LATVIA Law and Practice Contributed by: Jānis Kārkliņš, Annija Kārkliņa, Ēriks Krēsliņš and Rihards Strads, BERG
3.5 Legal Requirements Before an Entity Can Give Valid Security The main legal requirements that must be complied with before an entity can validly grant security over its real estate are as follows. • The company and its representatives must pos - sess the legal capacity and requisite authority to enter into the transaction, including proper authori - sation to conclude legal acts. This is particularly relevant for representatives or management board members where the articles of association require supervisory board consent for significant matters, including the encumbrance of property with rights in rem. • A management board member must perform their duties as a respectable and accurate manager, which also includes restrictions on entering into transactions with related persons. If a management board member breaches these rules, the transac - tion remains valid; however, the board member may become liable for damages. • Joint-stock companies ( akciju sabiedrības ) are expressly prohibited from granting a loan or oth - erwise directly or indirectly financing a third party, which may also include the granting of security, for the purpose of acquiring that company’s shares. 3.6 Formalities When a Borrower Is in Default Latvian law allows enforcement of mortgage-secured claims either through court/arbitration or via uncon - tested compulsory enforcement. In practice, creditors often first obtain a court judgment or arbitral award and then enforce it through a sworn bailiff, includ - ing against the mortgaged property. If the mortgage is provided by a third party, that party must also be included in proceedings to enable enforcement against the pledged asset. Where standard litigation is used instead, proceedings typically take around six months to several years, depending on complexity and court instances. As an alternative, uncontested compulsory enforce - ment allows a creditor to apply to court, with a judge deciding within seven days. If granted, the decision becomes an enforcement order submitted to a sworn bailiff, who can proceed with sale of the property
at auction. This process usually takes two to four months. Mortgage priority is determined by registration order in the Land Register, with earlier registrations ranking first. 3.7 Subordinating Existing Debt to Newly Created Debt Existing secured debt may be subordinated by agree - ment. In practice, subordination typically occurs with the consent of the existing creditor, through a subor - dination agreement. Where the debt is secured by a mortgage, any change in priority requires registration in the Land Register to be effective. 3.8 Lenders’ Liability Under Environmental Laws The law does not provide for the liability of the pledg - ee. The person liable for environmental damage is the one who caused the damage; in exceptional cases where identifying the direct perpetrator is impossible or would require disproportionate resources, the land - owner may be liable. 3.9 Effects of a Borrower Becoming Insolvent In the event of the debtor’s insolvency, a claim secured by a mortgage remains in force until the creditor’s claim has been satisfied. Upon the sale of the debtor’s encumbered property, the proceeds are applied with priority to the satisfaction of secured creditors’ claims. 3.10 Taxes on Loans No existing, forthcoming or proposed legal or regula - tory framework requires the payment of recording or analogous taxes by either lenders or borrowers in con - nection with real estate mortgage or mezzanine loans.
4. Planning and Zoning 4.1 Planning and Zoning Framework
Land use and development in Latvia is governed by the Spatial Development Planning Law, which sets the framework for planning at national, regional and local levels based on principles such as sustain - ability, transparency and coherence. National plan - ning is defined by strategic documents such as the
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