Study “Territory Planning, Land Sale and Building Regulations”

The Lithuanian Free Market Instiute (LFMI) has made an analysis of legal and regulatory provisions applicable to territory planning, land sale and building activities in Lithuania. The aim was to formulate clear and simple principles and procedures of bringing land use and building activities into line with legitimate public interests. A policy paper has been prepared describing the existing procedures and requirements for purchasing land plots and obtaining building permissions, analysing the main shortcomings of the existing procedures and offering recommendations for necessary changes.

The following legal documents were analysed: the Law on Building, the Law on Territory Planning, the Land Law, the Land Reform Law, the Law on the Protection of Cultural Heritage, the Law on the Assessment of the Environmental Impact of Planned Economic Activity, relevant secondary legislation and EU legal acts.

The analysis shows that the process of coordinating building activities with state authorities and the public is lengthy, complicated and susceptible to corruption. Most goals of building regulations are unjustified, and measures designed to achieve these goals are inadequate and inefficient. The regulatory system imposes excessive and frequently contradictory requirements on builders, while officials exercise wide discretion in applying regulations and requirements. An improper division of functions between state institutions and private entities is another area of concern.

The government of Lithuania has initiated simplification of building coordination procedures and drafted legislative amendments, seeking to abolish coordination of construction projects with municipal authorities and permissions for repair works, to centralise the issue of permissions in municipal authorities and to establish a deadline of defining requirements for constructions. LFMI has called upon the government to institute a comprehensive reform of building regulations as the aforesaid changes are not sufficient to resolve the problems confronting the construction industry in Lithuania.

The problems that remain to be solved include restrictions on the sale of land, abuse of dominant position by public utility companies, excessive requirements for the maintenance and utilisation of objects of cultural heritage and others. In order to simplify and rationalise the building process, it is necessary to adopt a systematic approach to problem solving.

The Free Market presents a summary of the policy study conducted by LFMI. It outlines the main shortcomings of the regulations and procedures applicable to the purchase of land plots and the issue of building permissions as well as recommendations for necessary changes.

1. Restrictions on the sale of land

Restitution of ownership rights

According to the existing laws the state has a right to rent out land plots that are slated for restitution only until the land is returned to its lawful owners. At present there is no formal deadline for submitting requests for restitution of ownership rights. This hampers the functioning of the land market, effective utilisation of land and the investment process.

· It is necessary to define a deadline for submitting requests for restitution of ownership rights upon the expiry of which it would be possible to privatise any unclaimed property.

The sale of land to foreign citizens

According to the Lithuania law economic entities are allowed to buy non-agricultural land only for commercial activities. The eligibility is limited to economic entities registered in Lithuania, NATO, OECD, EU and EU associated countries.

· It is necessary to allow all economic entities to buy land irrespective of their origin and the purpose of land use. Foreign residents should be allowed to buy land without registering a branch in Lithuania.

Requirements for the purchase of land

In selling state-owned land government authorities have a right:

– to establish a deadline for completing construction work and starting business activity;
– to require a business plan or another document describing planned business activities and to allow or disallow applicants (potential buyers) to participate in the auction; and
– to assess financial credibility of potential buyers.

These requirements are intended to help select a reliable and financially credible investor, to prevent the purchase of land for re-sale purposes and to ensure the preservation of aesthetic surroundings. Obviously, the government cannot and should not make such assessments. In addition to that, this makes it possible to create preferential conditions for selected investors.

· It is important to provide that state-owned land plots are sold in public auctions to bidders offering the highest price. No additional requirements or evaluation criteria should be applied.

2. Territory planning

Territory utilisation

Legal documents regulating territory planning impose restrictions on the use of land plots. The aim is to form the road and utility infrastructure, to ensure a rational utilisation of land, to promote investments and to balance territory development. However, these restrictions reduce the possibilities to choose the most suitable plot of land for building purposes and to adopt optimal building solutions. They prevent rational territory planning and efficient investments.

· The laws should provide that the only purpose of territory planning is to ensure that constructions or business activities do not violate third persons’ rights implied in the established norms (hygiene, noise, environment protection, property indemnity, etc.).

· It is important to abolish the division of land plots according to designation (agricultural land and non-agricultural and conservation areas), utilisation (industrial, commercial, etc.) and business category (hotels, banks, etc.). LFMI proposes that land be distinguished by applicable ecological regimes and relevant requirements concerning noise, hygiene, air pollution and others be set for buildings and business activities.

· Detailed territory plans should be replaced with a description of the boundaries and characteristics of a plot of land, applicable ecological regime, terms of connecting to the utility infrastructure and other legal requirements.

· It is important to adopt a complete list of legal documents based on which state and municipal authorities issue terms and requirements for land plots, constructions and business activity. The list should be made public.

Requirements for constructions

Requirements that are applicable to constructions (relating to the height, size, etc. of constructions) are intended not only to ensure their safety and protection of third person’s rights but also rational territory planning, an appropriate external view, etc. It should be kept in mind that builders themselves are interested in an efficient utilisation of land and the aesthetic appeal of their constructions. While requirements relating to the safety of buildings and third persons’ rights are justified and appropriate.

· requirements regarding the use of land and the aesthetic view of buildings should be revoked as subjective and unjustified.

3. Ambiguity of legal norms

Legal documents regulating territory planning and building processes give a right to lower-tier government and municipal authorities to define and apply additional requirements. At the same time these institutions are responsible for supervising compliance with the established requirements. This gives leeway and incentives to create more regulations and restrictions.

· If the regulatory system is to be clear and transparent, all regulations that are not defined in the legal documents adopted by the government or its authorised institutions should be revoked. It is important to spell out all acceptable requirements in the legal documents and to separate the function of adopting legal norms from the supervisory responsibilities.

4. Adequacy of legal norms

Most requirements applicable to constructions are over-restrictive and unjustified.

· It is necessary to ease these requirements and bring them into line with minimal norms applied in the EU.

5. Co-ordinating detailed territory plans and construction projects with utility companies

The conditions of connecting to and exploiting the utility infrastructure that are issued by public utility companies are mandatory for all construction works. In order to prevent utility companies from imposing unjustified requirements, builders are required to co-ordinate the said conditions through municipal authorities rather than directly with the utility service providers.

· Builders and utility companies must be allowed to establish the terms of connecting to or disconnecting from the utility infrastructure, the fees and other conditions by mutual agreement.

· Upon the receipt of applications from builders, utility companies should be obligated to define the conditions of connecting to the utility infrastructure that should be mandatory for the utility companies and optional for builders (i.e. builders should be allowed to negotiate with the same or other service providers).

· Municipal utility companies should have no right to refuse to connect or disconnect consumers (if the agreement between the company and consumer does not state otherwise).

· It is necessary to liberalise the utility market by privatising state and municipal enterprises and creating conditions for competition.

6. Cultural heritage protection

The laws state that the terms of maintaining and utilising an item of cultural heritage must be defined on the basis of the regulations of immovable cultural heritage protection defined for that particular item. However, due to the shortage of funds most items of cultural heritage lack such regulations.

· It is necessary:

– to recognise as items of cultural heritage only those objects which can be justifiably treated as such and the regulation and maintenance of which will be possible under the existing budget allocations;

– to cut down the contents of the regulations and to apply requirements only for the external appearance of constructions, without regulating the material composition of constructions or parts thereof;

– to give priority to the preparation of regulations for privately-owned items of cultural heritage, especially for objects that may be used for housing or commercial purposes.

The range of items of cultural heritage

The laws require that repair or reconstruction works be suspended if elements with traits of cultural value have been detected. The Department of Cultural Heritage Protection may postpone the work for an unlimited period of time until such elements have been explored.

· The law on the protection of cultural heritage should define the term of completing exploratory work.

7. The issue of construction requirements and permissions

Requirements to submit documents verifying the right of ownership, utilisation or rent

In order to obtain construction requirements from municipal authorities, builders are required to submit documents verifying the right of ownership, utilisation or rent to a given plot of land. This means that, in order to familiarise themselves with the requirements applicable to the use of a given plot of land and buildings, builders must in the first place buy the land.

· It should be established that the requirements for a proposed building should be issued to all potential users if the land is in state or municipal ownership. In the case of private land, such requirements must be issued only to their owners or renters.

Environmental impact assessment

Construction requirements defined by municipalities may stipulate the need to carry out environmental impact assessment before the preparation of a construction project. The laws define activities for which such assessments are mandatory as well as activities when the need for such assessments is determined individually on the basis of established criteria. According to EU directives, environmental impact assessment is compulsory for certain listed activities, while the Lithuanian laws allow governmental authorities to require environmental impact assessment for activities that are not stipulated in the laws.

· Given that environment protection requirements are established in legal documents and that non-compliance entails administrative responsibility, requirements regarding environmental impact assessment should be brought into line with the EU law.

Expiry of construction requirements

According to the existing procedures construction requirements are valid until the completion of designing and building work. Under such provisions the buyers of land cannot be certain whether they will be allowed to carry out planned activities in the future according to the current conditions.

· It is important to establish that construction requirements remain valid for an unlimited period of time, except in the cases when new requirements relating to people’s safety and environment protection are introduced.

The issue of building permissions

In order to simplify the procedures for issuing building permissions, it is necessary to centralise them in municipal authorities. LFMI approves of a newly adopted procedure (coming into effect on August 1, 2001) by which municipal authorities will issue permissions for the repair, accommodation or renovation of items of immovable cultural heritage as well as for construction of buildings of special significance.

· In the cases when construction is carried out by municipal authorities or municipal institutions, building permissions should be issued by territory planning and building inspections of respective administrative units.