A Case Initiated Regarding the Binding Force of the Rental Contract for the Successive Owner of the Apartment
On 23 October 2013 the 1st Panel of the Constitutional Court initiated a case “On Compliance of the First Sentence of Section 8 of the Law “On Residential Tenancy” with Section 105 of the Satversme of the Republic of Latvia.”
Contested Norm
The first sentence of Section 8 of the law “On Residential Tenancy” “If a residential house or apartment is transferred into the ownership of another legal or natural person, the rental contracts entered into by the previous owner shall be binding to the new owner.”
Norm of Higher Legal Force
Section 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
The case has been initiated upon the application submitted by Riga Regional Court. The Regional Court was examining a case, in which a credit institution, upon taking over in its ownership a mortgaged apartment, discovered that the previous owner of the apartment had concluded a rental contract. In accordance with the contested norm, this contract is binding upon the credit institution. Thus, it found that the possibility to handle freely one’s property was hindered and turned to court with a claim on terminating the rental contract.
The Regional Court notes that disproportional restrictions have been placed upon the property right of the new owner – the credit institution. The legislator might envisage an alternative solution, for example, the corroboration of rental contracts in the Land Registry, thus the right of the owner would be less restricted, but the tenant’s rights would not be decreased.
The Regional Court also holds that the law “On Residential Tenancy” was adopted with the aim of balancing the interests of the lawful owners and those tenants, who had been hiring the apartments prior to denationalisation. The contested norm has not been amended for more than twenty years, but its purpose has lost its relevance. First of all, the aim set by the legislator – to protect tenants’ interests in the context of denationalisation – no longer corresponds to the contemporary social and economic situation in Latvia. Secondly, the contested norm allows the owner, whose property has been sold in forced auction, to conclude a fictitious transaction and hinder the transfer of the immoveable property into the possession of the new acquirer of the immovable property.
Legal Proceedings
The Constitutional Court has asked the Saeima to provide a reply on the facts of the case and legal substantiation by 6 January 2014.
The term for preparing the case is 23 March 2014. The Court shall decide upon the procedure and the date for hearing the case after the case has been prepared.
Linked case: 2013-17-01