The norms, which as of 1 January 2018 decrease the amount of compulsory land lease, are incompatible with the Satversme
On 12 April 2018, the Constitutional Court pronounced the judgement in case No. 2017-17-01 “On compliance of Section 1 of the Law “Amendments to the Law on Privatisation of State and Local Government Residential Houses” Adopted on 1 June 2017, and of the Law “Amendments to the Law on Land Reform in the Cities of the Republic of Latvia” Adopted on 22 June 2017, with Articles 1 and 105 of the Satversme of the Republic of Latvia”.
The Contested Norms
Section 1 of the law “Amendments to the Law on Privatisation of State and Local Government Residential Houses” of 1 June 2017 provides that the second sentence[1] of Section 54(2) of the Law on Privatisation of State and Local Government Residential Houses shall be worded as follows:
“If the parties cannot agree, the land plot lease fee for the owner of the privatised apartment and artist’s workshop shall be:
1) from 1 January 2018 – not more than five per cent a year of the cadastral value of land;
2) from 1 January 2019 – not more than four per cent a year of the cadastral value of land;
3) from 1 January 2020 – not more than three per cent a year of the cadastral value of land.”
The law “Amendments to the Law on Land Reform in the Cities of the Republic of Latvia” of 22 June 2017 provides that the second sentence[2] of Section 12 (21) of the Law on Land Reform in the Cities of the Republic of Latvia – shall be worded as follows:
“If the parties cannot agree, the land plot lease fee for the owner of the privatised apartment and artist’s workshop shall be:
from 1 January 2018 – not more than five per cent a year of the cadastral value of land;
from 1 January 2019 – not more than four per cent a year of the cadastral value of land;
from 1 January 2020 – not more than three per cent a year of the cadastral value of land.”
Norms of Higher Legal Force
Article 1 of the Satversme: “Latvia is an independent democratic republic.”
Article 105 of the Satversme: “Everyone has the right to own property. Property shall not be used contrary to the interests of the public. Property rights may be restricted only in accordance with law. Expropriation of property for public purposes shall be allowed only in exceptional cases on the basis of a specific law and in return for fair compensation.”
The Facts
On the basis of seven applications by natural persons, six cases were initiated at the Constitutional Court regarding compliance of the contested norms with the Satversme. The applications comprised identical claims and the legal substantiation therefor was based on similar arguments. To facilitate comprehensive and fast adjudication of cases, the Constitutional Court decided to join them in one case.
The applicants noted that they owned either land plots or undivided shares of land plots, on which multi-apartment buildings that belonged to other persons were situated. The relationship of compulsory land lease exists between the applicants and the owners of the aforementioned buildings. It is stated in the applications that the contested norms significantly decrease the revenue of the landowners from the property in their ownership and that such restriction on the right to property is not proportionate. Moreover, the Saeima, in amending the legal regulation, should have taken into consideration the findings expressed in the judgements by the Constitutional Court regarding restrictions on the compulsory lease fees. Therefore the applicants had had reasonable and substantiated right to expect that a restriction like the one included in the contested norms would not be introduced.
The Court’s Findings and Ruling
On the way the constitutionality of the contested norms will be examined
The Constitutional Court decided to examine the constitutionality of the contested norms simultaneously because they are closely interconnected. [16.]
Whereas, abiding by the legal substantiation provided in the applications, the Constitutional Court decided, first and foremost, to establish, whether the contested norms restricted the applicants’ rights defined in Article 105 of the Satversme. [17.]
On the restriction of rights defined in Article 105 of the Satversme
The Constitutional Court found that in the case under review the compliance of the contested norms with the first and the third sentence of Article 105 of the Satversme had to be examined. [18.1.]
A person, who owns land or any other immovable property, inter alia, has the right to lease it at his own discretion. However, in the relationship of compulsory lease the right of the owner to decide freely, whether he will lease his land plot, is restricted, and also the right to freely choose the lessee and the possibility to request a lease fee that would conform with the owner’s wishes is restricted. [18.2.]
The maximum amount of lease fee defined in the contested norms encourages the owners of multi-apartment buildings to agree with the landowner only about such fee, which is below the amount defined in the contested norms. If the maximum amount of the possible income from leasing property owned by a person is defined in a legal norm then the rights established in the first and third sentence of Article 105 of the Satversme are restricted. [18.2.]
On whether the restriction on the fundamental rights has been established by a law adopted in due procedure
It is underscored in the judgement: in the case under review, it is essential that the Constitutional Court already has examined the constitutionality of a number of norms regulating the relationship of compulsory lease. Inter alia, it has been repeatedly examined, whether the restrictions on the right to property imposed on landowners in the relationship of compulsory lease comply with the Satversme. [21.]
On the legal relationship of compulsory divided property and compulsory lease
The legal relationship of compulsory divided property has existed in the Latvian legal system for a long period of time – for more than 25 years. This regulation on the legal relationship has been created in the course of land reform and privatisation of state and local government property when the property right to land of the former owners or their successors was restituted; however, prior to restoring the independence of the Republic of Latvia multi-apartment buildings had been built in it. [21.1.]
The legislator has chosen the compulsory land lease as the measure for regulating the legal relationship between the landowner and the owner of the building located on the land. In view of the particularities of the specific legal relationship and the economic situation in the state, the legislator decided to regulate the compulsory lease fee by legal acts, i.e., in difference to free market relationships, to control the way in which the landowner used his property. [21.1.]
On the case law of the Constitutional Court on matters of compulsory lease
The Constitutional Court noted that in the judgements in cases No. 2008-36-01 and No. 2010-22-01[3] the legislator’s attention was drawn to a number of problems and the need to find a solution to them. [21.2.]
It follows from the case law of the Constitutional Court that, inter alia, the legislator should assess how the restriction on the lease fee would influence the status of landowners and should consider the possibility to use more lenient measures for reaching the legitimate aim of the restriction on fundamental rights. Also in the cases of compulsory lease, an adequate proportion of the lease fee in free market conditions should be complied with. [21.2.]
On the legislative procedure
The legislator should, to the extent possible, see to it that during the whole period while the legal relationship of compulsory lease exists there would a commensurate balance in it and should avoid adopting such regulation that would be aimed at protecting the interests of only one party to this relationship. In particular, in those cases, where the constitutionality of the norms that regulate this legal relationship has already been examined by the Constitutional Court, the legislator should ensure such process of legislation that promotes trust in the State and the law, i.e., would assure that the chosen solution is fair. [21.3.]
Thus, when planning to include in legal norms a new restriction on the compulsory lease fee, the legislator had to ensure due analysis and substantiation of the constitutionality of such possible regulation, inter alia, also in the context of the judicature previously established by the Constitutional Court in matters of compulsory lease. [21.3.]
Hence, to assess, whether in the case under examination, in the adoption of the contested norms, the procedure established in regulatory enactments had been abided by, it must be established, whether the legislator has duly analysed and substantiated the constitutionality of the restriction on fundamental rights included in the contested norms in the context of the Constitutional Court’s judicature in the matters of compulsory lease. [21.3.]
On whether the legislator has duly analysed and substantiated the constitutionality of the restriction on fundamental rights included in the contested norms
The procedure of adopting the contested norms at the Saeima [22.1.]
The Constitutional Court noted: to adopt a fair legal regulation on the compulsory lease fee, the assessment on how the intended lease fee should be compared to other situations or adjusted to changes in the economy had to be conducted the legislator. Whereas an assessment, the outcome of which is similar to the regulation established by the contested norms but which has been performed after the adoption of the contested norms, cannot be used to substantiate the restriction imposed on persons’ fundamental rights. In a democratic state governed by the rule of law, an assessment like this must be conducted by the legislator itself, moreover, prior to establishing a restriction on fundamental rights. [22.2.]
The Constitutional Court found that in the procedure of adopting the contested norms the opinion on the intended regulation was provided by the members of the parliament who had submitted proposals regarding the wording of the respective norms, as well as the Ministry of Justice, the Ministry of Economics, the Bank of Latvia, and other institutions. The Legal Bureau of the Saeima in its opinion expressed doubts regarding the compatibility of the intended restriction on the landowners’ fundamental rights with Article 105 of the Satversme. [22.3.]
The Constitutional Court underscored: if in the course of adopting a legal norm arguments were presented regarding its possible incompatibility with the legal norms of higher legal force or the case law of the Constitutional Court regarding the respective matter, the legislator should have examined these arguments. [22.3.]
If the legislator has repeatedly intended to establish such restriction on fundamental rights the constitutionality of which already had been examined by the Constitutional Court, then this restriction should be duly examined and substantiated by the legislator itself. However, the discussions that had taken place during the time of drafting the contested norms do not lead to the substantiation why in these economic and legal circumstances exactly this regulation on the compulsory lase fee had to be established. [22.3.]
In general, the Constitutional Court did not gain confirmation from the materials of procedure for adopting the contested norms that the Saeima had duly assessed the impact of the restriction on fundamental rights on the land owners’ status and had substantiated that the intended solution complied with the judicature of the Constitutional Court. [22.3.]
The Constitutional Court found that prior to adopting the contested norms the legislator did not have at its disposal due analysis and substantiation of the constitutionality of the restriction of land owners’ right to property included in these norms in the context of the Constitutional Court’s case law on the matters of compulsory lease. Thus, the contested norms cannot be considered as having been adopted in due procedure. [22.3.]
On compliance of the contested norms with Article 1 of the Satversme
In view of the fact that the contested norms are incompatible with Article 105 of the Satversme, they must be considered as being unlawful. Therefore, it is not necessary to examine their compatibility also with Article 1 of the Satversme. [23.]
On the terms of the contested norms being in force
The Constitutional Court noted: in a democratic state governed by the rule of law, the principle was abided by that a legal norm, which had not been adopted in due procedure, could not cause legal consequences. However, in exceptional cases, where recognising the contested norm as being void immediately would be even more incompatible with the Satversme than leaving it in force, another date as of which the norm becomes void can be set. [24.]
The Constitutional Court took into consideration the fact that the legal regulation on compulsory lease applied to more than hundred thousand persons. This regulation pertains to, inter alia, a socially significant area – accessibility of housing. Moreover, establishing the amount of compulsory lease fee that would comply with the general principles of law and other provisions of the Satversme is the task of the legislator, which can be performed only if appropriate process of legislating and a due assessment of the intended legal regulation are ensured. [24.]
If the Constitutional Court were to rule that the contested norms should be recognised as being void as of the moment of their adoption or any other past date, then the amount of compulsory lease fee would not be defined in regulatory enactments at all. A ruling like this could create a significant threat to the rights and lawful interests of the parties to the legal relationship of compulsory lease rather than ensure legal stability, clarity and peace in social reality. [24.]
The legislator is the one who, abiding by the judicature of the Constitutional Court in matters of compulsory lease, must find such a solution to the particular situation, in the procedure of developing which the possible restrictions of persons’ fundamental rights would be duly assessed and in which the rights of landsowners and the owners of multi-apartment buildings would be duly balanced. A reasonable period of time is required for developing the aforementioned solution. [24.]
Therefore, the Constitutional Court ruled to recognise the contested norms as being incompatible with Article 105 of the Satversme and void as of 1 May 2019.
The judgement by the Constitutional Court is final and not subject to appeal, it has entered into force at the moment of its pronouncement. The judgement will be published in the official journal “Latvijas Vēstnesis” within the term set in Section 33 (1) of the Constitutional Court Law.
The text of the judgement [in Latvian] is available on the homepage of the Constitutional Court:
https://www.satv.tiesa.gov.lv/wp-content/uploads/2017/07/2017-17-01_Spriedums.pdf
[1] The second sentence of Section 54 (2) of the Law on Privatisation of State and Local Government Residential Houses in the wording that was in force from 1 November 2009 until 26 June 2017: “If the parties cannot agree, the land plot lease fee for the owner of the privatised apartment and artist’s workshop shall be 6 per cent a year of the cadastral value of land”.
[2] The second sentence of Section 12 ( 2)1 the Law on Land Reform in the Cities of the Republic of Latvia in the wording that was in force from 1 November 2009 until 12 July 2017 : “If the parties cannot agree, the land plot lease fee shall be 6 per cent a year of the cadastral value of land” .
[3] Judgement of 15 April 2009 in Case No. 2008-36-01. Available: https://www.vestnesis.lv/ta/id/190796; Judgement of 27 January 2011 in Case No. 2010-22-01. Available: https://www.vestnesis.lv/ta/id/225111.
Open in PDF: 2017-17-01_PR_par_spriedumu_ENG
Linked case: 2017-17-01