Real estate portals are full of all sorts of adverts hiding other premises under the heading of “apartments”.

Edvardas Steckis, AAA Law Attorney-at-law, told 15min that misleading designation of the purpose of real estate in advertisements or preliminary sale-purchase agreements is a problem.

According to the lawyer, the State Consumer Rights Protection Authority (SCPA) has even monitored the advertising of real estate market participants and preliminary sale and purchase agreements and published a report.

It pointed out that the property sales market has several descriptions of premises which may be unclear, incomprehensible or misleading to the average consumer (“holiday home”, “guest house”, “apartment”, “home”, “your new home”, “studio”).

“In addition, the purpose of the property (residential, non-residential) is not always clearly stated in the preliminary or reservation contracts themselves. This makes it difficult for the average consumer, who is interested in the premises offered for purchase, to distinguish between the type of property being offered and the type of residential or non-residential premises for which a preliminary sale/reservation contract is being concluded. Such misrepresentation can be declared illegal on the basis of the Unfair Commercial Practices for Consumers Act”, comments E. Steckis.

Why is it important to have a precise and clear purpose for property?

“Because non-residential premises differ significantly from residential premises in their technical, legal and tax details. These are not just theoretical differences,” says Edvardas.

He gave the example that non-residential premises have different, often lower, technical requirements for fire performance, sound insulation, and number of parking spaces.

“The use of the premises can determine the conditions for obtaining a bank loan (e.g. whether consumer-friendly contractual terms that apply only to home loans will apply).

The purpose of the property also almost always determines the tax nuances of the property. Commercial property (buildings or premises used for administrative, catering, service, retail, hotel, recreational, medical, cultural, scientific or sporting purposes) is taxed regardless of its value, with a few minor exceptions. This can be quite significant, ranging from 0.5 per cent to 3 per cent of the property’s taxable value (the specific amount is set by the municipal council). The amendments to the Law on Real Estate Tax, currently registered by the Ministry of Finance, envisage that commercial property would also be subject to an additional 0.2% of the tax rate if the law is adopted by the Seimas”, explains the lawyer.

Moreover, he said, the legislation stipulates that non-residential premises should only be used for the purpose and in the manner in which they are registered in the Real Estate Register.

“The use of the premises for a purpose other than that for which they were intended may lead to administrative liability under Article 359 of the Code of Administrative Offences. It is true that declaring a residence in non-residential premises is currently allowed, but this does not automatically allow the actual use of the premises for purposes other than their intended use.

Of course, it is possible to change the use from non-residential to residential, but it is not so easy. This requires adjustments to the technical solutions (e.g. fire protection, soundproofing, etc.) of the premises concerned in order to meet the requirements for residential accommodation. This requires significant financial and time costs for the user”, says Steckis.

How to avoid this?

“We recommend not to rely solely on advertisements, promises made by the seller or his/her representative, but to always first ask to see the extract of the property you want to buy from the State Enterprise “Centre of Registers” and to make sure that the advertisement and the actual use of the property specified in the extract coincide. The statement should be fairly recent, not a year or five old,” advises the lawyer.

In the same way, he said, the terms of the preliminary agreement, which cover the purpose of the property, should be checked carefully i. e. whether the use is the same as previously discussed or advertised, is clear to the buyer, and the buyer understands the risks involved in purchasing non-residential property.

“If the risks are understood and you still want to buy such a property, it is worthwhile to carefully analyse the seller’s obligations to change the use, the deadlines for fulfilling the obligations, and the legal consequences for the seller if he fails to fulfil them on time,” commented Edvardas.

Read the full article here.