Municipal right of first refusal has been abolished in Latvia

On 20 October 2022, after a second review by the Latvian Parliament, the new Municipal Law was adopted, which shall enter into force on 1 January 2023.

Along with a series of other changes, the new Municipal Law also provides for the complete abolition of the exercise of the municipal right of first refusal, which has existed in Latvia since 1991. As of 1 January 2023, local municipalities shall no longer have right to first refusal to acquire real estate in their administrative territory for the implementation of municipal functions established by law.

Within the annotation of the draft law, as the main considerations for the exclusion of this legal instrument, the resources consumed by both the real estate owner and the municipality are detailed, which in accepting and issuing the waiver of the right of first refusal are assessed as disproportionate to the benefits that such an arrangement ultimately provides. According to the information provided by the Court Administration, in 14 cases during 2017 local municipalities informed the land registry department about the decision to exercise the use of the right of first refusal, in 2018 – in 18 cases, and as of July 2019 – in only 5 cases.

Further, within the annotation of the draft law, it is emphasised that by abandoning the said rule, the procedures for consolidating real estate rights will be simplified for some real estate owners (the number of ideal shares of undivided property to be registered will decrease, which is currently overly high, because the sale of property by ideal shares of undivided propertyis a common way of circumventing the municipal right of first refusal; this will also reduce the number of confirmation requests to be submitted).

It is predicted the process of real estate expropriation transactions will be eased in general, due to the fact that, in the future, it will no longer be necessary to wait for the refusal of the municipality to use the right of first refusal, which some municipalities accept by way of the council’s decision.

One of the arguments put forward by the representatives of the municipalities for the preservation of the right of first refusal, is that it provides for the possibility of limiting the indication of false purchase amounts in expropriation transactions. However, it should be added, it is not part of the municipalities functions to monitor real estate transactions and ensure they indicate their true expropriation values.

Although the exercise of the municipal right of first refusal shall no longer exist, it will still be possible for a municipality to expropriate the real estate of a private person within the framework of the Law on Expropriation of Real Estate Necessary for Public Needs.