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I. CASE-LAW CONSIDERATIONS REGARDING THE DEMOLITION OF A CONSTRUCTION WORKS WHEN THE DOCUMENT PERMITTING THE CONSTRUCTION IS ISSUED WITHOUT THE MANDATORY DETAILED PLAN HAVING BEEN YET DRAWN UP

On 13 June 2016 the extended Chamber of Judges of the Supreme Court of Lithuania ruled in Civil Case No 3K-7- 134-916/2016 to reject the lodged claim to acknowledge the document permitting the construction as being unlawful notwithstanding the fact that the mandatory detailed plan has not been drawn up.

The court of cassation stated that the construction permit could have been issued only on the grounds of the approved detailed plan, which, pursuant to Article 23 of the Law on Territorial Planning, established the regime of improvement and use of territory; however, according to the court of cassation, the legal regulation provided by the Law on Construction fails to define situations when the document permitting the construction is issued to permit construction in the territory where the detailed plan has not been drawn up at all even though it had to be drawn up.

The court thinks that such situation cannot be considered as eliminating per se the possibility to rectify the violations of procedures and to legalise the construction.

The court stated that only in cases when construction cannot be performed in line with territorial planning documents of the higher level or when such construction is non-compliant with overriding mandatory provisions of legislation of environment protection, heritage protection or protection of protected areas, the ultima ratio measure of the elimination of the results of illegal construction, i.e. the demolition or dismantling of a construction works, can be applied.

The court of cassation decided that it was objectively necessary (decisions of 28 March 2006 and 24 October 2007 of the Constitutional Court of the Republic of Lithuania) to change the case-law started by the ruling of 21 December 2011 of the Chamber of Judges of the Civil Cases Division of the Supreme Court of Lithuania in Civil Case No 3K-3-523/2011 stating that when the document permitting the construction is issued without the mandatory detailed territorial planning document having been yet drawn up, the exception provided by Article 281(2)(3) of the Law on Construction cannot be applied and the construction works has to be demolished, by providing interpretation that the provision of Article 281(2)(3) of the Law on Construction can be applied when all the above facts have been established.

With due consideration to the above arguments, the court of cassation has quashed the part of the ruling of the court of appeal instance pertaining to the elimination of the results of illegal construction and has referred the case to this court for rehearing.

More information is available in the website of the Supreme Court of Lithuania at http://www.lat.lt (Case No 3K-7-134-916 /2016).

II. CASE-LAW CONSIDERATIONS REGARDING THE COMPENSATION OF COSTS OF IMPROVEMENT OF RENTED PROPERTY, REAL ESTATE TAX AND PREPAID RENT

The Supreme Court of Lithuania settled a dispute regarding the termination of leases of the heat sector and provided relevant interpretations regarding the compensation of costs of improvement of rented property in the ruling of 27 October 2016 in Civil Case No 3K-3-423-916/2016.

The Supreme Court has held that the repair of a thing do not mean per se that the thing is improved. Works that lead to the improvement of technical characteristics of a thing and make the specific thing more valuable and more useful may be acknowledged as the improvement of such thing. The improvement of a thing usually does not include its adaptation to the specific needs of the tenant (borrower) when such transformation of the thing is useful only when using the thing for the specific purpose and completely unnecessary when using the thing for any other purpose.

Regarding the incurred costs, the tenant: (1) reality: (2) necessity; (3) reasonableness. The reality means that the actually spent funds are recognised as costs. When lodging a claim for damages the person has to prove the actually paid funds rather than potential costs, and this must be proven by providing admissible evidence.

According to the interpretation given by the Supreme Court of Lithuania, the legal regulation of Article 6.501 of the Civil Code provides that the compensation of costs is tied to the necessity to perform improvement. The provision stating that necessary costs are subject to compensation means the restriction of the amount of costs to be compensated (only costs that are necessary to performed the agreed improvement will be compensated). The lessor may refuse to compensate costs (a part thereof) in cases when performed works fail to improve the thing (fail to increase its value), the actual costs exceed costs necessary for that purpose (the improvement of the thing), etc., rather that the necessity of improvement.

In this case the Supreme Court of Lithuania has also provided interpretation of the rules for the prepayment of rent. Based on the principle of freedom of contract provided in Article 6.156 of the Civil Code, when entering into a lease, the parties agree on the amount of the rent, the constituents of the rent and the terms of payment as well as the method of calculating the rent at their free will. Should the parties agree to pay the rent (the specific fixed amount) as a lump sum (to prepay the rent), such rent shall be considered as being prepaid.

The court of cassation has held that prepayment usually performs the function of payment, i.e. it is included into future contributions and can also perform the evidentiary function (both for the requirement in force and for an agreement to enter into contract in future); however, it does not perform the function of security.

Upon the termination of a lease, the Supreme Court of Lithuania has acknowledged the part of the rent (paid as a lump sum) as being a prepaid rent and awarded part of the prepaid rent from the lessor to the benefit of the tenant.

More information is available in the website of the Supreme Court of Lithuania at http://www.lat.lt (Case No 3K-3-423-916 /2016).

III. CASE-LAW CONSIDERATIONS REGARDING THE APPLICATION OF THE PROVISIONS OF THE FIDIC RED BOOK TO PUBLIC PROCUREMENT

On 27 October 2016 the Court of Appeal of Lithuania ruled in Civil Case No e2A-673-241/2016 regarding the application and interpretation of the Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (Red Book) issued by the International Federation of Consulting Engineers (FIDIC).

The court has rejected the claim of the plaintiff, which performed waste removal from the construction site, to award damages and sustained costs that was based on the provisions of clause 7.8 of the FIDIC Red Book stating that the employer had to pay to the contractor payments for the disposal of material from demolitions and excavations and other surplus material (whether natural or man-made), except to the extent that disposal areas within the site are specified in the contract.

The court has held that the minutes of the explanatory meeting held at the time of the public procurement which discussed the contractor’s obligation to remove waste from the construction site was a part of the contracting agreement having precedence over other documents forming a part of the contracting agreement, including the general conditions of the FIDIC Red Book; therefore, it has rejected the contractor’s claim to award the sustained additional costs from the employer.

The court has also provided the reasoning behind the ruling stating that, once the contract is concluded by way of public procurement, the award of the debt and damages under the contracting agreement would essentially mean the amendment (reduction) of the bided price of the successful tenderer (in this case the plaintiff), which is imperatively precluded by Article 18(3) of the Republic of Lithuania Law on Public Procurement; therefore, the suppliers should assume the risk of potential damages.

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IV. AMENDMENTS TO THE LAW ON CONSTRUCTION SHALL COME INTO FORCE ON 1 JANUARY 2017

The Seimas has adopted amendments to the Law on Construction that will come into force on 1 January 2017. These amendments will revise the rights and duties of a builder (client), a contractor and an expert examination contractor and their liability for construction operations, simplify the procedure of issuing documents permitting the construction, reduce the number of coordinating authorities and shorten the time-frame for issuing the document permitting the construction.

The adopted amendments will ensure a simplified certification procedure in the case of the design and construction of a construction works of non-exceptional significance, specify the applicability of the technical supervision of construction, provide for the liability of a builder engaged in self-dependent construction of a construction works, ensure quality requirements for construction operations, specify the applicability for the drawing up of insurance and construction product performance declarations by applying the principle of mutual recognition.

Amendments to the law will ensure the compensation of costs of the elimination of defects identified during the first three years of the warranty period of a construction works should the contractor become insolvent or bankrupt, to the extent of at least 5% of the price of construction of a construction works, and increase the liability of legal entities for unauthorised construction.

The adopted amendments include the procedure for issuing special requirements for architectural, environment protection, heritage protection as well as improvement and protection of protected areas, and provide for extra-judicial mechanism for the resolution of disputes regarding the said requirements, viz. they shall be referred to the commission formed by the Ministry of Environment and the Ministry of Culture.

Based on the data provided by the Seimas of the Republic of Lithuania.

V. LEGALISATION OF UNAUTHORISED CONSTRUCTION WILL BECOME MORE EXPENSIVE, WHILE PENALTIES WILL INCREASE

Law No XII-2573 Amending the Law on Construction adopted on 30 June 2016 will come into force in January 2017 and will amend the Principles of Payment of a Fee for Legalisation of Unauthorised Construction provided in Annex 1 to the Law on Construction.

The maximum fee for legalisation of unauthorised construction shall be increased to EUR 300,000 (the maximum ceiling of the fee provided by the currently applicable version of the Law on Construction is 144,810).

Furthermore, the said amendments to Annex 1 to the Law on Construction will provide for a separate formula for the fee for legalisation of unauthorised construction in cases when unauthorised construction operations (regarding which no act on unauthorised construction has been drawn up) have been legalised by issuing a document permitting the construction, and this fact has been established by the State Territorial Planning and Construction Inspectorate under the Ministry of Environment after the issue of such document permitting the construction.

In such case the formula for the calculation of the fee will contain two additional variables, viz. the time period between the commencement of unauthorised construction operations and the issuing of the document permitting the construction and the time period between the commencement of unauthorised construction operations and the completion of construction or, in the absence of any construction completion procedure, the moment of establishing the fact that the fee has not been paid.

Based on the data provided by the State Territorial Planning and Construction Inspectorate.

News prepared by:

GINTARAS STANKEVIČIUS

Head of real estate, property protection, construction and contract law practice group

Tel.: +370 5 2487467

E-mail: vilnius@leadell.com