TENLAW 3rd meeting Tarragona , June 19, 2013 „ Interesting First Findings “ Estonia, Latvia , Lithuania

1. TENLAW 3rd meetingTarragona, June 19, 2013„InterestingFirstFindings“Estonia, Latvia, Lithuania Prof Irene Kull (Estonia), teamleader Ave Hussar, mag iur(Estonia) JulijaKolomijceva (Latvia)

2. Plan • Socio-economic context of tenancy relations • Legal environment of tenancy relations • Evaluation of first interesting findings

3. 1.1. Common inheritance • Intensive apartment building 1960-1980 • Limited private ownership of (small) residential houses • By 1990 - number of dwellings per 1000 inhabitants EE- 412, LV – 369, LT – 312 (source: Kährik, Kõre 1996) • Still shortage 5 % by 1989 (Estonia)

4. 1.2. Choices since 1991 • Tenants of restituted houses • Estonia: regulated rent periods (until 2007), rent control (until 2004), social housing options; 3 % of the population. • Latvia: split property problem→compulsory lease of land; problematic rent control. (In 2006 the Constitutional Court declared rent payment restrictions in relation to tenancy of house denationalised or returned to a lawful owner as unconformable with the Constitution.) • Lithuania: In 1991–2010, the number of tenant families evicted amounted to 7,1 thousand - 46 % per cent of them were accommodated in the dwellings provided by municipalities, 54 % found other solutions (land plots to build individual residential houses were granted etc.).

5. 1.2. Choices since 1991 • Privatised ownership • Estonia: mainly flats, mainly non-Estonians families • Latvia: privatisation and denationalisation - splitproperyproblem • Lithuania: Most housing property eligible for privatization had been privatized by the end of 1993. Result: private ownership of dwellings – more than 90% of the dwelling stock

6. 1.3.1.Structure and condition of housing stockNumber of dwellings per 1000 inhabitantsSource: http://www.housingeurope.eu/www.housingeurope.eu/uploads/file_/HER%202012%20EN%20web2_1.pdf; Statistics Estonia EE- 505 (2011) LV – 461 (2009) LT – 400 (2011)

7. 1.3.1.Structure and condition of housing stockUseful floor area of dwellings per capita, in sq m (1999-2011)Source: National statistics, http://www.seb.ee/sites/default/files/web/files/uudised/baltic_household_outlook_oct_2012.pdf EE - 30,1 m2 (2011) LV – 27,2 m2 (2009) LT – 25,5 m2 (2011) EU – ca 40 m2

8. 1.3.1.Structure and condition of housing stockDistribution of population by dwelling type, 2011Source: Eurostat (online data code: ilc_lvho01) Liveinflats: EE - 64,5 % LV – 65,4 % LT – 57 % EU – 41,8 %

9. 1.3.1. Structure and condition of housing stockCondition of housing stock, 2011Source: Eurostat (online data code: ilc_lvho01) Overcrowdingrate(% oftotalpopulation) EE – 14,4 LV – 44,4 LT – 19,7 EU – 16,9 Severehousingdeprivationrate(% oftotalpopulation) EE – 4,9 LV – 17,9 LT – 7,7 EU – 5,5

10. 1.3.2.Market share of different types of tenure, 2011Source: Eurostat (online data code: ilc_lvho02) http://www.seb.ee/sites/default/files/web/files/uudised/baltic_household_outlook_oct_2012.pdf Owneroccupied(% ofthepopulation): EE – 85,5 % LV – 84,1 % LT – 93,1 % EU – 70,7 % Privateownershipofhousingstock(% ofhousingstock): EE – 97 % LV – 97 % LT – 89 %

11. 1.3.2.Market share of different types of tenure, 2011Summary: ownership and tenure structure • Estonia • Ownership structure of dwelling stock (2011): 95.7% residents of Estonia or foreign country, 1.8% by state or local government. • 64,5 % of the population live in flats • Estimated rental market 4 -15 % (of which ¼ social housing) • There is no general housing shortage - only 83.9% occupied . • Considerably large part of the households (13 %) lack elementary sanitary conditions . • Latvia: Approx. 84.9% of the whole the housing stock is in owner-occupied and 15.1 % are rental dwellings. 65,4 % live in flats (highest ratio in EU!) • Lithuania the official housing rental market almost does not exist. Private housing sector accounted for 97% (2001) of the total housing stock, rest - social housing. Estimated share of people living in rented dwellings is about 12 percent and 88 percent own a house or a flat where they live.

12. 1.4.Influencing factors1.4.1. Economic factors Household expenditure: Estonia (2010) - 19 % Latvia (2011) - 16,6 % Lithuania (2009) – 15,9 % EU 27 (2009) – 22,9 % Ratio of private loans to GDP: Estonia: 44 %; Latvia: 37 %; Lithuania: 25 %. Nordic pattern: proportion of housing loans in the overall portfolios: EE - 84 %, LV - 81 %, LT - 79 %. http://www.seb.ee/en/news/2012-10-23/household-debt-burden-lower-baltic-republics-nordic-countries

13. 1.4.Influencing factors1.4.1. Economic factors • „The sharpest drop in real terms occurred inGreece, where the median equivalised disposableincome fell by 12.3 %. It fell by 6.6 % inBulgaria, 6.1 % in Latvia, 5.8 % in Spain, 4.8 %in Estonia and 4.4 % in Portugal“.(Source: Economy and finance. Statistics in focus2/2013http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-13-002/EN/KS-SF-13-002-EN.PDF) • Market slowly recovering • Average interest rate of housing loans low (June 2012): EE - 2,9 % p.a, LV – 3,22 % p.a., LT - 3,5 % p.a. • City centre residental investent yield – ca 4-5 %

14. 1.4.Influencing factors1.4.2.Urban and social factors • „Eastern Member Statesgenerally spent a higher than average proportion onfood and non-alcoholic beverages. Indeed, thisshare is largest in Latvia and Estonia, with 20%, /…/. On the other hand, thecombined share of actual and imputed housingrentals is generally lower in these countries,ranging from 7 % in Poland to 15 % in the CzechRepublic“(Economy and finance. Statistics in focus2/2013http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-13-002/EN/KS-SF-13-002-EN.PDF) • Lithuania: ca 60 percent of those who rented the apartment, live in the biggest cities of Lithuania. The lease is preferred by 18-35 years old people, who have not yet developed their family, who have lower-than-average. The market supply of rental housing is sufficient. Number of social housing and municipality owned shelters are not sufficient. Dwelling lease is assessed like a temporary solution until own housing acquisition. • Estonia:While only in 1998 did 30.2% of the employed rural population work in cities and 62% worked in the municipality of their residence, the respective figures for2004 were 38.5% and 50.7% .

15. 1.4.Influencing factors1.4.3. Housing policy • Estonia: Social Welfare Act art 14, Constitution Art 28. The Estonian National Housing Development Plan for 2008-2013. • Latvia: The state institution works out and sets goals of housing policy, local municipalities realize housing policy as their exclusive function through assistance in solving residential space matters.Local municipalities are obliged to help inhabitants to solving housing matters. • Lithuania: The Law on the Lithuanian state support for housing to purchase or lease and apartment buildings renovation (modernization)set two state support to individuals and families who have a permanent residence in the Republic of Lithuania forms: • 1) Municipal social rented housing • 2) Support for housing purchase, construction (reconstruction).

16. 1.4.Influencing factors1.4.4. Migration • Migration: first to east, then to west... • Estonia: negative – minus 5,5% (2000-2011) • Latvia: negative-30 thousand against 7,2 thousand (2011). • Lithuania: negative - 222 thousand against 45,3 thousand immigrated. In the context of other EU member states, Lithuania is distinguished by the largest negative net migration per 1000 population.

17. 1.4.Influencing factors1.4.5.Taxation • ESTONIA: problemsconnectedwith personal income tax (21 %): • Landlordas a regular taxpayerhas no possibility of deducting any expenses from taxable income → officialrentingnotattractive • Landlord as a sole proprietorhas an obligation to pay social tax from the rental payments received→ officialrentingnotattractive • LATVIA: black market problems and tax evasion • Landlordregistered as self-employed person in the State Revenue Service may deduct management expenses and other expenses connected with economical activity from taxable income, including, but not limited to social tax payments. Personal income tax amounts to 24%. • Landlord may not register as self employed person, then only immovable tax may be deducted. The tax rate is 10% in these cases. • LITHUANIA: Thedwelling'sowner must paytaxesfromthe rent incomereceivedso thepeopledonotconclude rent contracts and thelesseescannot register theplaceastheirpermanentplaceofresidence. Incometax rate is 15%

18. 2.Legal environment2.1.General structure of legal framework • Estonia:Law of Obligations Act (2002), Part 3 Contracts for Use, Chapter 15 Lease Contracts Art.-s 271-338 • Latvia:Law on Residential Tenancy (1993, aslex specialis),Civil Law (adopted 1937, restored 1991), Law on Social Apartments (1997), Law on Assistance in Solving Apartment Matters (2004) • Lithuania: Civil Code (2000) Book Six Part Four Chapter XXXI Lease of dwellings. General rules regulating the rent contract are applicable in so far as the special rules of the dwelling’s rent contract do not establish the special regulation.

19. 2.2.Selected topical legal issues 2.2.1.Degree of freedom of contract • Estonia: • Partly mandatory (for lessor) rules regarding the rights, obligations and liability of the parties to a residential lease (Art. 275 of the LOA) – not applicable for social rental contracts! • Special rules for residential lease, e.g. limited right of termination, formal requirements of termination, contestation of termination, limits to agreement of periodical increase in rent of dwelling. • Latvia: • Tenancy law is liberal and many questions shall be regulated by a mutual agreement of parties. • High degree of freedom of contract, but not absolute, mandatory provisions are connected with payments for basic services (heating, cold water, sewerage, garbage disposal), termination of rent by the landlord, eviction of the tenant etc. • Lithuania: • The majority of rules which are set in the Civil Code for the tenancy regulation are non-mandatory. • the Civil Code establishes some mandatory rules concerning conditions of the rent contract.

20. 2.2.Selected topical legal issues2.2.2.Formalities

21. 2.2.Selected topical legal issues 2.2.3.Duration and termination of contract

22. 2.2.Selected topical legal issues 2.2.3.Duration and termination of contract

23. 2.2.Selected topical legal issues2.2.4.Rent control

24. 3. Evaluation • High private ownership of housing stock • High owner-occupation and almost non-existent rental market • People prefer having their own dwellings rather than living in a rented house • Dwelling stock in comparatvely bad condition (lack of elementary sanitary conditions) • Low (but growing!) housing expenditure • No general shortage, regional diversities (cities vs rural areas), concentration in Tallinn (Estonia) • Shortage in social housing (competition between municipalities) • Not only privatization and restitution, but also migration • No considerable differences in regulation (generally liberal approach)