Tambet Tiits
Kinnisvaraekspert Ltd
Suur-Karja 2,
Tallinn, Estonia
ABSTRACT
Estonia regained its independence in 1991 and quickly carry out monetary and fiscal reforms. Among important reforms land and ownership reforms are progressing slow. In many countries of Central and Eastern Europe, as well in Estonia, we could follow a process of transition from a centrally planned economy to the market economy.
Historical Background
Civil Code in Estonia developed during centuries along the principles of German law. There was a Title Book in Estonia, also a relatively well developed land surveying and cadastre before second world war. In 1940, when Estonia was occupied, all land was declared to belong to state. Collectivisation what started in 1949 finished with private farming. So, of more than 140 000 private farms in 1939 was formed 330 kolkhoses and sovhoses (1985). All industry, service and other business activities were allowed to belong to state only. Any private ownership of land was illegal.
Land Reform
The Land Reform was started in 1991 and the Title Office was re-established in December 1993. There are three legal regulations in Estonia (Figure 1):
There is still a part of the old legal system concerning the land, the land use right in effect; there is a complicated regulation of the reform process going on and there is a new legal base. Dealing with the real property in Estonia, it should be carefully considered in every case, whether it is regulated by the old or the new system or by the reform regulation. The new system has been in force already for four and half years, so there is a system what really works and there is a new experience.
OLD SYSTEM
During the Soviet period land was legally excluded from the civil transactions. Real estate, mortgage, easements, etc. didn`t have any meaning in that system. The legal system concerning the real property was quite different from the European systems.
Figure 1
Almost all property was one by state. As exception to this it was allowed to have single family houses in private ownership. Main housing policy supported development of big blockhouses and building of single family houses was quite limited. Property market was extremely limited and mainly rights related to single family houses were transferable at all. Right to use a plot of land was related to building.
Most of the land in Estonia is still under the old regulation of property rights. Land is considered to be in the state ownership, tenants have the right to use a plot of land. Civil transactions concerning land are illegal under this regulation. Transactions are legal with buildings, and the right to use a plot of land follows it.
No new right could be recorded according to the old system after 17.10.1991. It means that nobody can get a land use right according to the old system. All old type rights, which have been recorded in the Building Register before the Land Reform Law came into force, are legal up to the transition of these rights through the reform process into the new system of rights. So, even new building permissions can be issued based on this right, but only in case there are some improvements already in place.
Adjustments
Old civil code is based on soviet one. During last years of Soviet Union and first years of independence this was adjusted to some extent. These adjustments were necessary and principally it liberalised the regulation for market transactions. Adjustments were decided rather quickly and they did not change the system principally.
Main adjustments of the old regulation are:
Even with these adjustments land remained in public ownership. Tenants have only a right to use and cultivate it.
REFORM PROCESS
The reform process is like a bridge between the old and the new system. The aim of Land Reform is based on the continuity of ownership rights and the interests of tenants protected by law, to establish more effective use of land and transform relations based on the state ownership of land into relations primarily based on private ownership of land. Restitution and a mass privatisation processes do concern all the land in Estonia. The Land reform regulates 5 principal processes: restitution, compensation, municipalisation, privatisation, and nationalisation. (Substitution, what rarely realised, was a possibility up to May 1996.) Estonia has very limited restrictions concerning the restitution of property rights compared to many other countries in transition.
As in the old system, also in the process of land reform the building ownership is more important than rights related to land (Figure 2). Owners of the buildings erected during the Soviet period have the pre-emption to buy a plot of land from the state. The previous owner, who claimed his rights concerning this plot of land back, will be compensated for this plot of land. The state is responsible for the compensation in this case. In cases there are no constructions on the site or they do not have a legal base, the land will be restituted.
Figure 2
Restitution and compensation of illegally expropriated rights has been the main issue of the reform process during 1992 - 1996. Almost 70% of the cases have been processed, and decisions concerning restitution or compensation, and the person have been made. In reality, the land survey takes more time, and now 25 - 30 % of the land already has been surveyed and recorded in the Cadastre ( in some regions about 60%).
In 1995 privatisation of apartments started, and by May 1996 almost 2/3 of them have been privatised. Again, the land is not yet surveyed in most cases. These apartment rights are recorded in the Building Register. When the survey is completed, its results will be recorded in the Cadastre and the apartments units in the Title book.
Privatisation of land plots by the owners of buildings is now more and more developing. It concerns these buildings erected during the Soviet period. The building owner has the pre-emption right to buy the plot of land related to his building.
NEW REGULATION
For many countries in transition, it is necessary to build up a new legal system concerning the real property. In 1993 a principal decision was made in Estonia to develop a legal system regulating the land rights along the principles of the pre- 1940 Estonian and the German law.
The new legislation concerning the real property includes the Law on Real Right; the Title Book Law; the Law of Notaries; the Law on the Introduction of the Law on Real Right; the Law on Ownership of Apartment; the Law on General Principles of the Civil Code; the Expropriation Law; the Land Readjustment Law, the Planning and Construction Law, the Law of Land Cadastre, etc. This new legal framework defines for the first time after the Soviet period new legal terms for Estonia in the way common for Europe. These terms concerns the real property, building title, easements, mortgages, etc.
Unlike Estonia and Latvia, many other countries in transition are developing their civil law without using foreign civil law as a prototype or as an essential part of the new system. Often it means that there is no equivalent legislation in these countries as to the rules, by which many countries link the buildings and land together into a single object in legal sense.
CONCEPT OF PROPERTY
Movable property.
Most of the properties in Estonia are still within the legal frames of the old system: a house is in the ownership of a person and the land is still owned by the state. In this case, the building is a legally considered as movable property. The house owner has the land use right. When the building is sold, the land use right follows it.
Real property.
Immovable property: land and buildings, forest etc. on the land recorded in Title Book. The landowner owns also buildings on this land.
Building Lease.
It can be explained as a long term leasehold: from 36 to 99 years. In this case, the land is owned by one person and another person has the right for developments on it. According to the Estonian legal system, a long term leasehold for development has to be registered in the Title Office. It is transferable, could be mortgaged, and is a well protected right for building purposes (German "Erbaurecht").
There are no restrictions in Estonia concerning the Building Lease. For citizens, enterprises, and also foreigners, it is free. The rent, that should be paid to the landowner is regulated in the case when the state or municipality is the landowner. The annual rent for the Building Title for commercial land equals to 5 % of the taxable value. In the case of residential land, the rent is 2 % and it is 4 % of the taxable value for other purposes, like production etc.
Apartment Title
Apartments constitute a special type of real estate, in which co-ownership of the real estate and the private right to use and dispose of the apartment are interconnected. The apartment property is formed by division of a piece of real estate. When all apartment properties have been recorded in the Title Book, the respective section of the registry is closed. Although the Building Title can be divided into apartment building titles.
REGISTRATION
The Building Register
The Building Register (previous Inventory Bureau) is an agency dealing with movable property under the old regulation. The Building Register was a register of buildings and owners during the whole Soviet period. It made also technical surveys of buildings. It is still operating, and transactions concerning houses as movable properties have to be registered in this office.
The Building Register is considered as a temporary establishment. The new system provides for the Cadastre and the Title Office only. This transition period can last quite long, and the current Building Register contains much more information than in Title Book of new regulation.
Among the content of the Building Register, there is information concerning the buildings, owners of buildings, apartments and owners of apartments. There is also information as to plots of land, but it relates to the right to use land and not to the ownership of land.
The Cadastre
The Cadastre (Figure 3) is responsible for the real estate formation and registration. Parliament passed the Cadastral Act in October 94. According to this act Estonia is re-establishing a parcel based cadastre. Records of the pre-war cadastral department are saved and used in the process of the land reform.
According to the law, the Cadastre will cover all land in Estonia, including land in public ownership. There was and still is in use the old type cadastre of land users. Its information covers all Estonia.
The Title Office
The Title Office records the property rights. The Title Office was re-established in December 1993. The records of the pre- 1940 Title Office - are quite well preserved. It makes possible to restitute owners rights after the five decades of the Soviet period. The title books have a folios of every property: real property; owner; encumbrances and easements; mortgages. Title books are held by courts in all districts.
The law doesn`t require the land owned by the state or municipality to be recorded in the Title Office. It may be done but not necessarily.
CIVIL TRANSACTIONS
Notaries
Transaction agreements have to be executed by a notary. There is a system of private notaries in Estonia. Both type transactions, the old- and new type, have to be executed by the notary before recording in the respective register. The notaries are largely involved also in reform process.
Market activities
Market activities during last two years have been increasing considerably along with development of economy and banking system. There were around 19 transactions and around 25 last year per 1000 citizens (including movable and immovable). So, even land and property reforms are progressing slowly, new regulation together with adjusted old regulation gives rather good opportunities for market activities.
Around 88 % of all transactions in 1997 were of the old type. In many cases, surveying takes so much time that it is easier to buy in the first phase the building as a movable estate and then deal with the land issues. In particular, the Estonian Privatisation Agency (EPA), which is established for the privatising the state property, enterprises etc., in most cases deals with movable estates or with shares. The reason is that it takes less time to privatise. The Agency has the right to sell land. In the cases where privatisation was the responsibility of EPA, it has to deal also with land. In other cases, the land privatisation is the responsibility of County governor.
TRANSFER OF PROPERTY RIGHTS TO FOREIGNERS
There are no restrictions to buy a building under the old system now. It doesn`t include the right of land ownership. The building owner has the right to apply for buying of land or for the Building Title.
Figure 3
There are no restrictions in Estonia concerning the Building Lease. Citizens, foreigners, domestic and foreign companies, etc. are allowed to own Building Title.
Buying of land is regulated, and County governor is responsible for issuing permissions for transactions with the land rights. A permission is asked when a foreign citizen or company wants to buy land. It doesn`t concern:
In some areas, small islands, etc. foreign ownership needs a special authorisation by the Estonian Government.
If the application to buy is not accepted by the County governor the person involved can get a Building Title.
REFERENCES