Judgment
On Behalf of the Republic of
Latvia
Riga, 15 April 2009
in the Case No. 2008-36-01
The Constitutional Court of the Republic of
Latvia composed of the Chairman of the Court session Gunârs Kűtris, Justices
Kaspars Balodis, Aija Branta, Juris Jelâgins, Kristîne Krűma and Viktors Skudra,
based on a constitutional claim of Sonia Traub,
according to Article 85 of the Satversme
(Constitution) of the Republic of Latvia, Article 16 (1), Article 17 (1) (11)
and Article 19.2 and 28.1
of the Constitutional Court Law,
on 17 March 2009 in a
Court session examined the case in writing
“On
Compliance of the Words “Apartment Residential Houses” of the Second Part of
Section 12 of the Law “On Land Reform in the Cities of the Republic of Latvia”
and Para 7 of the Transitional Provisions Thereof, and the First Sentence of
the Second Part of Section 54 of the Law “On Privatization of State and Local
Government Residential Houses”, and Para 40 of the Transitional Provisions
Thereof with Article 1 and Article 105 of the Satversme (Constitution) of the
Republic of Latvia”
1. On 20 November 2001, the
Supreme Council of the Republic of Latvia adopted the Law “On Land Reform in
the Cities of the Republic of Latvia” (hereinafter – the Law on Land Reform in
the Cities).
The
initial wording of the first part of Section 12 of the Law on Land Reform in
the Cities provided that former owners of land or their heirs shall be restored
land ownership rights to the plots of land that have previously belonged to
them within the boundaries, which are specified in the utilisation projects of
cities or individual plots of land approved by local governments, except for
the cases provided for in Item 1 and Item 2 of the first part of this Section.
The second part of the abovementioned Section provided:
In
other cases when the land has been built-up or such objects have been
constructed in accordance with the city master plan or building projects that
are necessary to meet the interests of the society upon their coice former
owners of land or their heirs have the right to:
- request restoration of land ownership rights
and to receive a lease payment from the owner of the buildings and structures (in
the case of planned construction – the local government of the municipality),
the maximum amount of which shall be established by the Council of Ministers of
the Republic of Latvia;
- or to request to transfer in their ownership
or to allocate for use an equivalent plot of land within the borders of the same
administrative unit of the city depending on the planned usage of the land;
- or to receive compensation in accordance with
the procedures specified by Law.”
1.1. On 31 March 1994, the Saeima
(Parliament) of the Republic of Latvia (hereinafter – the Saeima) adopted a law
that provided for a new wording of Section 12 of the Law on Land Reform in the
Cities. The second part of this Section obtained the following wording:
“In other cases upon their
choice former owners of land or their heirs have the right to:
- request restoration of land ownership rights
and to receive a lease payment from the owner of the buildings and structures;
- or to request to transfer in their ownership
or to allocate for use an equivalent plot of land;
- or to receive compensation in accordance with
the procedures specified by Law.”
1.2. On 8 May, the Saeima adopted a
law that supplemented Section 12 of the Law on Land Reform in the
Cities with a new second part with the following wording:
“If
former owners of land or their heirs are restored ownership rights to land, on
which the objects referred to in Section 12, Paragraph one, Clause 3 of this
Law, as well as apartment residential houses, objects of water supply, heat
supply and energy supply belonging to the State or local governments are
located, the land lease payment shall not exceed 5% from the cadastral value of
the land.”
1.3. On 12 December 2007, the
Saeima adopted a law that supplemented the Transitional Provisions of the Law
on Land Reform in the Cities with Para 7 with the following wording:
“The
land lease payment established in accordance with the procedure provided for in
the first and the second part of Section 12 of this Law in 2008, 2009, and 2010
shall not exceed the rental fee for the land, calculated for the preceding
year, by more than 25 percent.”
2. On 21 June 1995, the Saeima
adopted the Law “On Privatization of State and Local Government Residential
Houses” (hereinafter – the Law on Privatization of Residential Houses). The
second part of Section 54 thereof provides:
The
land lease payment for the land for owners of a privatized apartment and those
of an artist workshop shall not exceed five percent per year of the cadastre
value of the land. In all other cases, the land lease payment shall be established
by means of an agreement between the owner of a privatized object and the land
owner."
On
12 March 2008, the Saeima adopted a law that supplemented the Transitional
Provisions of the Law on Privatisation of Residential Houses with Para 40 with
the following wording:
"The
land lease payment for a privatized apartment and an artist’s workshop that has
been established in accordance with the procedure established in the first
sentence of the second part of Section 54 of this Law in 2008, 2009, and 2010
shall not exceed the rental fee for the land, calculated for the preceding
year, by more than 25 percent"
3. The person who
submitted the constitutional claim Sonia Traub (hereinafter – the Applicant)
holds that the words “apartment residential houses” of the second part of
Section 12 of the Law on Land Reform in the cities and Para 7 of the
Transitional Provisions thereof, as well as the first sentence of the second
part of Section 54 of the Law on Privatization of Residential Houses and Para
40 of the Transitional Provisions thereof (hereinafter all together referred to
as the Contested Norms) do not comply with Article 1 and Article 105 of the
Satversme (Constitution) of the Republic of Latvia (hereinafter – the
Satversme).
It
has been indicated in the constitutional claim that in the frameworks of
property reform the Applicant was restored the rights to a land parcel where a
residential house has been located. After submitting the residential house to
privatization, compulsory lease legal relations were formed between the
Applicant and the owners of the apartments. The land lease payment that is
received by the Applicant, may not constitute more than five percent out of the
cadastre value of a land parcel per year, whilst in 2008, 2009 and 2010 it may
not exceed the rental fee for the land, calculated for the preceding year, by
more than 25 percent
The
Contested Norms do not allow the owner to let the land parcel he or she owns
because it provides for limits of the land lease payment. Consequently, in the result
of applying the Contested Norms, the economic value of the land parcel is being
reduced and the rights of land owners, the Applicant included, to property as
guaranteed in Article 105 of the Satversme are being restricted.
After
the restoration of independence of Latvia, the objective of the initiated land
reform was to restructure property relations with a view to create appropriate
circumstances for the transition of domestic economy to market economy. The
objective of the Contested Norms should be assessed in the context of the land
reform, and it is limited to implementation of the land reform. It clearly
follows form the wording of the Contested Norms that the objective of limiting
the land lease payment is to protect the interests of the owners of privatized
objects during the land reform by thus denying the possibility to the land
owners to receive full reimbursement for the use of the land.
The
Applicant indicates that, although the objective of the legislator of the time
when the land reform was only initiated is clear, the objective of the
Contested Norms in present social and economic conditions may not be justified.
Owners of privatized objects cannot be regarded as socially less protected
persons or weaker participants of civil relations, the interests of whom should
be protected. The Contested Norms also apply to low-income persons and owners
of such privatized objects whose economic situation is better than that of land
owners. Protection of all owners of privatized houses at the expense of land
owners in the present situation is not adequate; therefore it is not possible
to justify restriction on the land lease payment by means of this objective.
The objective chosen by the legislator shall not be regarded as legitimate.
The
Applicant holds that the Contested Norms neither comply with the principle of
proportionality. The Contested Norms do not provide for a fair balance between
the interests of land owners and those of privatized houses. By protecting one
of the groups, namely, the owners of privatized houses, the legislator has
restricted, in a non-proportionate way, the rights of other groups of the
inhabitants, i.e. the rights of land owners.
As
it was indicated by the Applicant, it would be possible to reach the objective
set forth by the legislator by other alternative measures that would be less
restrictive regarding the land owners. Alternative measures for reaching of the
legitimate objective, however, have not been considered, which means that a
substantial restriction of property rights has been established without
discussing the issue. The legislator has not summarized the information on net
income of the land owners from the land submitted to compulsory lease.
Likewise, the legislator has not assessed whether the absence of the
restriction included into the Contested Norms would affect social and economic
situation of the State.
The
maximum amount of the land lease payment does not constitute an appropriate
compensation for the Applicant for the use of the land. The land lease payment
for the use of property should reflect economic equality of the liabilities of
both contracting parties; whilst because of the Contested Norms the land owners
undergo unreasonable loss. For instance, the land lease payment for the use of
the land parcel owned by the Applicant is 34 times lower than the land lease
payment compliant with the present market situation. Cadastre value of a land
parcel neither is an adequate criterion for establishing the land lease payment
for a particular parcel. It would be better to use the market value of a land
plot as the basic criterion.
Moreover,
it is necessary to take into consideration the fact that the Applicant must pay
several taxes for the land parcel and land lease relations with the owners of
privatized objects. Consequently, the received land lease payment is only gross
income that is taxed.
According
to the Applicant, non-proportionality of the Contested Norms is proved by the
fact that the maximum amount of the land lease payment established in these norms,
namely, five percent per year, does not comply with the actual discount rate of
financial market, which constitutes 6 percent per year. According to the
refinancing rate established by the Bank of Latvia, the minimum capital gain
shall at present be calculated at the amount equal to six percent per year.
Likewise, norms of the Civil Law provide that the general interest for the use
of capital of other persons constitutes six percent per year.
As
the Applicant indicated, the maximum land lease payment in legal relations of
compulsory land lease is t he only field, in which the State restricts income
amount that the owner of the resource is entitled to received from the user
thereof in a non-proportionate way. For instance, gas, electrical power and heat
is also delivered to socially weaker participants of the market; however, the
rights of the suppliers of these resources to receive an adequate payment are
not being restricted.
On
the other hand, Para 7 of the Transitional Provisions of the Law on Land Reform
in the Cities and Para 40 of the Transitional Provisions of the Law on
Privatization of Residential Houses (hereinafter - the Contested Norms of
Transitional Provisions) do comply with Article 1 of the Satversme. Since no
unlimited property reform as to the temporal aspect is planned, the Applicant has
counted on the principle of legal security that the State would find an
appropriate solution, within a reasonable time period, to regulate legal
relations of compulsory land lease. According to the Applicant, she had the
rights to count on the fact that the maximum amount of land lease payment as to
the cadastre value of a land plot would not be restricted even more. The
Applicant indicates that because of the restrictions included into the Contested
Norms of Transitional Provisions the maximum land lease payment for the land
owned by her in 2008 constitutes only 0.48 percent from the cadastre value of
the land parcel in the same year.
When
establishing restrictions for the maximum land lease payment in the Contested
Norms of Transitional Provision, the legislator has not provided for any
adequate reimbursement mechanism in favour of the land owners. Moreover, these
additional restrictions have been adopted on a rush without providing for
reasonable terms for transition to a new regulation.
4. The institution that
passed the contested acts, the Saeima holds that the Contested Norms comply with Article 1
and 105 of the Satversme.
There
is no doubt that in the case of compulsory land lease the rights of the land
owner are restricted. Not every restriction, however, is ungrounded
infringement of rights, and the rights to property can be restricted in the
interests of the society.
The
Saeima emphasizes that nowadays the issues regarding ensuring a living place is
an indispensible part of State social and welfare policy. The duty of the State
is to ensure protection of owners of apartments by at the same time securing
the interests of the land owners. The legitimate objective of the Contested
Norms is protection of the rights of other persons and ensuring welfare of the
society.
The
Saeima indicates that land owners and their heirs, when restoring land
ownership, were usually informed on compulsory land lease relations by thus
giving them the possibility to choose another kind of reimbursement – an
equivalent plot of land or compensation. By choosing to restore land ownership,
on which a building owned by another person is located, the land owner has
indirectly agreed to the restrictions of property right that follow from
compulsory land lease relations.
When
characterising the restriction of five percent established in the Contested
Norms, the Saeima indicates that a land owner, on the land of whom a building
owned by another person is located, cannot be compared with a land owner who
has no such building on his land parcel. Since in the both cases the
possibilities of a land owner to act with the property and his or her duties
differ considerably, the possibilities to gain income from such land parcels may
also differ.
Likewise,
repealing of the contested norms would not automatically mean that the property
has become vacant and unencumbered
or that the owner could demand the amount of the land lease payment he or she
wants. Restriction of the land lease payment, which constitutes five percent
from the cadastre value of the land parcel, has been applied based on the
trends of case-law of the 90s. It is very likely that in the case of absence of
the restriction of five percent courts would rule likewise or would provide for
a lower land lease payment because the land would be leased for activities that
are not related with profit making.
When
assessing the restrictions included in the Contested Norms of the Transitional
Provision, according to which the land lease payment in 2008, 2009 and 2010 may
not exceed the rental fee for the land, calculated for the preceding year, by
more than 25 percent, the Saeima indicates that the objective of this
restriction is to ensure a fair balance between the interests of land owners
and those of construction (building) owners. This restriction is transitional
and applicable only during the time period of three years in order to provide
for a gradual rather than drastic increase of the land lease payment without
changing or diminishing the dutues established for the land owners.
The
Saeima concludes that the State, according to its inalienable rights and duty,
has the right to intervene the field of domicile by regulating prices. The
legislator, when limiting augmentation of the land lease payment, has equally
restricted increase of immovable property tax.
When
analysing compliance of the Contested Norms with Article 1 of the Satversme,
the Saeima indicates that compulsory land lease relations have no provisional
character and it was not planned to terminate these relations after a certain
time period. The Applicant could not count on the fact that the residential
houses built on her land parcel would be located there only temporarily. After
having assessed normative acts and other documents related with the land
reform, it can be concluded that compulsory lease is a permanent rather than a
temporary solution. The Contested Norms comply with the principle of legal
security and Article 1 of the Satversme because they provide for a regulation
that could create the basis for legal security for the Applicant.
The
Saeima holds that in the case of repealing restrictions provided for the land
lease payment, those would be the tenants, for instance, owners of the
apartments who have counted on invariability of the land lease payment and have
planned their expenses, who would be in a problematic situation. Interests of a
person in dwelling issues must be protected even more than the interests of the
land owner to gain additional income from letting a land parcel where buildings
owned by other persons are located.
5. The Ministry of
Justice as an
invited person maintains that the Contested Norms comply with Article 1 and
Article 105 of the Satversme.
The
Ministry of Justice agrees with the fact that compulsory land lease causes
restriction to the rights of a land owner, and the Ministry concludes that the
restriction has been established by law and it has a legitimate objective,
namely, protection of the rights of the owner of the building. The amount of
the land lease payment is being limited with a view to protect the owner of the
building from undue expenses.
According
to the Ministry, the Contested Norms comply with the principle of
proportionality. By providing for a mutual responsibility of the land owner and
owners of the building to conclude a land lease agreement and providing for
restrictions of the land lease payment, the legislator has selected an
appropriate measure for reaching the legitimate objective. The statement of the
Applicant that the legislator could have reached the objective of the Contested
Norms by applying alternative measures that would restrict the rights of the
land owners at a lesser extent is ungrounded. According to the Ministry of
Justice, the alternative measures provided for by law that the land owners
could apply is the possibility to receive an equal land parcel or an
appropriate compensation rather than the possibility to restore property
rights. The Ministry of Justice also holds that the restriction of the land
lease payment ensures an equal balance between the interests of the land owners
and owners of the buildings.
The
Ministry of Justice neither agrees with what has been mentioned in the
application that the owners of privatized objects cannot be regarded as less
protected participants of civil relations. Owners of the apartments can be
regarded as socially less protected part of the society if compared to land
owners.
The
restriction of the land lease payment at the amount of 5 percent out of the
cadastre value of the land parcel, as provided for in the Contested Norms, is
commensurate with the immovable property tax rate. From 1 January 2008, it
would be reduced up to one percent, and from 1 January 2011 – 0.4 percent of
the cadastre value of the land. According to the Ministry of Justice, this
means that the land owners has a sum of money at his or her disposal that can
be regarded as economically and socially grounded and fair compensation for the
use of the land.
6. The Ombudsman of the
Republic of Latvia (hereinafter – the Ombudsman) as an invited person indicates that
compliance of the words apartment residential houses” of the Second Part of
Section 12 of the Law “On Land Reform in the Cities of the Republic of Latvia”
and the first sentence of the second part of Section 54 of the Law “On
Privatization of State and Local Government Residential Houses” with the
principle of legal security included in Article 1 of the Satversme must be
assessed taking into consideration the historical development of the norms.
Already at the beginning of the land reform, the legislator has provided that a
person who wants to restore property rights to a land parcel has the duty to
conclude a land lease agreement with an owner of the buldigns located on the parcel.
Moreover, the legislator has provided the person with the rights to choose,
namely, either to restore property rights and receive land lease payment, the
minimum amount of which is established by the Council of Minsiters of the
Republic of Latvia, or to request allocation of an equal land parcel, or to
receive complensation according to the procedure established by law. A person
should take into acocunt the fact that in the case of restoration of property
rights the amount of the land lease payment is restricted in accordance with
the effective legal norms.
The
Ombudsman admits that a land reform is a terminated process. The legislator,
however, has the rights to regulate separate legal relations in the frameworks
of the land reform as independent. Subjective views of a person on how a
legislator should regulate, within a reasonable time period, compulsory lease
relations do not produce any basis for legal security.
When
assessing compliance of the Contested Norms of the Transitional Provisions with
Article 1 of the Satversme, the Ombudsman indicates that the principle of legal
security protects the rights once conferred. When adopting the Contested Norms
of the Transitional Provision, the existing legal relations have not been
changed, namely, in fact, the scope of the rights and duties established in the
second part of Section 12 of the Law on Land Reforms in the Cities and the
first sentence of the second part of Section 54 of the Law on Privatization of
Residential Houses has not been amended. Moreover, in the result of adoption of
the Contested Norms of the Transitional Provisions, incomes of land owners have
increased by 25 percent if compared with the land lease payment amount in the
previous year. Since the Legislator has neither disabled, nor reduced the scope
of the rights conferred to land owners, it cannot be recognized that the
Contested Norms of the Transitional Provisions would breach the principle of
legal security.
When
analysing compliance of the Contested Norms of the transitional Provisions with
Article 105 of the Satversme, the Ombudsman indicates that the restriction of
25 percent regarding lease payment based on the lease payment in the previous
year is directed towards protection of the owners of apartment houses by
providing for a gradual rather than abrupt increase of the lease payment. The
objective of the legislator, when adopting these norms, was to provide the most
lenient possible transition to the new cadastre assessment system.
Consequently, the restriction of property rights has a legitimate objective.
At
the same time, the Ombudsman indicates that the increase of lease payment
established in the Contested Norms of Transitional Provisions is not a lenient
measure regarding owners of apartment houses because they do not prevent rapid
increase of lease payment in 2011. Consequently, it must be recognized that the
legislator does not reach the objective set by means of the measures selected.
In the result of this, the principle of proportionality is breached and the
Contested Norms of Transitional Provisions do not comply with Article 105 of
the Satversme.
7. After restoration of
independence of Latvia, returning of nationalized land to their owners and
heirs took place within the framework of land reform. Historical circumstances
determine that the land reform shall be a complex, continuous and embracing the
whole national economy process. In the course of development the nationalized
land was used for different objectives, also for locating of objects of public
significance. The aim of land reform is to reorganize the legal, social and
economic relations between city land owners and users in order to promote the
city’s construction and rational utilization of land (see: Judgment of
25 March 2003 by the Constitutional Court in the case No. 2002-12-01,
Para 1 of the Concluding Part and
Judgmnet of 13 February 2009 by the Constitutional Court in the case No. 2008-34-01, Para 11).
Although
it is possible to agree with the Applicant that the objectives of the land
reform are generally implemented, the Land reform in the cities of Latvia has not yet been
finished. According to the sixth part of Section 12 of the Law on land reform
in the cities, a claim regarding restoration of property rights could be
submitted before a court up to 1 September 2008. This means that the legislator
must ensure that the legal norms adopted before coming into force of Chapter 8
of the Satversme “Fundamental Human Rights" on 6 November 1998 would
comply with the effective norms of the Satversme, including the first sentence
of Article 91, and Article 105 of the Satversme (see: Judgmnet of 13 February 2009 by the Constitutional Court in the
case No. 2008-34-01, Para 11).
8. The Contested Norms can be
divided into two groups. It follows from the words “apartment residential
houses” of the second part of Section 12 of the Law on Land Reform in the
Cities and the first sentence of the second part of Section 54 of the Law on
Privatization of Residential Houses that land lease payment may not exceed five
percent of the cadastre value of the land if the person has been restored
property rights to a land parcel where an apartment house is located. On the
other hand, the Contested Norms of Transitional Provisions establish that in such
cases land lease payment in 2008, 2009 and 2010 may not exceed the rental fee
for the land, calculated for the preceding year, by more than 25 percent. It
can be concluded from the constitutional claim that the Applicant contested
Seciton 7 of Transitional Provisions of the Law on Land Reform in the Cities
insofar as the restriciton of lease payment established therein apply to the
land under apartment residential houses.
Since the Contested Norms of
the Transitional Provisions are closely related with both other Contested
Norms, compliance of all four Contested Norms should be assessed in
conjunction.
9. The Applicant has asked the
Court to assess compliance of the Contested Norms not only with Article 1 of
the Satversme, but also with Article 105 of the Satversme because she
holds that the restrictions of property rights established in the Contested
Norms infringe the rights to own property as established in the Satversme.
According
to the first part and Item 1 of the sixth part of Article 19.2 of
the Constitutional Court Law, it is substantial to establish in the case of
this constitutional claim whether the basic rights of the Applicant, as
established in the Satversme, have been infringed. Therefore the Constitutional
Court will first of all assess whether the Contested Norms infringe the basic
rights of the Applicant provided for in Article 105 of the Satversme and
whether such infringement, if any, is grounded.
10. Article
105 of the Satversme provides: “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.” Section 927 of the Civil Law defines
ownership as the full right of control over property, i.e., the right to
possess and use it, obtain all possible benefit from it, dispose of it and, in
accordance with prescribed procedures, claim its return from any third person
by way of an ownership action.” The Constitutional Court has reiterated in
several judgments that property rights include the rights to gain all possible
benefit from a property, including income and fuits (see, e.g. Judgmnet of 20 May 2002 by the Constitutional Court in
the case No. 2002-01-03 and Judgment of 12 November 2008 by the Constitutional
Court in the case No. 2008-05-03, Para 7).
According to Section 2112 of the Civil Law, a lease or
rental contract is a contract pursuant to which one party grants or promises
the other party the use of some property for a certain lease or rent payment.
Consequently, one of the ways how a persons can gain material benefit from the
land he or she owns, is letting of this property to other persons for a payment
that would permit to maintain the property and provide income for the owner of
the property. Provisions of the Civil Law does not restrict the rights of the
tenant and the lessor to agree on the lease payment on their own discretion.
If an apartment residential house is located on the
land parcel and the land owner has lease relations with the owners of the
apartments, the Contested Norms restrict the rights of the land owner to
request an appropriate lease payment for the use of the land parcel. Namely, the
words “apartment residential houses” of the second part of Section 12 of the
Law on Land Reform and the first sentence of the second part of Section 54 of
the Law on Privatization of Residential Houses provides that in such cases
lease payment shall not exceed five percent of the cadastre value of the land
parcel. On the other hand, the Contested Norms of the Transitional Provisions
establish that land lease payment in 2008, 2009 and 2010 shall not exceed the
rental fee for the land, calculated for the preceding year, by more than 25
percent.
The Applicant owns a land parcel where an apartment
residential house is located. Since she has compulsory lease relations, as
provided by law, with the owners of the apartments, the restriction of the land
lease payment established in the Contested Norms apply to the Applicant.
Therefore she is not able to gain the highest possible benefit from her
property.
Consequently, the Contested
Norms restrict the rights of the Applicant to own property provided for in
Article 105 of the Satversme.
11. Article
105 of the Satversme, like Article 1 of Protocol 1 of the European Convention
for the Protection of Human Rights and Fundamental Freedoms, provides for both,
free exercise of property rights and the rights of the state to restrict the
use of property in favour of interests of the society. Property rights can be
restricted if the restrictions can be justified, namely, if they have been
established by law, if they have a legitimate objective and if they are
proportionate (see: Judgment of 20 May
2002 by the Constitutional Court in the case No. 2002-01-03 and Judgment of 12
November by the Constitutional Court in the case No. 2008-05-03, Para 8).
In the case under review, there is no dispute whether
the Contested Norms have been established by a law that is adopted and
proclaimed according to appropriate procedure.
Consequently, the restriction
of property rights has been established by law.
12. Circumstances and arguments why
it is needed shall be the basis for any restriction of fundamental rights,
namely, the restriction is determined because of significant interests – the
legitimate aim (see: Judgment of 22 December 2005 by the Constitutional
Court in the case No. 2005-19-01, Para 9, Judgment of 14 March 2006 by the
Constitutional Court in the case No. 2005-18-01, Para 13, Judgment of 22
November 2008 by the Constitutional Court in the case No. 2008-07-01, Para
10 and Judgment of 4 February
2009 in the case No. 2008-12-01, Para 10.2). The duty to provide and
justify the legitimate objective of such restriction in the Constitutional
Court proceedings applies, first of all, to the institution that has issued the
contested act, which in this case is the Saeima.
12.1. When explaining the
legitimate objective of the words “apartment residential houses” of the second
part of Section 12 of the Law on Land Reform and the first sentence of the
second part of Section 54 of the Law on Privatization of Residential Houses,
the Saeima has indicated in its reply that home is regarded as primary social
need, and the duty of the State is to ensure protection of the owners of
apartments. Consequently, the objective of these Contested Norms is protection
of the owners of apartments and ensuring welfare of the society. The Ombudsman,
it its opinion No. 3 of 8 May 2009 (hereinafter – Ombudsman Opinion No. 3),
wherein compliance of the second part of Section 12 of the Law on Land Reform
in the Cities with Article 105 of the Satversme is assessed, has also indicated
that the legitimate of this norm is to protect owners of apartments from undue
expenses of house maintenance in the case of compulsory lease (see: case materials, Vol. 1, pp. 77).
Consequently,
the legitimate objective of the restriction of rights established in the
Contested Norms is to protect owners of apartments from undue expenses of house
maintenance.
12.2. As it was indicated by
the Saeima, the legitimate objective of the restriction of rights established
in the Contested Norms of the Transitional Provisions is to ensure a fair
balance between the interests of land owners and owners of buildings
(constructions) (see: case materials,
Vol. 1, pp. 98).
The
norms of Transitional Provisions are similar, though they have been adopted in
different time. The amendments to the Law on Land Reform in the Cities,
wherewith Para 7 has been introduced into the Transitional Provisions, have
been adopted by the Saeima on 12 December 2007. On the other hand, the
amendments to the Law on Privatization of Residential Houses, wherewith Para 40
was introduced into the Transitional Provisions, has been adopted on 13 March
2008. Since Para 7 of the Law on Land Reform in the Cities has been adopted
before adoption of Para 40 of the Law on Privatization of Residential Houses,
these are the materials of elaboration and adoption of Para 7 of the
Transitional Provisions of the Law on Land Reform in the Cities that provide
for the best justification of the restriction of property rights included in
both Contested Norms of the transitional provisions of the laws.
The
draft law “Amendments to the Law “On Land Reform in the Cities of the Republic
of Latvia”” submitted by the Cabinet of Ministers provided for supplementing
the transitional Provisions of the Law on Land Reform in the Cities with Para
7. It is indicated in the annotation to this draft law that, according to the
information provided by the State Land Service, the updated data base of
cadastre values came into effect in 2008, and the cadastre value and land lease
payments for all groups of real estate is expected to raise. This means that
land lease payments for a certain part of land tenants in the cities would raise
more than five times in 2008. In order to prevent substantial land lease
payment increase in 2008 for such tenants and to ensure a gradual lease payment
increase in subsequent years, it is necessary to establish a transitional
period. On the other hand, when analyzing the effect of the draft law on the
macro-economical environment, it is indicated that "the draft law will
prevent substantial rise in land lease payment for dwelling” (annotation to the draft law “Amendments to
the Law “On Land Reform in the Cities of the Republic of Latvia””, http://www.saeima.lv/saeima9/lasa?dd=LP0544_0).
When the Saeima was considering the draft law at the second reading, the
member of the Parliament Anna Seile indicated that the Agricultural, Environmental and Regional Policy Commission
"regards it as indispensible to normalize payments of tenants" (Transcript of the 9th Saeima
meeting of 6 December 2007, http://www.saeima.lv/steno/Saeima9/071206/st071206.htm).
It
is possible to conclude from what has been established above, that the
Contested Norms of the Transitional Provisions have been adopted with a view to
protect owners of privatized apartments from rapid increase of land lease
payment.
Consequently, it is possible
to conclude that the legitimate objective of the restrictions established in
the Contested Norms of the Transitional Provisions is to protect the rights of
other persons, namely, owners of apartments.
13. The Constitutional Court has
already concluded that To evaluate whether the legal norm complies with the
proportionality principle one has to ascertain if the means, used by the
legislator are suitable for achieving the legitimate objective and if it is not
possible to attain the objective by other means, which would less limit the
rights of an individual as well as show whether the activity of the legislator
is proportionate. If, after
evaluating the legal norm, it is acknowledged that it does not comply with even
one of the above criteria, it is unconformable with the principle of
proportionality and illegitimate (see:
Judgment of 19 March 2002 by the Constitutional Court in the case No. 2001-12-01, Para 3.1 of the Concluding Part
and Judgment of 27 June 2004 in the Case No. 2003-04-01, Para 3 of
the Concluding Part).
14. The Constitutional Court must
investigate whether the Contested Norms are appropriate for reaching the
legitimate objective.
14.1. Under the words “apartment
residential houses” of the second part of Section 12 of the Law on Land Reform
and the first sentence of the second part of Section 54 of the Law on
Privatization of Residential Houses, owners of apartments must pay not more
than 5 percent of the cadastre value of the land parcel per year. Although land
lease payment is only one of the payments that owners of apartments must make
for maintenance of the residential house, establishment of the maximum amount
of lease payment in the law is one of the ways how to protect owners of
apartments from unduly high expenses for the maintenance of the apartment
house.
Consequently,
the abovementioned Contested Norms are appropriate for reaching the legitimate
objective.
14.2. When assessing conformity of
the Contested Norms of the Transitional Provisions for reaching of the
legitimate objective, it is necessary to take into consideration the fact that
cadastre value of immovable property is affected by the situation in the real
estate market.
Under
Section 71 of the State Immovable Property Cadastral Law, cadastre value shall
be calculated taking into account such data registered into the Cadastre
Information System as the base of cadastre value, object of cadastre and data
characterizing real estate tax, purposes of the use of immovable property and
encumbrances of the immovable property object. It follows from Section 67 and
the second part of Section 69 of the abovementioned Law that the base of
cadastre values has been elaborated based on the real estate market information
on transactions within real estate market during at least two previous years.
Taking into consideration the trends in the real estate market and increasing
prices of immovable property at that time, the legislator has prognosticated
that cadastre value of the land would also raise rapidly, which would also
increase lease payments. If this prognosis would come true and the Contested
Norms of the Transitional Provision would not have been adopted, expenses of
the owners of apartments for the maintenance of the house would raise
considerable within a short period of time.
The
Applicant has justly indicated that the restriction to increase the land lease
payment, which has been established for the period of three years by the
Contested Norms of the Transitional Provisions, would not provide for a
long-term solution for the situation. However, one cannot agree with the
statement of the Applicant that at the end of the transitional period the
increase of lease payment would be of the same amount if compared to the
situation if no restrictions would have been provided (see: case materials, Vol. 1, pp. 15). Taking into consideration the
present situation in the State, it is difficult to prognosticate prices for
immovable property and the change in the cadastre values in 2011 based on these
changes. On the other hand, it is difficult to prognosticate the increase of
land lease payment in 2011 because lease payment in the case of compulsory
lease depends directly on the cadastre value of the land parcel.
Thus
the Contested Norms of the Transitional Provisions ensure gradual rather than
rapid increase of land lease payments for the owners of apartments in 2008 to
2010.
Consequently, the Contested
Norms of the Transitional Provisions and the Contested Norms are in general
appropriate for reaching of the legitimate objective.
15. The Applicant indicates that
the legislator could reach the legitimate objective by selecting alternative
measures that would restrict the rights of land owners at a lesser extent.
The
Constitutional Court has reiterated in its judgment that it must not assess at
what extent other alternative solutions would or would not be more appropriate
for solution of a situation (see:
Judgment of 8 March 2006 by the Constitutional Court in the case No. 2005-16-01,
Para 15.8 and Judgment of 13 February 2009 in the case No. 2008-34-01,
Para 22). However, it falls within the scope of the Constitutional Court to
assess whether the legislator, when restricting the rights of a person or a
group of persons, has sufficiently assessed whether in the particular case
there exist other alternative measures that would restrict the basic rights of
persons established in the Satversme at a lesser extent.
15.1. Documents that reflect the
course of adoption of the Contested Norms show whether the legislator has
assessed whether in the case under review the legitimate objective could be
reached by other means that would restrict the rights of persons at a lesser
extent.
Initially,
the restriction of lease payment at the amount of five percent of the cadastre
value of the land was established in the second part of Section 54 of the Law
on Privatization of Residential Houses. Such a restriction has already been
established on 21 June 1995 by adopting the Law on Privatization of Residential
Houses. On the other hand, the amendments to the Law on Land Reform in the Cities
providing for restriction of lease payment in the case of compulsory lease were
introduced later, namely, on 8 May 1997. Thus it can be concluded that the
legislator, when adopting the Law on Privatization of Residential Houses, had
to assess thoroughly how would the protection of the property rights of one
group of inhabitants, i.e. owners of the apartments, would affect those of
another, i. e. land owners.
When
preparing the draft law “On Privatization of State and Local Government
Dwelling Fund”, which was the initial title of the Law on Privatization of
State and Local Government Residential Houses, the member of the Parliament Jânis
Lagzdiňđ indicated at the meeting of the Environmental Board and Local
Government Commission of the 5th Saeima that: “If the house is
located on the land of former owner that has been entered into the Land
Register, the owner of the apartment must provide land lease payment to the
land owner." It was likewise suggested in the abovementioned meeting
"to regulate compulsory lease at the national level and to provide for the
maximum amount of it" (see: case
materials, Vol. 1, pp. 126 and 127). It was for the first time mentioned at
the meeting of 7 February 1995 of the State Administration and Local Government
Commission that “the maximum amount of the lease payment shall be established
by the Cabinet of Ministers” (see: case
materials, Vol. 1, pp. 133).
Only
in the suggestions for examination of the draft law “On Privatization of State
and Local Government Residential Houses” summarized and provided by the State
Administration and Local Government Commission one can find a proposition to
supplement Section 54 of the draft law with the following text: “land lease
payment for the deemed part of property for the common use during the land
reform shall not exceed five percent per year from the cadastre value of the
land" (see: case materials, Vol. 1,
pp. 162). As it can be seen in the
documents at the disposal of the Constitutional Court, before that no such
suggestion has been made and no discussions have taken place on this issue.
However, it follows from the transcript of the 26 April 1995 meeting, which, among
the rest things, reflects examination of the draft law "On Privatization
of State and Local Government Residential Houses” at the second reading, that
the proposition regarding the restriction of the land payment up to five
percent per year from the cadastre value of the land parcel has been approved
without any debates (see: http://www.saeima.lv/steno/st_955/st2604.html).
The Saeima has not assessed how the abovementioned restriction of land lease
payment would affect the situation of land owners. It has neither considered
the possibility to select more lenient measures to reach the legitimate
objective. Likewise, when adopting the second part of Section 12 of the Law on
Land Reform in the Cities, the legislator has taken into consideration the
interests of the residents of apartment houses without legislating for the
legal interests of the land owners.
15.2. The first normative acts that
regulated land reform were adopted in 1991. However, since the adoption of the
Contested Norms more than 10 years have passed. During this time period, both
actual and legal situation has changed; therefore the legislator had the duty
to assess whether the legitimate objective of the Contested Norms could be
reached by applying other measures that would restrict the rights of land
owners at a lesser extent.
The
necessity of such assessment is also mentioned in the Ombudsman Opinion No. 3.
As the Ombudsman has concluded, this is the primary duty of the State to ensure
the interests of the State and the society. The State is not entitled not to
fulfil this duty by restricting in a non-proportionate manner the rights of any
social group, for instance, land owners. Consequently, the State must select
such means for ensuring these legal relations that would lessen the social
burden on the land owners (see: case
materials, Vol. 1, pp. 80).
On
the other hand, in its letter to the Ombudsman, the Agricultural, Environmental
and Regional Policy Commission, when assessing the abovementioned Opinion of
the Ombudsman, has drawn attention to several measures that should be taken in
order to attain a reasonable balance between the rights and interests of the
society and those of the land owners. The Commission has even indicated to
alternative measures that would restrict the rights of the land owners at a
lesser extent in the case of compulsory lease. The Commission also mentioned
the possibility to include a norm into the Law on Land Reform in the Cities
that would provide that in the case of compulsory lease the tenant pays taxes
related with the immovable property. Likewise, the possibility to apply
allowances to personal income tax and property tax or even to exempt from
taxation the lease payment received by the land owners has also been mentioned
in the letter of the Commission (see:
case materials, Vol. 1, pp. 96 and 97).
The
Applicant has also drawn attention to alternative measures that would,
according to her mind, restrict her rights at a lesser extent. Namely, the
legislator could have provided for a state-funded mechanism or other support
measures in order to protect owners of privatized objects, or allowances of
personal income tax or property tax to the land owners in order to reduce the
social burden of them and compensate the loses occurred in the result of
application of the Contested Norms (see:
case materials, Vol. 1, pp. 16).
The
Constitutional Court agrees with the opinion of the Saeima that the real estate
market value is not an appropriate criterion to establish the amount of lease
payment in the case of compulsory lease. Market value is changeable and
establishment thereof would require not only additional resources but it also
could be contested. Consequently, establishment of lease payment for a particular
property would constitute difficulties or could even be impossible in certain
cases. Moreover, cadastre value of immovable property depends on the market
value because, when establishing the basis of the cadastre value, the
information on the situation in the real estate market is taken into
consideration.
Likewise,
it is possible agree to what has been indicated by the Applicant that one of
the possible alternative measures for reaching the legitimate objective could
be increase of the maximum lease payment by providing a higher land lease
payment instead of five percent per year of the cadastre value of the immovable
property. As the Saeima has indicated, this threshold, namely, five percent,
has been selected based on the trends of case-law of the mid 90s, and it was
included into the Contested Norms with a view to prevent uncontrolled increase
of lease payment in the future (see: case
materials, Vol. 2, pp. 36). As it has already been mentioned, actual and
legal conditions have changed since that time.
15.3. The Constitutional Court
agrees with the opinion of the Applicant that at present not all owners of
apartments can be regarded as socially less protected participants of civil
relations if compared to land owners. Economic situation of owners of
apartments in many cases can be better that that of land owners.
It
is not possible to agree with the opinion of the Saeima that the lease payment
that land owners receive from owners of the apartments in the case of
compulsory lease in accordance with the Contested Norms fulfils remuneration
function, which is characteristic feature of a lease agreement (see: case materials, Vol. 2, pp. 37).
Taking into consideration the amount of the lease payment, expenses of the land
owner for maintenance and management of the land parcel and the duty of the
land owner to pay the property tax, the maximum lease payment established in
the Contested Norms cannot be regarded as the one that would fulfil the
remuneration function.
The
Constitutional Court concludes that there exist two alternative measures, by
means of which it would be possible to reach the legitimate objective by
restricting the rights of land owners at a lesser extent.
Consequently, the words “apartment
residential houses” of the second part of Section 12 of the Law on Land Reform
and the first sentence of the second part of Section 54 of the Law on
Privatization of Residential Houses do not comply with the principle of
proportionality and thus with Article 105 of the Satversme.
16. In order for the Constitutional
Court to assess compliance of the Contested Norms of the Transitional
Provisions with the principle of proportionality, the Constitutional Court must
first of all investigate what are the legal consequences for the fact that
these norms are mutually related with other Contested Norms.
16.1. The Contested Norms of the
Transitional Provisions are mutually related with the restriction of the amount
of lease payment established in other Contested Norms. Under the Contested
Norms of the Transitional Provisions, in 2008, 2009 and 2010, too, the land
lease payment is preserved at the level established according to the procedures
provided for at the first and the second part of Section 12 of the Law on Land
Reform in the Cities and the first sentence of the second part of Section 54 of
the Law on Privatization of Residential Houses, provided that its amount in
each of the mentioned years may not exceed by more than 25 percent the amount
of lease payment calculated for the previous year.
The
Constitutional Court has already established that the second part of the Law on
Land Reform in the cities and the first sentence of the second part of Section
54 of the Law on Privatization of Residential Houses does not comply with the
principle of proportionality and thus with Article 105 of the Satversme. Since
the Contested Norms of the Transitional Provisions are mutually related with
the other Contested Norms, the Contested Norms of the Transitional Provisions
neither comply with the principle of proportionality.
16.2. Already before the
adoption of the Contested Norms, namely, on 8 November 2007, the Saeima
has introduced amendments to the Law “On Real Property Tax”. Para 22 of the
Transitional Provisions of this Law provided that the amount of the immovable property
tax in 2008, 2009 and 2010, if the purpose of the use of the land is not
changed, shall not exceed the by more than 25 percent the amount of tax amount
calculated for the previous taxation year. The legislator, without carrying out
sufficient assessment of actual and legal conditions, has provided for exactly
the same restriction of the increase of lease payment in the case of compulsory
lease.
It
is necessary to agree with what has been indicated by the Applicant that the
Legislator has not assessed how the Contested Norms of the Transitional
Provisions would affect the rights of the land owners. The amendments to the
Law on Land Reform in the Cities, including Para 7 of the Transitional
Provisions thereof, have been discussed at the meeting of 6 December 2007.
Neither the transcript of the abovementioned meeting, nor the annotation to the
draft law proves that the legislator would have considered the ways hot to
establish a fair balance between the interests of the land owners and those of the owners of residential houses.
The
Contested Norms of the Transitional Provisions do not ameliorate the situation
of land owners because, due to the increase of the cadastre value of the land,
the percentage difference between the lease payment and the cadastre value of
the land would rapidly decrease. For instance, the Applicant has indicated
that, in 2008, the lease payment for the land owned by hear constituted only
0.48 percent of the cadastre value of the land of the same year (see: case materials, Vol. 1, pp. 17 and 18).
One can conclude that the legislator, when trying to prevent substantial
increase of lease payment, has not considered the possibility to apply measures
that would restrict the rights of the land owners at a lesser extent.
Consequently, Para 7 of the
Transitional Provisions of the Law on Land Reform in the Cities, insofar as the
restrictions of the lease payment established therein apply to apartment
residential houses, and Para 40 of the Transitional Provisions of the Law on
Privatization of Residential Houses do not comply with the principle of
proportionality and thus with Article 105 of the Satversme.
17. The Applicant has asked the
Court to assess compliance of the Contested Norms with Article 1 of the
Satversme. The Constitutional Court, however, has no necessity to assess
compliance of the Contested Norms with Article 1 of the Satversme because the
non-compliance of the Norms with Article 105 of the Satversme has already been
established.
18. Under the third part of
Article 32 of the Constitutional Court Law, any legal norm (act) which the
Constitutional Court has determined as incompatible with the legal norm of
higher force shall be considered invalid as of the date of publishing the judgment of the Constitutional
Court, unless the Constitutional Court has ruled otherwise.
The
Constitutional Court has reiterated that in the cases if immediate recognition of the
Contested Norms as invalid and repeal thereof would constitute even greater
restriction of the basic rights, the Constitutional Court must establish the
term of execution of a judgment (see:
Judgment of 22 October 2002 by the Constitutional Court in the case No.
2002-04-03, Para 3 of the Concluding Part and Judgmetn of 21 October 2008 in
the case No. 2008-02-01, Para 12).
The
Constitutional Court shares the opinion of the Saeima that it is necessary to
assess better ways hot to ensure fair balance between the opposed interests of
the land owners and owners of privatized apartments, as well as to introduce
respective amendments into the normative acts. At the same time, the
Constitutional Court emphasizes that already on 8 May 2009 the Saeima has
received the Ombudsman Opinion No. 3, wherein the attention was drawn to the
non-compliance of the Contested Norms with the Satversme. Therefore the
infringements of the basic rights established by the Constitutional Court in
this Judgment should be eliminated as soon as possible.
based
on Articles 30 – 32 of the Constitutional Court Law
h o l d s :
the words “apartment
eesidential houses” of the second part of Section 12 of the Law “On Land Reform
in the Cities of the Republic of Latvia” and Para 7 of the Transitional
Provisions thereof insofar as the restrictions of the lease payment apply to
the land under residential aparment houses, and the first sentence of the
second part of Section 54 of the Law “On Privatization of State and Local
Government Residential Houses”, and Para 40 of the Transitional Provisions thereof
do not comply with Article 1 and Article 105 of the Satversme of the Republic
of Latvia and are invalid as from 1 November 2009.
The
Judgment is final and not subject to appeal.
The Judgment takes
effect as on the date of publishing it.