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On November 15, 2022, the Cabinet of Ministers adopted a decision to complete the property rights reform, commonly referred to as privatization, in Latvia, which was initiated in 1994, by December 31, 2026, thereby also eliminating all unused privatization certificates. In its meeting on October 31 of this year, the government took further steps towards achieving this goal by approving the draft law on the completion of the privatization of state and municipal residential buildings, as well as amendments to several laws - the Law on Privatization Certificates, the Law on the Disposal of Public Property, the Law on the Privatization of State and Municipal Residential Buildings, and the Law on the Completion of the Privatization and Use of Privatization Certificates.
The aim of the new draft law on the completion of the privatization of state and municipal residential buildings is to ensure the completion of the privatization process of state and municipal residential buildings by setting deadlines and conditions for actions to complete the privatization process. The law specifies:
- The deadline by which state and municipal residential buildings eligible for privatization must be transferred for privatization.
- The deadline by which a decision to commence the privatization of a state or municipal residential building must be made.
- The conditions for terminating auctions of privatization objects of state and municipal residential buildings for which no lease agreements have been concluded.
- The conditions for terminating the transfer of apartments, artist studios, and non-residential premises into ownership until the privatization of the residential building.
- The procedure for privatizing land plots owned by the state or municipality after the removal of privatization restrictions.
- The procedure for registering privatized residential properties in the State Cadastre Information System of Real Estate and confirming the ownership rights of the owners of privatized objects in the land registry.
- The procedure for the management transfer of fully or partially privatized residential buildings.
- The rights of municipalities to be involved in the arrangement of property rights for former cooperative and joint-stock company residential buildings.
Before the amendments, the Law on the Completion of the Privatization and Use of Privatization Certificates is planned to introduce specific changes to the legal regulation of the circulation of privatization certificates to facilitate their use and cancellation in the final stage of the privatization process. It is envisaged in the draft that if, within 10 years after the death of the owner of privatization certificates, there are certificates in the owner's account, and no certificate of inheritance has been submitted, they will be canceled, gradually reducing administrative costs at the end of the privatization process. At the same time, a one-year transition period is planned during which heirs who wish to do so but have not yet done so will have the opportunity to include the privatization certificates owned by the deceased person in the inheritance. Likewise, to reduce the administrative burden and promote the circulation of certificates in the final stage of privatization, it is planned to simplify the conditions for the redemption of privatization certificates, allowing individuals to sell or otherwise dispose of their privatization certificates without intermediaries.
The aim of the amendments to the Law on the Disposal of Public Property is to provide regulation for dealing with state or municipal land plots under privatized residential buildings after the completion of the privatization process, which could not be obtained in ownership due to restrictions defined in the law. Accordingly, to ensure justice and the rights and legitimate interests of owners of privatized residential buildings, when restrictions on the alienation of such land plots are lifted, they will be transferred to the owners of residential buildings under the same conditions as existed for the privatization of the residential building. Likewise, the Law on the Privatization of State and Municipal Residential Buildings eliminates restrictions on privatizing land under residential buildings located within red lines of roads, streets, or driveways, and eliminates norms that require the accelerated conclusion of purchase contracts for privatized apartments. At the same time, a mechanism for registering the ownership rights of the owners of privatized real estate objects in the land registry is introduced, simplifying the procedure and facilitating the arrangement of ownership rights for the owners of privatized apartments.
Furthermore, with the amendments to the Law on the Completion of the Privatization and Use of Privatization Certificates, the completion of the privatization of state and municipal property and the conditions for using privatization certificates in the context of the completion of privatization and land reform processes will be promoted. To resolve cases where privatization cannot be considered complete due to non-monetary conditions, it is planned that the completion criterion will be the fulfillment of payment obligations. To reduce administrative burden and create savings in state finances, the proportion in which privatization certificates can be used as a means of payment in place of property compensation certificates will be established in the law. Likewise, it will be stipulated in the law that after the completion of the privatization process (by December 31, 2026), the servicing of privatization certificate accounts will be terminated, and any remaining certificate balances, if any, will be canceled. Similarly, individuals or their heirs who have been awarded property compensation certificates for lost property but have not used or canceled them will be able to receive their nominal value in cash. At the same time, the law will grant the privatization institution the right to register the ownership rights of the privatized real estate object buyer in the land registry based on the concluded privatization purchase agreement if the buyer has not registered them within a specified period.
As is known, with the restoration of independence, it was crucial for the interests of the Latvian Republic's economy to transition from a command economy to a market economy based on private ownership and private initiative, while increasing the efficiency of economic resources owned and available to the state. To achieve this, property rights were restored (denationalized) and mass privatization of state and municipal property was initiated, thereby creating and promoting private entrepreneurship. Land reform was also initiated in rural areas and cities.
Property rights reform in Latvia was initiated in the second half of 1991. In the period until June 1994, the privatization of state-owned enterprises and joint-stock companies was carried out by sectoral ministries. To encourage the participation of Latvia's residents in reform processes, the state issued and allocated securities - privatization certificates - to residents for the time spent in Latvia, which could be used as a means of payment when purchasing relevant state and municipal properties. Privatization certificates were also used as a compensation instrument for individuals who did not have the opportunity or who refused to reinstate property rights to properties that were nationalized after 1940. A special type of privatization certificate was created - property compensation certificates.
In 1994, the state established the non-profit organization State Joint-Stock Company "Privatization Agency" (currently named SIA “Public Assets Manager Possessor”), which provided the privatization process of state-owned property objects, attracted direct foreign investments to privatized companies, established a capital market, conducted public offerings of shares, capitalized the state budget debt of enterprises and joint-stock companies, and privatized land plots under state-owned property objects.
Mass privatization in the country has been completed, but work is still ongoing to streamline the processes of privatization and land reform and to legally conclude these processes. On November 15, 2022, the Cabinet of Ministers, while reviewing the Information Report "On the Progress of the Privatization and Land Redemption Process and Proposals for its Completion within a Reasonable Timeframe," decided to complete the property rights reform, commonly referred to as privatization, in Latvia, by December 31, 2026, thereby also eliminating all unused privatization certificates. At the same time, the government approved a plan of nine measures to complete property rights reform in Latvia by December 31, 2026.