i.e., that there are no structures left or that only the load-bearing structures below the surface of the ground (the subterranean structure, i.e. in the case of a structure which is underground, where all or most of its load-bearing structures have disappeared), unless the demolition of the structure or parts thereof is carried out in the course of the reconstruction or overhaul of the structure, it shall be presumed to have disappeared and therefore the structure and the rights in rem in respect of the structure shall be registered.

"Thus, once the total collapse, destruction or demolition of a structure has been established, it is deemed to be extinct and must be registered, and vice versa - if there is no reason to establish the total collapse, destruction or demolition of a structure, there is no reason to deem it to be extinct," the lawyer notes.

This regulation is the subject of disputes in the courts

In practice, this legal framework often leads to disputes as to how many and which of the building's structures must be destroyed, destroyed or missing in order for the building to be considered extinct, and conversely, to prove that the building can still legally exist.

Establishing the existence of a structure can be particularly important for the restoration of old buildings. The case-law also makes it clear that where the owner does not wish to demolish the building, but the building has deteriorated and its load-bearing structures are no longer there, the owner has the right to restore the building in accordance with the procedure laid down by law. The right to restore a building may not be restricted, provided that it is exercised in accordance with the procedure laid down by law, i.e. a person's constitutional right to own and enjoy his or her property must be guaranteed and not restricted.

AVOCAD's lawyer argues that there are cases where the courts have taken the fact that only parts of a building's foundations, and not the entire structure, have survived as evidence that the load-bearing structures have not survived and that the building should be considered to have collapsed completely.The Court stated that, if it is established that none of the load-bearing structures remain and that the remaining parts of the foundation are not capable of fulfilling the purpose of a load-bearing structure, the dwelling does not meet the definition of a structure as set out in the law and should therefore be considered as a remnant of a structure and not as a building.Accordingly, it must be declared extinct.

Thus, according to the lawyer, the condition for the disappearance of the structure in the present case was linked to the question whether the remains of the structure could actually be used for their intended purpose. In the other cases, the condition of extinction has been recognised essentially on the basis of a purely visual and subjective assessment of the situation, i.e. the court has held that the structure is extinct because only its individual fragments and remnants are visible.

However, recent case-law provides a different interpretation of the situation in question: when deciding whether a building has disappeared and whether its structures have survived, it is irrelevant whether the surviving structures comply with the requirements of strength, stability or integrity for the structures of a new building.In simple terms, it has been clarified that, for the purposes of declaring a structure extinct or not, it is not relevant whether the surviving structures of the structure are still capable of being used for their main purpose, but rather the existence of the surviving structures, without assessing whether they comply with the requirements for the structures of a new building, and not the existence of their fragments or remains. Furthermore, the Court explained that the fact that, for example, the foundation of a building is damaged and broken in pieces does not constitute a ground for finding that only fragments or remains of the foundation of the building have survived.

According to lawyer Eimantas Čeps, since the legislation does not contain clear and specific definitions of what can be considered as an extinct structure, once the dispute has moved to the courts, how much and what kind of remnants of a structure can be sufficient to declare that there are no grounds for establishing that the structure has been completely collapsed, destroyed, or demolished, and thus should not be considered extinct, or, on the contrary, to declare the structure to have disappeared, is a matter that remains subject to evidence in the case, and the final assessment may vary from case to case.

 

A road easement has been established on your land to give your neighbour, who lives on the adjacent land, access to his land. What if you think that you would like to build a pantry, for example, on the site where the road easement is located, and you want to relocate the road easement, but your neighbour has already made improvements and invested a considerable amount of money to create them.

Viktorija Dubovskienė, a lawyer at AVOCAD, explains what your obligations are and what legal regulations apply to such a situation.

First of all, she said, it is important to know that the Constitution enshrines an important principle of the inviolability of property. "In interpreting this principle, the Constitutional Court has stated that the inviolability and protection of property means that the owner has the right to own, use and dispose of property belonging to him or her, as well as the right to demand that other persons do not violate these rights, and the state has the duty to defend and protect property against unlawful encroachment," Dubovsienė points out.

To address the situation described above, the remedies for the owner of the land on whose land the road easement is established are set out in the Civil Code. According to the legal framework laid down therein, the method to be applied in order to protect the rights of the owner depends on how the infringement of the rights of the owner of the object is manifested. "If the violation of the owner's rights does not involve loss of possession, which is what we have in the situation described here, and if it is not possible to reach an agreement with the neighbour, an action for the elimination of the violation of the right of ownership that does not involve loss of possession - a non-generative action - should be brought," she stresses.

The owner's right to bring a non-statutory action is also enshrined in the Civil Code. Under it, the owner can demand the removal of any violation of his or her right, even if it does not entail loss of possession.

The Supreme Court of Lithuania has stated that when bringing a non-statutory action, the claimant must prove two things:

• that he is the owner of the property;
• that his rights have been violated.

According to AVOCAD's lawyer, it will not be difficult to prove that the plaintiff is the owner of the property in the above situation. However, the burden of proof will shift to the second point - that the rights of the owner are violated by the established road easement. Let us assume that, in these factual circumstances, the landowner considers that the neighbour's landscaping, including but not limited to the neighbour's gates, fence, trees, tuyas, etc., are a nuisance and that the owner is prevented from using the part of the land occupied by these objects in the part of the road easement.

In such a case, the non-statutory action is brought to protect a subjective property right of a specific person. In the case of a non-statutory action, the subject-matter of the action (the claims asserted) may be:

• put an end to the infringement of the applicant's subjective property rights;
• to restore the situation prior to the infringement of the applicant's subjective property right;
• prohibit any future infringement of the applicant's subjective property rights.

However, in this situation, the Supreme Court of Lithuania pointed out and clarified that the legislator does not directly link the violation of the rights of the owner of the land plot related to the infringement of the rights of the owner of the land plot related to the infringement of the requirements of the legislation by the violation of the rights of the owner of the land plot in relation to the infringement of the rights of the owner of the land plot by the infringement of the rights of the owner of the land plot by the infringement of the rights of the owner of the land plot by the infringement of the rights of the owner of the land plot by the infringement of the rights of the owner of the land plot by the infringement of the rights of the owner of the land plot by the infringement of the requirements of the legislation. Therefore, in order to be able to succeed in a non-compulsory action for the protection of a subjective property right, the infringement of which is attributable to trees, shrubs or other plants growing on the adjacent land close to the boundary of the parcel or on the boundary of the parcels of land, the claimant must, inter alia, prove that his subjective property right has been violated. The fact that it is established in a case that trees, shrubs or other plants are growing on the boundary of the parcels or on adjacent land at distances from the boundary of the parcel which do not comply with the legal provisions does not constitute a ground for declaring that the applicant's subjective right of ownership has been infringed.

Thus, according to the lawyer, it is not enough, when bringing a claim in a non-statutory action, to specify only the objects which, according to the claimant, prevent him from using the object for its intended purpose. It is then necessary to show how those objects infringe his rights.

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.