LITHUANIA Law and Practice Contributed by: Evaldas Klimas and Vygintas Kuprys, WALLESS
is presented, which is usually a 5% warranty issued by the insurance company. The parties’ liability is usually limited to between 10% and 20% of the contract price. The limi - tation of liability cannot be applied when there is gross negligence, where the damage was caused intentionally or when there is loss of life or health or non-material losses. 7.4 Management of Schedule-Related Risk Schedule-related risks are among the most dis - cussed in the market. Some employers insure this risk but monetary compensation is usually awarded in cases when the contractor fails to achieve certain milestones on the critical path of the development of the project. However, the parties can agree on much stricter terms. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance The construction market uses all basic forms of security that are used in other contractual relations. Employers usually request that the contractors provide an insurance company’s performance warranty or, in some cases, even the first-demand guarantee issued by the bank. Escrow accounts are not so popular in the mar - ket. Mother company surety is also widely used, on the contractor’s side when the development budget is tight and on the employer’s side when a general contractor or supplier has doubts about the development of a special purpose vehicle’s future performance. 7.6 Liens or Encumbrances in the Event of Non-Payment Under the law, contractors and/or designers are not permitted to lien or otherwise encumber a property. These actions can be taken only if doing so is provided for in the concluded agree -
ment or through court proceedings during the litigation process. 7.7 Requirements Before Use or Inhabitation A building can only be used once its construc - tion is completed and this is formally declared. A certificate on completion of construction must be received from a commission of construction completion for buildings indicated by the law. The construction of simple structures or sim - ple works is officially finished by a declaration signed by the builder. As a principle, only new buildings (up to 24 months after completion of construction) and land for construction are subject to VAT. How - ever, if both parties to the transaction are reg - istered as VAT payers, they are free to agree to apply VAT on any real estate transaction. If VAT applies, it is added on top of the transac - tion price and paid to the State by the seller. When both parties are registered VAT payers they have the option of managing cash flow by transferring VAT arrears. 8. Tax 8.1 VAT and Sales Tax Real estate transactions are subject to a stand - ard VAT rate of 21%. No reduced rates apply. 8.2 Mitigation of Tax Liability Real estate transactions are commonly struc - tured as either an asset deal or a share deal in Lithuania. The most appropriate method is decided on a case-by-case basis and usually depends on whether the buyer is interested in the real
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