The Norm on the Binding Force of the Rental Contract for the Successive Owner of the Apartment Compatible with the Satversme
On 7 July 2014 the Constitutional Court passed a judgement in Case No. 2013-17-01 “On Compliance of the First Sentence of Section 8 of Law “On Residential Tenancy” with Article 105 of the Satversme of the Republic of Latvia.”
The norm, which envisages the binding force of a rental contract for the successive owner of the residential premises, in case of a forced auction does not cause a disproportional restriction upon a person’s right to own property
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
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 Constitutional Court recognised that in the framework of the case under review the compliance of the contested norm with the first three sentences of Article 105 of the Satversme should be examined. [18]
The Facts
Two cases have been combined in this case, one of them was initiated having regard to the constitutional complaint submitted by Didzis Kalniņš (prior the change of surname – Azanda), the second – the Panel of Civil Cases of the Riga Regional Court. Both applications comprise the opinion that the contested norm places disproportional restrictions upon the apartment owner’s right to unhindered use of property. Inter alia, an alternative solution to the contested norm is offered – to recognise as binding to the new owner only such rental contracts of residential premises that have been corroborated in the Land Register.
Court’s Findings and Ruling
On terminating judicial proceedings
The Constitutional Court decided to terminate judicial proceedings in the part of the case having regard to Didzis Kalniņš’ claim. The submitter of the constitutional complaint had not responded to the request to submit to the Constitutional Court additional explanations and documents needed for the adjudication of the case, therefore the Court could not ascertain the violation of his fundamental rights.
The Constitutional Court recognised that the submitter of a constitutional complaint must participate in establishing the facts of the case. If a person’s fundamental rights have been violated, defending of one’s rights are expected from him or her, understanding by it also personal interest in the proceedings before the Constitutional Court, cooperation with the Court and abiding by the Court’s procedural regulations. [16.2]
On the restriction to the fundamental right and its legitimate aim
The Constitutional Court, continuing to hear the case in the part having regard to the application by the Panel of Civil Cases of the Riga Regional Court, assessed the constitutionality of the contested norm in those cases, where persons obtain a residential building or an apartment as the result of forced auction. [19] The Constitutional Court recognised that the contested norm restricted the right to own property of these persons [21], however the legislator has broad discretion in the field of the right to own property in order to control the use of property in compliance with general interest [22]. In civil law two principles are in force with regard to the force of rental contract in case of purchase: “purchase breaks lease” or “purchase does not break lease”. The legislator has the discretion to choose one or the other of these principles. In the legal relationships of residential tenancy the legislator must strike a balance between the negative impact of the chosen principle upon subjects of law, i.e., must achieve a proportional balance between all persons affected by the respective regulation.
The Constitutional Court recognised that the restriction to the fundamental rights had been introduced by law, which had been adopted and promulgated in due procedure [23] and that it had a legitimate aim – safeguarding tenants’ rights to unhindered use of residential premises. [24.1]
On Compliance of the restriction to fundamental rights with the principle of proportionality
The Constitutional Court noted that in the case under review compliance of the restriction to the fundamental rights with the principle of proportionality should be examined by taking into consideration the elements of risk in a purchase made at an auction. All bidders accept the rules of the auction and undertake a certain risk to purchase property with restricted possibilities for bringing claims in the future in connection with deficiencies of the property. [26]
The Constitutional Court recognised that the measures used by the legislator were appropriate for reaching the legitimate aim – protecting the tenants’ rights. [27]
The Constitutional Court also assessed, whether alternative measure existed that would be less restrictive to owners’ rights, but would reach the legitimate aim in the same quality. The Constitutional Court noted that recognising only such rental contracts of residential premises that had been corroborated in the Land Register as being binding for the new owner could not be recognised as a more lenient measure. Corroboration of the rental contract for residential premises into the Land Register depends upon the will of both parties. Thus, such tenants, who would not be able to agree with the leasor on corroborating the contract into the Land Register, as well as such tenants with insufficient income for covering the corroboration costs, would be less protected. [28.2] Also accessibility of information on rental contracts for residential premises in another publicly credible register, before the legislator has defined the legal framework for setting up of such a register and its operations, cannot be considered as a more lenient measure for restricting fundamental rights. [28.3]
Finally, the Constitutional Court assessed, whether a fair balance between the rights of the acquirer of the residential building or an apartment and the tenant’s of the residential premises had been achieved by the contested norm. [29] The Constitutional Court recognised that the legal relationships in the lease of residential premises was a socially important sector. The State cannot ensure the right to own housing to all persons; however, the State must ensure the right to the inviolability of private life and home. The Constitutional Court referred to the case law of the European Court of Human Rights and noted: in assessing the balance between the public interests and an individual’s right to own property, it must be taken into consideration, whether the person, upon purchasing property, new about the existing or possible further restrictions to the use of this property or he or she, by paying reasonable attention to it, should have found out about them. In the particular case the contested norm per se already indicates to persons that the acquired right to own property might be restricted by a rental contract of the residential premises concluded by the previous owner. [29.1]
The Constitutional Court recognised that the legislator had envisaged mechanisms for the protection of public interests in those cases, when the contested norm was abused. For example, if the rental contract had been concluded to obstruct gaining the possession by the new owner and the previous owner could continue using the apartment, the acquirer of the property had the right to bring a claim requesting to recognise such a contract as being invalid. Likewise, a person who wants to purchase property at a forced auction has the possibility to obtain information on liens upon the property from the bailiff. Whereas the creditor, who has obtained the property as the result of a failed auction, already before concluding the credit or mortgage contract has the possibility to obtain comprehensive information about the real estate and include provisions for the protection of the creditor’s rights in the respective contract. [29.2]
The Constitutional Court also noted that possible abuse of a legal norm per se did not give the grounds for considering this norm incompatible with the Satversme. [29.2]
Thus, the Constitutional Court recognised that the restriction to fundamental rights included in the contested norm complied with the principle of proportionality and the contested norm complied with Article 105 of the Satversme.
The Judgement is final and not subject to appeal, it comes into force as of the day of its official publication.
Linked case: 2013-17-01