Taking counsel

  • 2006-01-04
  • By Gints Pucens [ Kronbergs & Cukste ]
Joint property: Management, control mechanisms may be key

The Baltic real estate market has been heating up over the past years. Perhaps you too are considering making a real estate investment. If so, as with any other investment, it is usually helpful to consider how you will get into it, what you will do with it and how you will eventually get out of it.

At the acquisition stage, besides following a sensible conveyance procedure, which invariably means an escrow closing, it is a good idea to consider a due diligence on the property and, where applicable and appropriate, a due diligence of the proposed co-owners. It is also sometimes helpful to draw up a contract between the parties governing how they intend to conduct their joint ownership. Such contract should include exit procedures, as reliance on procedures provided for by law alone may well be found wanting later on. The contract should also deal with management issues and controls, to ensure that the profits generated by the property are equitably distributed between the owners.

In cases where property is acquired on a joint basis (and here we are referring to where more than one person has title to a share of the undivided interest in a property, not to be confused with joint tenancy), there is no legal parceling off of one person's physical share of the property from the other's. In such case, a joint legal title is sometimes granted together with a separate use right, setting out which part of the property is for the use of the joint legal title holder.

A joint title holder may be restricted in how he exits his jointly held property. Before becoming a joint title holder, it is advisable to determine what, if any, restrictions may already exist for the future partitioning of the property.

Any joint title holder may request partitioning of the jointly held property, yet sometimes such partitioning is not possible for reasons involving the functional qualities of the property, or because partitioning would result in overly small sized pieces of property as determined by the relevant authorities. For example, in the case of dividing a land plot, the requirements on minimal area of a land division approved by the applicable local government would apply.

A joint title holder seeking to end his joint title first needs to determine whether it is even practicable/possible to do so. The majority of cases on partitioning of jointly held property result in the division of the property into distinctly held units. Land division may also be subject to a number of restrictions 's utility easements, natural barriers, environmental restrictions and municipal regulations concerning minimal allowable property sizes.

If from a functional perspective the specific jointly held property may be partitioned, it is sensible to have an agreement in place concerning partition procedures. There may be a need to deal with certain encumbrances or easements 's for example, to accommodate access. If the jointly held property was subject to certain encumbrances or easements, then if the parties cannot agree otherwise or if circumstances require so, such encumbrances or easements will ordinarily apply to each of the partitioned sections of the property.

If the parties cannot agree on the manner of partitioning, then any of the parties may turn to a court for a ruling. In Latvia, a court has a number of options: It may 1) set out a specific plan of division; 2) grant the entire estate to one of the parties requiring such party to compensate the others; 3) order a sale of the property such that the net proceeds of sale are disbursed to the parties in their allotted proportions; or 4) determine the outcome in what amounts to a lottery, (sometimes applied where one of the joint title holders is to be granted title to the property and another is to receive compensation in lieu of title to property).

Estonian and Lithuanian law also provides for partitioning dispute settlement through the court system.

In conclusion, where property is held jointly, it is a good idea to enter into a contract going into the joint ownership relationship. Having an agreement in place from the outset can save considerable time and expenses when dealing with a number of management and potential partition issues later on.

Kronbergs & Cukste is a member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms which includes Teder Glikman & Partnerid in Estonia and Jurevicius, Balciunas & Bartkus in Lithuania dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.

Gints Pucens is an associate at

Kronbergs & Cukste