Taking counsel

  • 2005-09-14
  • By Laura Zalana [ LOZE, GRUNTS & CERS ]
Revocation of power of attorney prior to registration in the land registry

The Latvian real estate market has undergone a number of subtle legal nuances that deserve attention for those executing real estate transactions. As often as not, persons are authorized by actual real estate owners to act on behalf of sellers. On the basis of a power of attorney, they are authorized to conduct negotiations, sign purchase agreements and other documents for registration of title of the new owner in the Land Registry.

Lately practice at the Land Registry and courts has seen cases when the real estate owner revokes his power of attorney after the purchase agreement has been executed, the title registration request has been signed and, possibly, the purchase price has been paid to the seller (and only the registration request has to be filed in the Land Registry).

There have been cases when the authorization was revoked after the registration request had been filed at the Land Registry but before the Land Registry judge managed to review it. According to the Civil Law, only this person is recognized to be the owner of real estate as is registered in the Land Registry as the owner. So even though the parties have signed the purchase agreement and the payment has been made (this depends on the provisions of the purchase agreement), the title transfer documents have not been yet filed or registered in the Land Registry and the buyer is not considered the real estate owner.

In this case, in accordance with the law, the seller is still considered the sole owner and could maliciously manipulate this situation and sell the property to another person. The buyer definitely has the right to request that the seller performs the purchase agreement, to claim return of the purchase price if the agreement is not performed and to recover loss incurred by fault of the seller. However, this takes time and resources.

The Land Registry Law states that the registration request has to be filed together with the certification of consent given by the person against whom such registration would be directed. The seller and the buyer express their consent to the registration by signature. In cases of authorization, the authorized person of the seller would sign the registration request.

However, according to the court practice, consent given pursuant to the power of attorney as reflected on the registration request is valid until revocation of the power of attorney. The current practice of the Land Registry also shows that the title of buyer would not be registered based on the fact that the consent of the seller must be valid at the moment when the judge reviews documents filed.

In conclusion, if the seller is represented by an authorized person the buyer should keep in mind that until the very last moment of registration the seller may revoke his power of attorney, and the buyer would not become a full-fledged owner of the property. The buyer may appeal the refusal of the Land Registry judge, and he may claim performance of the agreement by and damages from the seller; but this is not the optimal solution.

Options how to avoid the aforementioned situation:

The purchase agreement should state that the purchase price will be paid to the seller after title of the buyer is registered in the Land Registry. The most convenient option is to use an escrow account. Namely, upon execution of the purchase agreement the purchase price is transferred to the escrow account, no party has access to it and the purchase price is disbursed to the seller only when documents confirming that the buyer's title to the real estate has been registered in the Land Registry are filed in the bank. In this case the buyer will not lose the purchase price; however, he would have to recover damages and request performance of the agreement from the seller through court;

Special representations of the seller on the non-revocation of the power of attorney should be included, and a high contractual penalty should be provided for breach of such representations in the purchase agreement. The buyer may also request that the authorized person provides representations regarding continuance of validity of the power of attorney until title is transferred to the buyer.