Category: Latvia

Skrastins & Dzenis has advised Moda Kapitals on the sale of its pawnshop portfolio of consumer credits to the DelfinGroup.

According to the firm, the value of the transaction is approximately EUR 1 million.

Moda Kapitals owns 25 pawnshop branches throughout Latvia. According to Skrastins & Dzenis, the company will continue its consumer crediting business specializing in consumer credits against real estate collateral and consumer credits without collateral.

The Skrastins & Dzenis team was led by Partner Verners Skrastins and Associate Evija Abele.

Skrastins & Dzenis did not reply to our request for additional details.

Sorainen has advised the Ignitis Group on the acquisition of three wind farm projects in Latvia. TGS Baltic advised the unidentified seller.

Ignitis’ acquisition was carried out through its subsidiary, Ignitis Renewables.

According to Sorainen, the wind farms will be constructed between 2024 and 2025 with a total capacity of 160 megawatts, while the commercial activity of the wind farms is expected to commence between 2025 and 2027. According to the firm, the company promised to invest a total of EUR 200 million in the projects. In addition, the firm reported that the acquisition price will not exceed 10% of the total investment amount. Furthermore, according to the firm, this acquisition is a part of Ignitis Group’s Green Generation project, which aims to have the company reach 4 gigawatt installed capacity by 2030.

Finally, according to Sorainen, “the signed agreements stipulate that the sellers will have to develop the power plant projects before the construction stage and that, after obtaining the building permits, they will have to transfer the shares to Ignitis renewables.”

Sorainen’s team consisted of Lithuania-based Partner Sergej Butov and Latvia-based Senior Associate Viktorija Smirnova-Cerkasa.

TGS Baltic’s team included Senior Associate Armands Masulis.

Sorainen has advised Cardinal Health on the sale of Cordis to Hellman & Friedman.

According to Sorainen, Cardinal Health is a distributor of pharmaceuticals, a global manufacturer and distributor of medical and laboratory products, and a provider of performance and data solutions for health care facilities. Cordis has been a part of Cardinal Health since 2015.

Sorainen’s team included Latvia-based Managing Partner Eva Berlaus, Senior Associate Zanda Frisfelde, and Counsel Andis Burkevics.

Sorainen could not provide more information on the deal.

Sorainen has advised Domenikss owner Benita Danilenko on the sale of the company to Veho.

Financial details were not disclosed. The deal is contingent on regulatory approval.

According to Sorainen, following the transaction, Domenikss will operate within the Veho group as a separate enterprise and will keep its brand, offices, and service centers.

Domenikss is the general representative of Mercedes-Benz in Latvia. Veho is a Finnish car dealership that also has operations in Sweden and the Baltics. The family-owned company was founded in 1939 to import Mercedes-Benz vehicles. Its core business includes the import, sales, service, and rental of cars and commercial vehicles.

Sorainen’s team consisted of Managing Partner Eva Berlaus and Senior Associates Viktorija Smirnova-Cerkasa and Aija Lasmane.

The firm did not reply to our inquiry about the deal.

Cobalt has advised VPH Latvia on the development of a shopping center on Valdeku street in Riga.

According to the firm, the new center – expected to open its doors at the end of 2021 – will consist of two buildings with a total gross leasable area of 4,300 square meters, with the planned project investment amounting to approximately EUR 8 million. Cobalt further informed that one of the buildings will be occupied by a built-to-suit Lidl grocery store, while the other will be occupied by other retailers and caterers, including Spirits&Wine, Apotheka, DinoZoo, Cili Pizza, and Lecenu Delikateses.

Cobalt’s team included Managing Partner Dace Silava-Tomsone.

Cobalt has advised SEB on a new lease agreement with the Galio Group.

According to Cobalt, SEB is due to move into the newly constructed business center Gustavs at Gustava Zemgala gatve 73, Riga, at the beginning of 2023. The firm further informed that SEB will occupy approximately 11,000 square meters to accommodate more than 1,000 employees, with this being “the largest speculative take-up deal in the last ten years in Latvia as well as the largest deal in Baltics in 2021.”

Cobalt’s team included Managing Partner Dace Silava-Tomsone.

Sorainen has advised real estate project developer Linstow on the acquisition of Sporta 2 quarter from SIA Sporta 2, part of the NP Properties Group.

The Sporta 2 quarter is a 3-hectare property located in the center of Riga. The total value of the deal is EUR 10.5 million.

According to Sorainen, Linstow is a long-term real estate project developer in the Baltics and intends to develop the property as a mixed-use urban development project.

Sorainen’s team included Partner Lelde Lavina, Senior Associates Jorens Jaunozols, Andris Vilisons, and Zanda Frisfelde, and Legal Assistant Kate Berlaua.

Cobalt, acting pro bono, has successfully assisted a Belarusian journalist seeking asylum in obtaining refugee status in Latvia.

According to Cobalt, its client “was forced to leave Belarus due to persecution against her as a journalist. The Office of Migration and Citizenship Affairs agreed with arguments provided in the application drafted by Cobalt and has acknowledged that the asylum seeker complies with criteria on granting a refugee status in the Republic of Latvia as set out in the UN Convention on the Status of Refugees and Asylum Law.”

Cobalt’s team was led by Associate Marija Berdova.

The global pandemic has impacted all markets, with subsequent ramifications for M&A. Investors are now seeking greater protection against general lock-downs and supply-chain disruptions, while governments aim to protect critical supplies and services by imposing new regulations on foreign investment in crucial or strategic industries. ​

If you are considering investment opportunities in Latvia, take a look at this overview to get insight into the regulations on foreign investment in strategic industries.

​The following overview is an extract from the Foreign Direct Investment in Central Europe publication, which gives insight into the regulations on foreign investment in strategic industries in the region.

Have FDI screening rules been implemented (or will they be implemented) in the country?

Yes. In Latvia a mechanism for the screening of direct investments, including foreign direct investments has already been introduced. In particular, the amendment of 23 March 2017 to the National Security Law, which entered into force on 29 March 2017, includes Chapter VI, which contains restrictions on both transactions with critical infrastructure and the acquisition of influence in a commercial company important for national security, providing that a Cabinet of Ministers permit is required. So, the Questionnaire will be filled with regulations from previously stated National Security Law.

Concerning the REGULATION (EU) 2019/452 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 19 March 2019. The Regulation does   not oblige Member States to introduce an evaluation mechanism, but rather provides for the introduction of a cooperation mechanism in each Member State and the Commission. In order to make it possible to introduce the requirements of the Regulation (establishment of a contact point and information exchange), the Ministry of Economics has prepared the draft law, which aims to provide the Cabinet of Ministers with the powers to determine the authority which will implement the functions of the contact point, ensuring the cooperation mechanism referred to in the Regulation between Member States and the Commission. The draft law has been adopted and included as the amendments to the National Security Law, which came into force on 1 January 2021.

Definition of FDI

Not defined

Definition of foreign investor

Investments made by a foreign investor in the form of a business in the EU to establish or maintain stable and direct links between a foreign investor and an entrepreneur or enterprise, including investments that provide participation in the management or control of such an enterprise.

Do the following scenarios trigger the screening? 

1. Acquisition of 10% or more of voting rights in the company: Yes

2. Establishment of a new branch: Yes

3. The production of new products: Yes

4. Establishment of a new company in which foreign investor will have more than 10% voting rights: No

5. The transfer of use or operational rights in infrastructure or assets that are indispensable for the operation of strategic companies: Yes

6. Other screening triggers:

In relation to capital companies:

• obtaining of decisive influence;
• transition of an undertaking;
• preservation of the status of a stockholder or shareholder or preservation of the right to exercise indirect holding  (right  to  vote), if the beneficial owner changes.

In relation to partnership:

• joining of a new member;
• preservation of the status of a member if the beneficial owner changes

Deadline for notification of the relevant screening body

A permit of the Cabinet of Ministers shall be necessary before a person or several persons who act in a co-ordinated manner obtain qualifying holding or decisive influence in a commercial company of significance to national security or become a member of such commercial company, or also obtain influence in a capital company registered in the Republic of Latvia which is a member of a commercial company of significance to national security (stated in column “Screening procedure”).

As well as, a company shall, within five working days from the day when it conforms to any of the conditions referred to in the section “Screening

procedure” of this Questionnaire:

1. submit a notification to the Commercial Register Office regarding its conformity with the conditions for a commercial company of significance to national security;

2. make an entry in the register of stockholders or shareholders regarding the status of the capital company;

3. inform the shareholders or stockholders of the relevant capital company and persons who exercise indirect holding (right to vote), or members of the partnership regarding its conformity with the conditions for a commercial company of significance to national security;

4. inform the institution stipulated by the Cabinet of Ministers regarding its shareholders, stockholders and persons who exercise indirect holding (right to vote), or regarding members, as well as beneficial owners – natural persons who directly or indirectly have qualifying holding in this commercial.

The Commercial Register Office shall publish the information regarding conformity of the commercial company with the conditions for a commercial company of significance to national security on the website of the Commercial Register Office.

Screening procedure

The restrictions specified in the National Security Law are applicable to a commercial company registered in the Republic of Latvia which conforms to at least one of the following conditions:

1. is an electronic communications merchant with a significant market power which has been imposed liabilities for tariff regulation and cost accounting in accordance with the procedures provided for in the Electronic Communications Law;

2. is an audible electronic mass medium the coverage zone of the programme of which, using technical means for terrestrial broadcasting, according to the broadcasting permit issued by the National Electronic Mass Media Council is Latvia or at least 60 per cent of its territory, or is an audio-visual electronic mass medium the coverage zone of the programme of which, using technical means for terrestrial broadcasting, according to the broadcasting permit issued by the National Electronic Mass Media Council is Latvia or at least 95 per cent of its territory;

3. has received a licence in the Republic of Latvia for transmission, distribution, storage of natural gas or has, in its ownership, a liquefied natural gas facility connected to a transmission system;

4. is an electricity or thermal energy producer the installed actual capacity of which exceeds 50 megawatts;

5. is a thermal energy transmission and distribution operator which has heat supply networks in its ownership in length of at least 100 kilometres;

6. has received a licence for electricity transmission in the Republic of Latvia.

Screening decision

A decision of the Cabinet is taken within one month from the day of receiving an application concerning any triggering scenarios. Upon taking a decision, the Cabinet of Ministers shall evaluate the restriction on the rights of the person, its commensurability with the national security interests, and the opinion of a State security institution, as well as the conformity with the principle of legitimate expectations.

Are fines or other penalties prescribed due to failure to notify the FDI?

If a person or several persons who act in a co-ordinated manner, obtain qualifying holding or decisive influence in a commercial company of significance to national security or become a member of such commercial company without receiving the permit from the Cabinet of Ministers, then a transaction concluded or action carried out in Latvia is not valid from the moment of concluding or carrying out.

By Ivita Samlaja, Managing Associate, ZAB Deloitte Legal 

During the last few months number of laws and regulations have been passed in Latvia which have an impact on construction processes, investment in the Latvian real estate and project development.

Below is our summary of the most significant developments.

Overhaul of the Residential Tenancy Law

New Residential Tenancy Law entered into force on 1 May 2021 overhauling the old significantly outdated law on lease of residential premises which was in operation for more than 20 years. It is expected that the new law will provide a fair balance between lessors and tenants thus facilitating the availability of housing and encouraging developers to invest in residential buildings. According to some projections, an annual inflow of investments in range of EUR 100 million is expected in the Latvian residential tenancy sector.

The most significant changes concern the obligation to conclude the tenancy agreement with a fixed end date. In parallel the lawmaker has considerably eased the corroboration of tenancy agreements with the Land Register by making registration free of charge, and stating that the entries shall automatically cease on the fixed end date without any involvement by the parties. The agreements not registered with the Land Register will not be binding to the new owner in the event of change of title.

The agreements registered with the Land Register shall be subject to undisputed enforcement of obligations under the Civil Procedure Law, thus significantly relieving process of recovery of tenancy debts and eviction of debtors. According to calculations by the Ministry of Justice, the period required for debt collection and eviction shall be decreased from current 5 years to 6 months.

Along with encouraging future developments, one of the aims of the new law was termination or modernization of the rental agreements entered with tenants of denationalized buildings. Those agreements often were entered for indefinite period of time and on unreasonable financial terms thus distorting the rental market and precluding proper maintenance of the denationalized buildings. The new law introduces a transition period until 31 December 2036 at which point the old tenancy agreements will be automatically terminated, unless amended between the parties or claim for ordering amendments filed with the court before 31 December 2026.

Amendments to the Construction Law

The latest amendments to the Construction Law have become effective in the second part of May introducing a number of changes which are hoped to speed up the development processes.

The most significant amendments concern permitting process, namely:

• in case if the supervising institution as the first instance has taken a decision to reject an appeal of the positive decision taken during the construction process (f.e., a note on completion of design conditions), a further appeal to the court shall not suspend operation of the decision and the developer will be entitled to proceed at its own risk;

• an appeal of a note on completion of construction commencement conditions shall not suspend its operation, thus allowing the developer to proceed with the works while the appeal is pending.

Before the amendments many development projects were delayed due to appeals from neighbors, NGOs, etc. The above amendments will provide more certainty in the development process and possibility to proceed at the own risk. At the same time, the courts still will be able to accept decisions on interim measures suspending operation of the permits which seem prima facie illegal and may result in irreparable damage.

Further, if construction boards and other institutions have failed to issue permits, decisions and approvals within the terms specified under the law, it shall be considered that the respective permits, decisions and approvals are granted. The same will apply in respect of owners of utility networks and roads if they have failed to express rejection in respect of the works crossing their utility networks, roads or protection zones. However, those provisions will become effective only as of 1 July 2022 when the Cabinet of Ministers have set the list of situations in which those provisions will be applicable.

Green Corridor for Large Projects at the Riga City Construction Board

A majority of significant real estate development projects in Latvia take place in the capital city, Riga. As of November 2020, the Construction Board of Riga City Council has adopted a principle of a Green Corridor for sizeable development projects in order to assist more speedy advancement of the largest projects.

At the current stage the Green Corridor is available in the permitting process of buildings of the 3^rd category (including buildings with more than 5 floors, public buildings designated for 100+ persons, production facilities in excess of 1,000m2 and warehouses in excess of 2,000 m2) and buildings of the 2^nd category if they envisage construction of more than 100 apartments. In the perspective, the Construction Board intends to expand the corridor to other types of projects also.

The procedure of Green Corridor involves possibility of:

• preliminary review of sketches and parts of the design;

• issue of a building permit within 14 days (instead of a month);

• granting of a note on completion of design conditions within 10 days (instead of 15 business days);

• granting of a note on completion of construction commencement conditions within 1 business day (instead of 5 business days);

• appointment of a designated project manager for more efficient communication.

At its most the procedure may result in saving 71 days as compared to the regular permitting procedure.

Real Estate Intermediary Activities Subject to Registration

As 1 July 2021 intermediary services related to real estate transactions may be offered in Latvia only by persons included in the Register of Real Estate Intermediaries maintained by the Ministry of Economics.

The requirement of registration is applicable to all individuals and legal entities who are engaged in extending offers, conducting negotiations, preparing and explaining terms of sale, lease or other transactions involving disposal with real estate. The registration requirement applies also to the EU citizens or entities registered in the member states if they are willing to offer intermediary services in Latvia.

A number of requirements apply to the operation of the intermediaries, including:

• a requirement to maintain an internal AML system;

• carrying of a third-party liability insurance;

• an annual reporting requirement on intermediary services agreements entered during the previous year;

• an annual qualification training.

Further, in the course of activities intermediaries are subject to a requirement to supply full and true information on the real estates in respect of which they render services, and on terms of transactions advised. Failure to make a full disclosure may trigger liability against the parties involved.

By Dace Silava–Tomsone, Managing Partner, and Dita Busa, Associate, Cobalt