Real estate guide: Purchase of the real estate in Estonia; buying and selling real estate in Estonia
This guide gives an overview introduction to the key requirements when buying or selling real estate in Estonia. This overview is not complete as each particular property has its own requirements in legal regulation. When you deal with purchasing of real estate it is always recommended to consult a lawyer in order to avoid possible inconveniences.
In today's Estonia, a foreign citizen or company in general stands in the same position as an Estonian citizen or Estonian company when it comes to the purchase of the real estate and to the costs associated with buying the real estate in Estonia. However, there are some exceptions where acquisition of real estate by certain non-residents is restricted. Firstly, it is allowed to acquire the real estate located in the border regions of Estonia (except 4 biggest islands in Estonia - Saaremaa, Hiiumaa, Vormsi, Muhu) only to citizens and legal persons of Estonia, of the European Union (EU) or the European Economic Area (EEA). Permissions to acquire such real property may be granted to other persons by the Government of the Republic only for reasons of national importance. Other restriction is related to forest land and agricultural land. Acquiring such land is restricted to the citizens and legal persons who are not citizens of Estonia, EU or EEA and they can buy this land only with permission of the county governor. Also there are some restrictions for EU and EEA legal persons regarding agricultural and forest land. It is allowed for them to acquire mentioned land types without restrictions if the size of the land altogether is less than 10 hectares. For the legal persons of EU and EEA it is allowed to acquire more if they meet certain requirements.
Buying or selling an apartment is the most common real estate transaction version in Estonia. The settlement process in Estonia is fairly efficient, typically taking between 30 to 60 days, although it can be sooner depending on how quickly an appointment can be arranged with the notary. Purchase of the apartment can be divided into following stages:
1) The examination of the property and collecting data.
- Once person has found desired property and got introduced with the property and its actual conditions it is important to check all the other relevant information about it. But for convincing of actual conditions it is suggested to consult with some construction specialist.
- Then buyer should firstly check if the seller is the owner of the apartment and what is the form of ownership of the apartment. . If it is an apartment ownership, then the land is registered and the apartment is a physical share of the residential building.
- Then it is suggested to check from land register if the apartment is immovable or movable (as in Estonia some apartments may be treated as movables if they are not registered in Land Register).
- Then it is important to check if the apartment is on sale as whole or it is possible to buy a legal share as a co-owner (in this case it is important that other co-owners have also rights regarding the real estate). This information also is reflected on the Land Register extract.
- Also in this stage buyer should find out if the seller is married or not as then the property might be in joint ownership and spouse’s consent is required for selling the apartment.
- From Land Register extract buyer should also check about mortgages and other real rights that might encumber the immovable, also if there are any registered pre-emption rights.
- Next step is to check if the seller does not have debts for apartment utilities, taxes and other services. This information is not on the Land Register extract and for this it is important to make sure if the building has an apartment association and if there is then turn to apartment association of the building.
- Then it is suggested to make sure that the apartment has no tenant and what are monthly expenses on summer time and winter time.
- Additionally buyer should be informed about the obligations of the apartment association and if there are any debts on the Association.
2) Concluding reservation contract
After examining all the relevant information and documents the next step is concluding reservation agreement. This is usually concluded when buyer for example cannot come to Estonia but wishes to reserve a right to buy the apartment. This contract can be composed in English as well and does not have to be notarized A reservation fee will then need to be transferred in order to secure/reserve the property. Reservation agreement itself does not bring the obligation for buyer to buy or for seller to sell the apartment, but it puts the seller an obligation not sell the apartment for third persons during validation of reservation contract. If reservation agreement ends then seller can choose the buyer whom to sell the apartment.
This contract is suggested to conclude when buyer is not absolutely sure about buying and still is willing to look around for other apartments as well. But if buyer is absolutely sure that is willing to buy the apartment then it is suggested to skip the reservation agreement part and conclude pre-purchase agreement right away as reservation contract does not give the buyer any guarantees and reservation fee is not returned if the purchase agreement is not concluded.
3) Concluding pre-purchase agreement
Pre-purchase agreement is usually concluded if there is some reason which restricts the conclusion of the purchase agreement right away. Pre-purchase agreement shall be concluded between the seller and the buyer in notary. If this contract is not notarized then it is treated as void. Pre-purchase agreement is a legally binding document, setting out all the terms and conditions of sale, including the deposit amount and the price payable upon completion. After signing this agreement, if the buyer or seller withdraws from the sale, financial compensation will be necessary on both sides. A deposit of around 10-20% of the purchase price (less than Reservation Fee) is payable upon signing the Pre-purchase agreement.
4) Concluding purchase agreement
Purchase agreement as a main contract shall be concluded between the seller and the buyer in notary. If this contract is not notarized then it is treated as void. This contract contains all the important terms and conditions, subject of the contract, the parties' rights and obligations. The notary will oversee the transfer of ownership and ensure that it is in accordance with Estonia law. Once approved by the Notary, the documents are then signed in the Notary's office. As notary's role is neutral then parties will not be advised on any aspects of title, searches or burdens that they property may carry. It is important to bear in mind that conclusion of the contract does not bring together the transfer of the right of ownership. For this it is required to make a respecting entry in Land Register.
5) Paying state fee for application to Land Register
After conclusion of the purchase agreement the next step is to pay the state fee at a commercial bank prior to apply for registration. After paying the state fee a notarized application is made to the Land Register to transfer the ownership of the property to the buyer in the Land Register Book. After this process, the title is legally valid.
Property deeds are not required in Estonia and in common practice they are not in use.
Fees and taxes
In Estonia the land tax is the only real property tax, buildings and forests are not taxed separately. Land tax is based on the market value of land and ranges between 0.1 to 2.5 percent of market value of land annually (in Tallinn 0.6). Factors that affect the market value are location, land use and environmental characteristics. Landowners or in some cases land users (Local Government or state property) must pay Land tax.
Commissions, charged by real estate companies vary in line with different objects (flats and apartments about 6-8%). In case of a transfer the commission is usually between 2 to 4 percent. Commission fee is usually already included to the sales price and borne by buyer.
The notary fee is paid to a public notary for legal and technical services connected to the transaction. The fee is based on the value of the transaction, which is the price of property or rights declared by the transaction party. Notary fee in case of a transfer is usually between 0.02% to 0.70% (+20% VAT). Notary fee parties can divide and each party can pay 50%.
State fee for submitting the entry for Land Register for transferring the real estate is usually between 0,3% to 0,5% of the transfer price and paid by buyer.