Estonia is known for its liberal economy and rapid economic development. In some areas of the economy, the development has been too fast for the government to keep up with. One of these areas is real estate and land development. Foreign and local investors constantly seek for new and sometimes old-but-forgotten investment opportunities. Skyrocketing real estate prices especially in Tallinn and nearby areas have sent locals and foreign investors seeking investment returns further beyond Tallinn.
The basis for the fast-growing real estate business was the emergence of private property after the fall of the Soviet command economy. Already Estonia has nearly 15 years in the sea of privatization. In some cases real estate and land still remain in the hands of the state or local municipalities, but the majority of land has now been denationalized and returned to their justified owners.
The process of denationalization is, of course, best taken fast and efficiently in the interest of the justified owners. In some cases, however, acting fast on the part of the state has done harm to the state. Every state has its strategic interests that need to be protected, and in some cases the state needs land or property in the hands of private individuals or enterprises to fulfill a government task. In some cases the state has returned these strategic areas to their justified owners and now needs them back. This is where the feared nationalization procedure of real estate may apply.
In Estonia nationalization of land may start if the Real Estate Expropriation Act from 1995 (amended in 2005) gives basis for it. Without the consent of the owner the real estate may be expropriated in the public interest - for example, for the purpose of construction of buildings for national defense, border guard, energy production, construction of public streets and roads.
Expropriation of the real estate may only take place if there is fair compensation. The amount of compensation is determined by a special appraisal that determines the market price of the real estate at the time of expropriation. The law prescribes that an agreement on the just compensation is preferable. The state shall bear all the costs related to the process of expropriation.
Recent news shows that the process of expropriation is most likely to be applied in cases where, in southern Estonia, a new border guard check point Koidula is to be built and where the interests of land owners conflict with the interests of the state. A risk of emergence of similar cases may occur regarding the much disputed construction of the four-lane highway from Tallinn to Tartu, where hundreds of land plots owned by private individuals are in the way of the proposed highway. In the distant future, a new international airport in Amari, near Tallinn, may also create similar cases.
We are likely to see more cases of expropriation in real estate as the needs of the state and its citizens grow. It is therefore of utmost importance to plan your investment to real estate taking into account the future plans of the state and the municipality of that area in order not to be unexpectedly subjected to the process of expropriation.
Steven Lipp is a lawyer at the law firm of Teder, Glikman & Partnerid, a member of Baltic Legal Solution, a pan-Baltic integrated legal network of law firms which includes Kronbergs and Cukste in Latvia and Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.