Estonia has a continental European legal system. As in other such civil legal systems, legislative acts are the most significant sources of law, while doctrine, customary practice and precedent are of secondary importance.
The highest act of national legislation in Estonia is the Constitution of the Republic of Estonia (Eesti Vabariigi põhiseadus). The Constitution was adopted by a referendum and has been in effect since 29 June 1992. All other legislative acts must comply with the Constitution. The Constitution may be amended by a referendum or, if certain stringent procedural requirements are met, by Parliament (Riigikogu). Parliament is Estonia’s highest legislative authority, and it is vested with the right to adopt laws. Laws may also be passed by a referendum. In the hierarchy of legislative acts, laws have the highest position after the Constitution and international treaties. A distinction is made between ordinary laws, which can be passed by a simple majority of votes in Parliament, and constitutional laws, the adoption and amendment of which require a vote by the majority of all members of Parliament. Examples of constitutional laws include the Citizenship Act (Kodakondsuse seadus, effective 1 April 1995), the Parliamentary Election Act (Riigikogu valimise seadus, effective 18 July 2002), the State Budget Act (Riigieelarve seadus, effective 1 January 2000), and laws important to the functioning of the state.
In certain limited circumstances, the President of the Republic may also adopt legislative acts that have the force of law. These acts, which are called decrees (seadlused), may only be issued for reasons of urgent state need at times when Parliament is unable to convene, or where the Government has declared a state of emergency. The Government and ministers issue regulations implementing the laws adopted by Parliament. Local governments are also entitled to adopt regulations regarding local issues that fall within their competence.
In addition to the above framework, generally recognised rules and principles of international law form an integral part of the Estonian legal system. Parliament is responsible for ratifying international treaties.
As a member of the EU, Estonia is bound by EU law. Aside from certain limited areas for which transition periods have been established, such as the areas of investor compensation and value added taxes, Estonian law has been amended to meet this requirement. Estonia has an independent judiciary that is organised into courts of first instance, courts of appeal, and the Supreme Court (Riigikohus). The Supreme Court is Estonia’s highest court as well as the court of constitutional review. It has discretionary powers of review over decisions from the lower courts.
COMPANY LAW
Estonia began the transition to a market economy when it regained its independence in the early 1990s. The growth of private enterprise was an important part of this transition. Legislation regulating corporations and other forms of enterprise had been enacted by the mid-1990s. Estonia has continued to add to this legislative framework, further developing and refining its enterprise laws.
Applicable Legislation
Estonian law allows for the formation of several types of enterprises, and prescribes rules for their governance. The principal legislative act regulating corporate governance is the Commercial Code (Äriseadustik), which came into force on 1 September 1995. Other principles related to corporate governance are also set forth in the General Principles of Civil Law Act (Tsiviilseadustiku üldosa seadus) (the ‘GPCLA’) and the Law of Obligations Act (Võlaõigusseadus) (the ‘LOA’), both of which came into force on 1 July 2002. In addition, certain commercial entities, such as banks, investment funds, and insurance companies, are subject to various industry-specific laws and regulations.
Those companies listed on the Tallinn Stock Exchange (Tallinna Börs) or the ‘TSE’, Estonia’s only active stock exchange and the country’s principal centre for public trading of securities, are also regulated by the Rules of the TSE. These Rules provide for higher standards of corporate governance than those found in the generally applicable provisions of the Commercial Code.
The Commercial Associations Act of 2002 (Tulundusühistuseadus) regulates yet another type of entity, the commercial association. Non-profit companies and foundations are governed by the Non-Profit Associations Act (Mittetulundusühingute seadus) and the Foundations Act (Sihtasutuste seadus), respectively, both of which have been in force since 1996.
ESTABLISHING A COMPANY
Registration of Enterprises
Those who conduct business in Estonia are subject to a registration or incorporation requirement. Companies organised under Estonian law as well as sole proprietors – defined in the Commercial Code as natural persons who offer goods or services for payment in their own name on a permanent basis – must register with the Commercial Register (Äriregister). The Commercial Register is a record maintained by the registration departments of the various courts of first instance. Non-profit associations and foundations must register with the Register of Non-Profit Associations and Foundations (Mittetulundusühingute ja sihtasutuste register), a record also kept by the registration departments of the first-instance courts.
Types of Legal Entities
The Commercial Code provides for the following four types of enterprises:
(i) general partnerships (täisühingud);
(ii) limited partnerships (usaldusühingud);
(iii) private limited companies (osaühingud); and
(iv) public limited companies (aktsiaseltsid).
General and limited partnerships comprise only a small fraction of the companies registered with the Commercial Register. Private limited companies make up the vast majority of registered companies, followed by public limited companies, which account for a modest proportion of companies on the Commercial Register.
In addition to the types of enterprises permitted under the Commercial Code, the Commercial Associations Act allows for the formation of commercial associations. These associations constitute the smallest category of businesses on the Commercial Register.
Non-profit associations and foundations may be established pursuant to the Non-Profit Associations Act and the Foundations Act. Most of the enterprises registered with the Register of Non-Profit Associations and Foundations are non-profit associations.
Partnerships
General Partnership
A general partnership is formed by two or more partners acting under a common business name. It operates on the basis of a partnership agreement executed between the partners. Partners in a general partnership are subject to personal as well as joint and several liability. Consequently, the right to participate in a partnership is limited: state or local governments may not be partners, and new partners may join only upon the consent of all the partners. The partnership’s capital is raised through contributions from the partners in amounts set forth in the partnership agreement. Under Estonian law, each partner has both the right and the obligation to participate in the partnership’s management. The Commercial Code does not regulate the partnership’s management or internal operations in detail, however, thereby giving the partners freedom to manage the enterprise as they see fit.
Limited Partnership
A limited partnership consists of at least one general partner who is personally responsible for the company’s liabilities, and at least one limited partner who is liable only to the extent of that partner’s financial contributions to the partnership. The main distinction between general and limited partnerships is the degree to which the partners are liable; general partners in both forms of partnership have unlimited joint and several liability, while the liability of limited partners is restricted to an amount fixed by the partnership agreement.
Unless the partnership agreement otherwise provides, the limited partner may not act alone in managing the partnership, and the limited partner’s actions will not bind the partnership. However, the limited partner may participate in decision-making on an equal basis with the general partner or partners. The potential for unlimited personal liability likely accounts for the low percentage of both general and limited partnerships among Estonian commercial enterprises.
Private Limited Companies
A private limited company (osaühing, abbreviated as ‘OÜ’) is a limited liability company with a minimum share capital of 40,000 EEK (approximately 2,560 EUR). Private limited companies may be created to pursue any type of lawful business objective. Such companies tend to be closely-held businesses formed and managed by a relatively small group of people that shares profits. Private limited companies are liable only to the extent of their assets. The liability of a private limited company’s shareholders, although not of the company’s management, is also limited; shareholders are generally liable for the company’s obligations only to the extent of the amount paid for their shares.
As a technical matter, shares in a private limited company (osad) are treated as belonging to a single class. However, the company’s articles of incorporation may provide that certain rights or benefits attach to a particular individual’s share. The shares must have a par value of 100 EEK or a full multiple thereof. Shares are freely transferable to other shareholders of the company. Existing shareholders also have a pre-emptive right to buy shares offered for sale to a third party. Shareholder dividends need not be distributed pro rata, but the applicable rules of distribution must be stated in the by-laws. A private limited company’s share capital must be fully paid-up before the company may be incorporated through registration with the Commercial Register. Private limited companies are not required by law to register their shares with the Estonian Central Registry of Securities (Eesti väärtpaberite keskregister) (the ‘ECRS’), Estonia’s public register of securities, although they may choose to do so.
The accounts of private limited companies are subject to independent auditing on an annual basis if the company’s share capital exceeds 400,000 EEK (approximately 25,600 EUR), if the company’s incorporation documents so provide, or if certain of the company’s activities trigger the audit provisions of the Accounting Act (Raamatupidamise seadus).
Public Limited Companies
Like a private limited company, a public limited company (aktsiaselts, abbreviated as ‘AS’) may be formed for any lawful business purpose and its shareholders are entitled to limited liability. Public limited companies, however, are characterised by greater capital requirements and more numerous classes of shares than private limited companies, and are required to register with the ECRS and to submit to independent audits.
Public limited companies must have a minimum share capital of 400,000 EEK (approximately 25,600 EUR), as opposed to the 40,000 EEK (approximately 2,560 EUR) minimum applicable to private limited companies. The shares of a public limited company may be divided into different classes, each of which may be granted different rights. The Commercial Code provides examples of two possible classes of shares: ordinary shares and preferred shares. Ordinary shares typically entitle the shareholder to participate in general meetings, to share in the distribution of profits and, upon dissolution, to receive a portion of the company’s remaining assets. The second class of shares, preferred shares, consists of non-voting shares that grant shareholders a preferential right to receive dividends and to participate in the distribution of the company’s remaining assets upon dissolution.
The shares of public limited companies (aktsiad) must have a par value of 10 EEK or a full multiple thereof. Shares are freely transferable, but the company’s articles of incorporation may confer a pre-emptive right on other shareholders. Dividends must be distributed to shareholders pro rata, based upon the nominal value of the shares of each shareholder. Where a public limited company has different classes of shares, owners may enjoy different rights, such as, for example, the right of preferred shareholders to receive dividends in a pre-determined amount. As with private limited companies, a public limited company’s share capital must be fully paid-up as a condition of registration with the Commercial Register. Unlike in the case of private limited companies, for whom registration with the ECRS is optional, ECRS registration is mandatory for public limited companies. The ECRS holds securities and records securities transactions, maintains ownership registration records and records of pledges, and processes and clears securities transactions. This information is accessible to the public through the ECRS register. All transactions executed on the TSE are cleared and settled through the ECRS, and therefore only those securities that are registered with the ECRS may be traded on the TSE.
Finally, the accounts of all public limited companies must be audited by an independent auditor.
Commercial Associations
Aside from the more conventional forms of enterprise provided for in the Commercial Code, a distinct type of entity called a commercial association can be established pursuant to the Commercial Associations Act. A commercial association is a company created for the purpose of supporting and promoting the economic interests of its members through the members’ joint economic activity. Members may cooperate as consumers or as recipients of certain benefits, as suppliers, through work contributions, through the use of services, or in any other similar manner. Typical examples include associations designed to support farmers or producers of a particular agricultural product.
The founders of an association may be natural persons or, alternatively, legal persons, such as existing associations that have decided to enter jointly into a commercial association. If the founders are natural persons, at least five are required in order to establish the association. Fewer than five founders are permitted if at least three of the founders are associations. There are no legal restrictions on the founders’ country of residence.
Commercial associations are liable for their obligations to the extent of their assets. The law does not require members to assume personal liability for the commercial association. The articles of incorporation may provide, however, that members are personally as well as jointly and severally liable for the obligations of the association. Where members are not subject to personal liability, the minimum share capital of a commercial association must be 40,000 EEK (approximately 2,560 EUR).
Dividends are paid to an association’s members only if the articles of incorporation so provide. Otherwise, profits are held in a reserve fund that is not subject to distribution among the members. Where a commercial association’s share capital exceeds 400,000 EEK (approximately 25,600 EUR), or where required by the association’s governing articles or by the Accounting Act, the association’s accounts must be audited by an independent auditor.
Branch Offices of Foreign Enterprises
Foreign companies wishing to permanently offer goods or services in their own name in the territory of Estonia must establish a branch office (filiaal) in Estonia. The branch office must be registered with the Estonian Commercial Register through the submission of an application and required documentation. Certain entities, such as foreign banks or insurance companies located in non-EU states, must also obtain a business licence. Banks and insurance companies from EU member states must simply notify the Financial Supervision Authority (FSA) that they intend to commence activities in Estonia. The foreign enterprise is liable for any obligations arising out of the activities of the branch.
The foreign enterprise is also responsible for appointing one or more directors that will be accountable to the foreign enterprise. At least one director must be resident in Estonia. Directors are charged with directing and representing the branch and with conducting accounting procedures in accordance with Estonian regulations. Where required by law, branch directors must submit a copy of the audited and approved annual report as well as a report on the activities of the branch to the local office of the Commercial Register. Those foreign companies that do not engage in permanent commercial activities in Estonia under their own names need not register a branch office with the Commercial Register. For example, a foreign company may acquire the assets or shares of an Estonian company without having to establish a branch for that purpose. In certain enumerated instances, however, permanent enterprises of foreign companies that are not registered with the Commercial Register must be separately registered with the Tax Board.
Non-Profit Associations and Foundations
Non-profit associations and foundations are private legal entities that pursue not-for-profit activities. Separate statutes govern each of these two forms of non-profit entities.
Non-Profit Associations
The Non-Profit Associations Act, which came into force in 1996, provides for the establishment of voluntary associations of individuals whose principal objective is unrelated to economic gain. Any income earned by non-profit associations is used to further the organisation’s goals as set forth in the articles of incorporation. Consequently, non-profit associations cannot distribute profits among their members.
A non-profit association must be founded by at least two persons, who may be either natural persons or legal persons. Account audits are not required under the Non-Profit Associations Act, but members may choose to appoint an auditor at the general meeting. In addition, an audit may be required in certain instances under the Accounting Act.
Foundations
Foundations are the second type of non-profit entity that may be created under Estonian law. Foundations are governed by the Foundations Act, which entered into force in 1996. Like non-profit associations, foundations must use their assets to achieve the particular non-profit objectives set forth in the articles of incorporation. Foundations have no members however. Foundations may be established by one or more natural or legal persons.
The Foundation Act requires that the accounts of all foundations be audited by an independent auditor.
CORPORATE GOVERNANCE
Governance Structure
The management structure of each of the various enterprises under Estonian law is similar in many respects. Other than partnerships, which have a somewhat distinct form of governance as described above, each enterprise is governed by some combination of a meeting of shareholders or members, a management board, and a supervisory council.
The general meeting of shareholders is the supreme decision making forum of both private and public limited companies. Resolutions may be adopted at either regular or extraordinary general meetings and private limited companies are also permitted to reach decisions via mail. For commercial associations and non-profit associations, both of which are comprised of members rather than shareholders, the general meeting of members serves as the highest decision making body.
With the exception of partnerships, every enterprise has a management board. The management board is an executive body charged with day-to-day management duties, as well as with representing the enterprise in its relations with third persons, such as by entering into contracts on behalf of the enterprise. Certain residency requirements often apply to the composition of the management board. At least half of the management board members of private and public limited companies, non-profit associations, and foundations must be residents of Estonia, member states of the European Economic Area or Switzerland.
In some circumstances, enterprises are also required to have a governing body called a supervisory council. The supervisory council engages in oversight and longer-term management activities, such as supervising the management board and devising business plans. The management board is accountable to the council and must follow any lawful instructions the council issues.
All public limited companies and foundations must have a supervisory council. Other types of enterprises are required to have a supervisory council if certain conditions are met. Private limited companies whose management boards have less than three members and whose share capital exceeds 400,000 EEK (approximately 25,600 EUR), or whose articles of incorporation so require, must have a supervisory council. In addition, a supervisory council is mandatory for those commercial associations with more than 200 members or a share capital greater than 400,000 EEK (approximately 25,600 EUR), or where the commercial association’s articles of incorporation so provide. For all enterprises, members of the management board may not simultaneously serve on the supervisory council.
Obligations of Members of Governing Bodies
Management board and supervisory council members have certain obligations to the company under the Estonian Law of Obligations Act (the ‘LOA’). Pursuant to this law, members of a company’s governing body must fulfil various general duties to the company, including upholding a fiduciary duty of loyalty, acting with due diligence, performing their duties with sufficient skill and in a manner commensurate with their knowledge and abilities, and acting to maximise benefits to the company and to prevent any losses.
Members of governing bodies must also keep the company informed of all material facts related to the performance of their obligations, such as any conflicts of interest that arise. A strict confidentiality requirement also applies where members of governing bodies learn of facts that the company has a legitimate interest in keeping confidential. For example, the company is presumed to have a legitimate interest in maintaining the confidentiality of its production and business secrets. The confidentiality obligation continues after the board or council member’s term of service expires, to the extent necessary to protect the company’s interests. Exceptions to the confidentiality obligation arise where the company authorises disclosure, or where another provision of law requires disclosure. Unauthorised disclosure of business secrets may result in criminal punishment.
Liability for Wrongdoing
Liability of Members of Governing Bodies
The breach of an obligation to the company may result in liability. Liability of management board and supervisory council members is governed by the Commercial Code. Under that law, members of governing bodies are held jointly and severally liable for losses to the company caused by a breach of their obligations. Thus, any member of a governing body may be required to compensate for any loss in full. That member will then have a claim for indemnification against the other members equally. In addition, management board members are held personally liable regardless of their individual culpability. Supervisory council members will be held personally liable only if they have personally engaged in wrongful conduct.
Participation in unlawful decisions will result in liability under the Commercial Code. Individual members of a company’s governing body will be released from liability if they acted in accordance with a lawful decision of the general meeting or of another competent body. These individuals can also avoid liability by dissenting from the adoption of the resolution out of which the illegal activity arose. Claims against members of governing bodies must be brought within five years of the time when the illegal activity occurred or the obligation in question was breached. During this time period, the enterprise may assert claims against its management. Creditors may also bring a personal claim against a member of management when the creditor’s claims cannot be satisfied out of the company’s property. An important amendment to an earlier law provides that a creditor may maintain such a claim even if the enterprise has abandoned or settled its own claims against the member in question.
Members of governing bodies, and enterprises themselves, may also be subject to criminal liability in certain instances. The Penal Code (Karistusseadustik) prescribes criminal penalties for unlawful acts performed by members of the governing body on behalf of the enterprise. Examples include engaging in business activities without a licence and committing tax or competition offences. Members of the enterprise’s governing body who committed the offence may be charged along with the company where the facts provide a basis for such liability.
Shareholder Liability
As previously noted, shareholders of private and public limited liability companies (OÜ and AS companies) are not, as a general rule, held personally liable for the obligations of the company. Different rules apply, however, where a shareholder has caused damage to a third person, to another shareholder, or to the company itself. Those damaged by a shareholder’s actions may file a personal claim against the shareholder pursuant to the Commercial Code. Shareholders may be held personally liable for wrongful actions taken in their capacity as shareholders, such as adopting certain decisions at the general meeting of shareholders that are harmful to the company, its creditors, or other shareholders. Shareholders will not be held liable if they did not participate in the decision that led to the wrongful action or if they voted against the decision.
Claims against a shareholder must be asserted within three years from the moment the claimant became aware of the damage and of the identity of the responsible party.
CONTRACT LAW
Applicable Legislation
The main Estonian laws regulating contracts are the Law of Obligations Act (Võlaõigusseadus) (the ‘LOA’) and the General Principles of Civil Law Act (Tsiviilseadustiku üldosa seadus) (the ‘GPCLA’), both of which came into force on 1 July 2002. The GPCLA establishes general principles applicable to contracts, such as declarations of intent, the bases for nullifying or cancelling agreements, and rules regarding agency. The LOA sets forth the basic framework for creation, performance and termination of agreements, and also enumerates various types of agreements. The LOA’s provisions apply to agreements executed after 1 July 2002 as well as to certain long-term agreements executed before 1 July 2002 but performed after that date. In addition to the rules set forth in these acts, the GPCLA also recognises customary practices as a source of contract law. Although the law provides that customary practices generally apply to contractual relationships only where relevant legislation is lacking. Customary practices may be followed in lieu of statutory law if implementation of a legal provision would lead to an unjust result.
General Principles of Estonian Contract Law
Freedom of contract is the basic principle underlying Estonian contract law. In accordance with this principle, individuals are free both to decide whether to enter into an agreement and to determine the content of that agreement. Where the terms of a contract do not resolve a particular issue, pertinent LOA provisions govern by default.
While the LOA affords parties the freedom to structure their contractual relations as they wish, they may not enter into an agreement that alters any binding provisions of the LOA. The LOA also specifies that the general principles of good faith, reasonableness and co-operation between the parties must be followed in contract formation and performance. Where there are areas of disagreement between the parties, the LOA leaves courts with a considerable amount of discretion to resolve such disputes based on the particular circumstances of the case.
Formation of Contracts
A contract is formed when an offer is made and accepted or when declarations of intent are exchanged in any other manner, provided it is sufficiently clear that the parties have reached an agreement. A contract may be formed even if certain, non-fundamental terms are left open. For a contract to be valid, however, the parties must have agreed on any fundamental terms required by law or by the other party. If a fundamental term is unintentionally left open, the contract will nonetheless be valid if it can be presumed that the contract would have been concluded even without an agreement on the term in question. In such cases, a term will be inferred that is reasonable based on the circumstances, the parties’ intent, the nature and purpose of the contract and the principle of good faith.
The parties to a contract are generally at liberty to determine the form of their contract. The law contains several exceptions to this rule that mandate either a written or notarised agreement, however. In addition, correspondence between the parties may under certain circumstances be treated as a contract or as an amendment to a contract if the parties have agreed therein on all the terms that are essential to the contract in question.
Contract Negotiations
The LOA also governs the relationship between the parties in the pre-contract, negotiation phase. The LOA’s principal requirement is that negotiating parties afford a reasonable amount of consideration to each other’s interests and rights. Information exchanged between the parties must also be accurate. In addition, parties may not engage in negotiations in bad faith, such as by conducting negotiations without a true intent to enter into a contract, and they may not break off negotiations in bad faith. Confidential information submitted to the other party in the course of the negotiations may not be disclosed or used in bad faith. The parties may reach an independent agreement to increase their liability for violations of these rules beyond that imposed by the rules themselves, but they cannot otherwise alter these default rules regarding contract negotiation.
Standard Terms
The LOA establishes rather strict rules on the use of boilerplate or standard contract terms. Pursuant to the LOA, the party that invokes the standard terms must make clear its intent to incorporate them before entering into the contract, and the other party must have an opportunity to examine the terms. An exception to this rule arises where no reference was made to the terms, but their inclusion could nonetheless be presumed from the manner in which the contract was concluded. Standard terms that are so unusual or unintelligible that the other party cannot reasonably have expected them to be included or cannot understand them without considerable effort will not be treated as part of the contract.
The LOA lists certain standard terms that, if used in specified circumstances, are considered to be unfair. If a standard term included on this list is used in a contract entered into with a consumer, the term is automatically void. If a standard term that appears on the list is used in a contract with a person who entered into the agreement for economic or professional purposes, the term is presumed to be unfair, but is not void automatically.
Performance of Contracts
The contract itself is the primary source of the terms governing performance of the parties’ contractual obligations. If a contract does not contain relevant terms or if the terms are incomplete, the default provisions of law will apply. The requirements of good faith and reasonableness apply equally to obligations performed pursuant to a contract and those performed pursuant to law. Performance of an obligation is treated as conforming to the contract if the obligation is performed at the right time, at the right place and in the manner agreed upon by the parties, for the benefit of the person who is entitled to accept performance. Obligors must perform their obligations with the level of quality required by the contract or prescribed by law or, where the quality of performance is not specified in the contract or in law, the party must perform its obligation with a quality that is considered at least average or usual under the circumstances.
Except where an obligor must perform the obligation in person pursuant to law or contract or as a result of the nature of the obligation, a third party may perform the obligation on behalf of the obligor either in part or in full.
The cost of performance is born by the obligor.
Breaches and Remedies
The LOA provides a general definition for breach of contract as the failure to perform or the defective performance of an obligation. The LOA adheres to a principle of guarantee liability, by which the obligor is presumed to guarantee performance of its obligation regardless of any obstacles that may arise. An obligor will therefore be held liable for a breach of its obligations unless that breach is excused. A breach will be excused if, among other possible reasons, it is caused by force majeure – that is, by circumstances beyond the control of the obligor or, alternatively, by non-performance by the other party. If the effect of force majeure is temporary, non-performance is excused only for the period during which the force majeure impedes performance of the obligation. Where the contract or the law so provides, however, an obligor is liable for the breach regardless of whether the breach is excused.
In certain cases prescribed by law or contract, a party will be deemed to be in breach of an obligation only if that party has acted culpably. To be culpable, the party must have acted with carelessness (i.e., the failure to exercise necessary care), gross negligence (i.e., the failure to exercise necessary care to a material extent) or intent (i.e., the will to bring about an unlawful consequence). If the parties have not agreed upon the legal remedies for a breach, the remedies provided in the LOA will apply. Pursuant to the LOA, an obligee may, subject to certain specified limitations, require performance of the obligation, withhold performance that it owes to the obligor, demand compensation for damages suffered due to the breach, withdraw from or cancel the contract, accept the defective performance and reduce the price of the contract accordingly, or, where there has been a delay in the performance of a monetary obligation, extract a late payment penalty. The obligee may choose to resort to any of these legal remedies separately or to resort simultaneously to several different remedies. Invoking a particular legal remedy does not deprive the obligee of the right to demand compensation for damage caused by the breach. An obligee is not entitled to a remedy for the breach to the extent that the breach was caused by the obligee or arose out of an event to which the obligee bore the risk.
The choice of legal remedy must always be exercised subject to the principle of good faith, which prohibits the abuse of another’s rights and therefore forbids the award of a remedy that is disproportionate to the gravity of the breach.
Assignment of Contractual Rights and Obligations
Contractual rights and obligations may be transferred to a third party in three ways:
- through the assignment of a claim from an obligee to a third party;
- the assumption of an obligation by a third party; or
- the assumption of a contract.
Termination
The LOA specifies a number of circumstances under which a contract or a contractual obligation may terminate. Termination may occur, for example, through performance of the contract or obligation, withdrawal from or cancellation of the contract, the exercise of a set-off, an agreement to terminate contractual obligations, a merger of the contracting parties, the death of an obligor whose personal performance is necessary to fulfil the obligation, the death of an obligee for whom the obligation was to be performed personally, or, finally, through the occurrence of other circumstances set forth in the contract or prescribed by law. Certain of these enumerated means of termination are discussed below.
Upon termination of a contract or obligation, any ancillary obligations or securities given for the contract or obligation generally also terminate.
Withdrawal and Cancellation
The parties to a contract may agree to a right of withdrawal, or such a right may be provided for by law. A party achieves withdrawal by submitting a declaration of withdrawal to the other party. Withdrawal releases both parties from the performance of their contractual obligations. Even after withdrawal, however, rights and obligations that arose out of the contract before termination, agreements on resolving contract disputes, and contractual terms regarding the parties’ rights and obligations after withdrawal remain valid.
In the event of a withdrawal, the parties may each demand the return of items transferred to the other party under the contract, and may also claim any gains made on those items. If it is impossible for a party to return items transferred under the contract, the other party is entitled to compensation for the value of the items transferred.
Cancellation of a contract is similar to withdrawal in that it releases both parties from the performance of their contractual obligations while preserving the rights and obligations that arose from the contract prior to cancellation. Unlike in the case of withdrawal however, cancellation has no retroactive effect. There is consequently no requirement that items transferred under the contract be returned upon cancellation.
Set-Off
When two parties are required to pay each other a sum of money or to perform another mutual obligation, either party is entitled to set off its claim against the claim of the other party. Certain restrictions may apply to the right of set-off. For example, the obligations in question must be mature. In addition, set-off is not permitted where monetary obligations are expressed in different currencies and the applicable exchange rates have not developed freely in the market. Unless the parties agree otherwise, set-off operates to extinguish the parties’ claims as of the time the claims are eligible for set-off and to the extent that the claims overlap.
FINANCIAL REPORTING AND AUDITING
Applicable Legislation
The main laws governing financial reporting and auditing in Estonia are the Accounting Act (Raamatupidamise seadus, effective 1 January 2003) and the Authorised Public Accountants Act (Audiitortegevuse seadus, effective 1 July 1999). Several secondary acts have also been established on the basis of these laws. The Accounting Act contains general requirements for conducting accounting and financial reporting in accordance with internationally recognised principles. The Authorised Public Accountants Act specifies requirements applicable to auditors, sets the standards for passing the professional competence examination, establishes the legal bases for the professional activities of auditors, and creates the organisational structure of the Board of Auditors (Audiitorkogu).
Requirements related to specific aspects of auditing are set forth in several other acts, such as the Commercial Code (Äriseadustik, effective 1 January 1995), the Bankruptcy Act (Pankrotiseadus, effective 1 January 2004), the Credit Institutions Act (Krediidiasutuste seadus, effective 1 July 1999), the Foundations Act (Sihtasutuste seadus, effective 1 October 1996), and the Securities Market Act (Väärtpaberituru seadus, effective 1 January 2002).
General Requirements
The Accounting Act provides that all accounting entities are required to conduct accounting and financial reporting. Accounting entities are defined to include legal persons registered in Estonia, sole proprietors, and branches of foreign companies registered in Estonia. Accounting entities must organise their accounts so as to ensure the provision of current, relevant and objective information concerning their financial position, economic performance and cash flow. This information must be capable of comparison with that of other accounting entities. Accounting entities must also document all business transactions and post and record them in accounting ledgers and journals, prepare and submit annual reports and other financial statements, and preserve all accounting documents.
The accounting policies and presentation formats used in accounting shall be in accordance with at least one of the following two accounting frameworks: (i) accounting principles generally accepted in Estonia or (ii) international financial reporting standards. The accounting policies and presentation formats used in the preparation of financial statements by a credit institution, financial holding company, mixed-activity holding company or insurer or by a company, the shares or other securities issued by which are quoted on a stock exchange in Estonia or a member state of the European Union, shall be in accordance with international financial reporting standards.
Recording of Business Transactions
The Accounting Act defines business transactions as any transactions concluded by an accounting entity or by third parties, or any events relevant to an accounting entity, that result in changes to the accounting entity’s assets, liabilities or ownership equity. An accounting entity is required to document and record all of its business transactions in journals and ledgers within reasonable time after those transactions occur, so that the timely submission of reports prescribed by legal acts is ensured. All business transactions must be recorded chronologically in a journal, as well as on a per-account basis in a general ledger in double-entry form. Accounting records on business transactions must be preserved for seven years after the end of the fiscal year during which the record was entered on the entity’s accounts.
Annual Reports
Accounting entities are required to prepare annual reports at the end of each fiscal year. A fiscal year coincides with the calendar year, unless an accounting entity’s articles of incorporation provide otherwise. Annual reports consist of a statement of annual accounts and a management report. Entities must also attach a profit distribution proposal as an annex to the annual report. Where auditing is required by law, an auditor’s report must also be provided with the annual report.
Statements of annual accounts are prepared on the basis of the accounting entity’s business transactions and journal and ledger entries during the fiscal year. Such statements comprise the entity’s balance sheet, income statement, cash flow statement and statement of changes in ownership equity, as well as notes on the accounts. An inseparable part of the annual accounts is also a written declaration of the management about the management’s liability for the preparation of the annual accounts and a confirmation that the annual accounts have been prepared in compliance with the accounting framework, the annual accounts give a true and fair view of the financial and economic position and cash flows of the accounting entity and that the accounting entity is continuously carrying on its activities.
Management reports provide an overview of the accounting entity’s activities, circumstances material to the assessment of the entity’s financial position and business activities, significant events that have occurred during the fiscal year, and projected developments in the ensuing fiscal year.
The Accounting Act provides certain regulations for preparing the annual reports of consolidation groups.
Accounting Standards Board
The Accounting Standards Board (Raamatupidamise Toimkond) (the ‘Board’) is an independent committee established by the government whose function is to issue accounting guidelines related to the Accounting Act, and to direct activities in the field of accounting.
The guidelines issued by the Board are in general drawn from international financial reporting standards. The Board’s guidelines are published in the official journal Riigi Teataja.
Auditing
Under the Authorised Public Accountants Act, auditing involves the examination of financial statements and the formulation of an opinion in accordance with the requirements and procedures set forth in the Auditing Guidelines (Auditeerimiseeskiri). The Auditing Guidelines are based on the standards of the International Federation of Accountants.
Only those auditors who have the requisite qualifications and who have been placed on the national list of auditors (audiitorite nimekiri) maintained by the Board of Auditors are authorised to perform audits. The Board of Auditors is a self-governing association that organises auditors’ professional activities and protects their rights. All auditors who have been placed on the list of auditors are members of the Board of Auditors.
Audits of Annual Accounts
Auditors are responsible for preparing an opinion based upon information concerning an entity’s annual accounts. The entity itself is responsible for preparing financial statements, as well as ensuring that adequate accounting records are created and maintained, that appropriate accounting policies are selected and applied, that efficient internal controls and internal accounting procedures are established, and that the assets of the entity are safeguarded.
Audits must encompass all areas of an entity’s operation that have an impact on the entity’s financial statements. In addition to auditing an entity’s annual accounts, auditors may, at an entity’s request, perform other services such as reviewing financial information and compiling financial reports.
Auditors’ Reports
Auditors produce two kinds of reports based upon their audit findings: reports on financial statements (chiefly annual accounts) and special-purpose reports, such as memoranda, letters, or opinions. Reports on financial statements may, depending upon the results of the audit, contain unqualified opinions, qualified opinions or adverse opinions. If the information provided to the auditor is insufficient, the auditor may refuse to give an opinion.
Auditing of Public and Private Limited Companies
Pursuant to the Commercial Code, all public limited companies are required to engage the services of an auditor. Private limited companies are required to engage an auditor if the company’s share capital exceeds 400,000 EEK (approximately 25,600 EUR) or if the company’s articles of incorporation so provide. In addition, under the Accounting Act, a private limited company’s annual report must be audited if two of the following conditions have been met as of the last day of the fiscal year:
- net turnover exceeds 10 million EEK (approximately 638,980 EUR);
- the balance sheet total is greater than 5 million EEK (approximately 319,490 EUR); or
- the company has more than ten employees.
Auditors are appointed by the general meeting of shareholders. Audits of merger agreements, takeover reports and reorganisation agreements are also mandatory.
EMPLOYMENT LAW
Applicable Legislation
Employment and labour issues in Estonia are governed principally by the Employment Contract Act (Töölepingu seadus, effective 1 July 1992) (the ‘ECA’). Other employment laws include the Working and Resting Time Act (Töö- ja puhkeaja seadus, effective 1 January 2002), the Wages Act (Palgaseadus, effective 1 March 1994), the Holidays Act (Puhkuseseadus, effective 1 January 2002), the Estonian Trade Union Law (Ametiühingute seadus, effective 23 July 2000), the Collective Agreement Act (Kollektiivlepingu seadus, effective 16 May 1993), the Adult Education Act (Täiskasvanute koolituse seadus, effective 10 December 1993), and the Occupational Health and Safety Act (Töötervishoiu ja tööohutuse seadus, effective 26 July 1999).
Estonia’s employment laws are intended to provide certain basic protections for and benefits to employees. The ECA forbids discrimination against workers on the basis of gender, nationality, race, native language, social class, religious beliefs, political ideas, marital status, or other such attributes.
Employment Contracts
The provisions of the ECA apply to all employers and employees who have entered into employment contracts. The concept of an employment contract is interpreted liberally under the ECA; the ECA governs all agreements that are in essence employment contracts, regardless of how the parties title the agreement. The ECA does contain a limited exception for certain types of work arrangements that are not deemed to be employment contracts for purposes of the ECA.
Basic Principles
An employment contract is any agreement in which an employee agrees to undertake work on behalf of and under the supervision of an employer, and the employer agrees to provide remuneration and specified working conditions for the employee. Terms of an employment contract or unilateral decisions of employers that are less favourable to employees than those guaranteed by law or by a collective agreement are invalid. Collective agreements, employment contracts and unilateral decisions of employers may, however, increase the rights conferred upon employees by law.
Employment contracts must contain certain mandatory terms. Employment contracts must stipulate certain basic information about the parties, the employee’s title or qualifications for the position, the nature of work assignments, the number of hours to be worked in a given period, the length of annual vacations and any additional vacations, the work location, the contract term, the date on which the employment relationship will commence, the date on which the employment agreement will terminate, and the wage conditions.
If the duration of the contract term is not specified, it is presumed to be indefinite. Employment contracts may provide for a probation period of up to four months. Employers who fail to execute an employment contract or to include requisite terms may be fined.
Amendments to Employment Contracts
Employment contracts may be amended if the parties so agree. In addition, both employees and employers have the right to unilaterally amend the contract in certain circumstances. Employees whose health prevents them from continuing in their position may demand a transfer to a more suitable position with the same employer, if such a position is available. Employees who are ill or who become pregnant may, upon presenting a doctor’s certificate, demand a temporary change in their working conditions or a temporary transfer to another position.
Employers have the right to alter employees’ remuneration or work responsibilities following a reorganisation that affects the employer’s work or level of production. In extraordinary circumstances, employers may temporarily transfer employees to different positions or locations, impose a part-time work schedule, or declare a partially compensated compulsory holiday. Employees and employers that fail to observe the rules concerning amendments to employment contracts are subject to various consequences set forth in the ECA.
Termination of Employment Contracts
An employment contract may be terminated through several means, including by an agreement of the parties, upon the expiration of the contract term, or on the employee’s or employer’s initiative. The parties may agree to terminate the employment contract at any time. To do so, one party must present a written request for termination to the other party and receive that party’s written consent to termination. A party that wishes to terminate a fixed-term contract upon the expiration of the contract term must provide notice to the other party. Notice must be given either five days or two weeks prior to the contract’s expiration, depending upon the circumstances of the termination. If neither party provides notice of termination, the contract converts automatically into an indefinite term contract.
To terminate a fixed term contract before the end of the term, an employee generally must provide two weeks’ advance notice, although five days’ notice is permitted in certain, specified circumstances. An employee who wishes to terminate an indefinite term contract must generally notify the employer at least one month in advance or, if termination will occur during the employee’s probation period, at least three days in advance. A five-day notice requirement applies in certain circumstances specified by law.
Employers may terminate fixed-term contracts prior to the expiration of the term or indefinite term contracts only upon certain grounds. These grounds include the liquidation of the employer’s enterprise or a declaration of bankruptcy, a decision to carry out employee layoffs, an employee’s unsuitability for his or her work due to a lack of necessary skills, an employee’s breach of duty, the employer’s loss of trust in the employee, or an employee’s long-term incapacity for work. When invoking some of the grounds for termination, the employer may be obligated to pay compensation to employees.
The rules regarding notice of termination vary depending upon the employer’s reason for termination; in certain cases no notice is required, while in others, employers must provide notice anywhere from two weeks to four months in advance. Employers that fail to comply with the rules regarding notice may be required to pay compensation to employees.
In addition to setting forth the grounds for an employer’s termination of an employment contract, the ECA specifies situations in which employers generally may not terminate an employment contract. For example, a contract may not be terminated while an employee is on vacation or is temporarily incapacitated. Additional restrictions apply to the termination of employment contracts entered into with pregnant women, with people raising young children, and with other, similarly situated employees.
Foreign Nationals
Citizens of foreign nations must generally obtain work and residence permits before beginning employment in Estonia (except EU and EEA citizens). The law does provide for certain exceptions however, including an exception for diplomatic and consular officials.
Since its accession to the EU, Estonia has benefited from the common market system, which allows EU citizens to work freely throughout the EU. Estonia immediately opened its own labour markets to citizens of other EU countries upon accession. The labour markets of Sweden, Ireland and Great Britain have also been open to Estonians since accession and the labour markets of Finland, Spain, Portugal, Greece and Iceland were opened to Estonian citizens as of 1 May 2006. The other, non-accession EU member states have placed restrictions on Estonians’ entry into their labour markets until 2009 and then, if they so choose, may decide to extend this transition period for an additional two years.
Working Hours
Pursuant to the Working and Resting Time Act, the number of hours an employee is expected to work must be set forth in the employment contract. Details regarding the work regime, such as the time at which the working day begins and ends and the amount of time permitted for meals and other breaks, may be determined by the employer’s internal work procedures, by a collective agreement, or by the employment contract.
For full-time employees, the working day is generally eight hours long. The hours of part-time employees are set independently by the employer and the employee. Overtime work is usually permitted only upon an agreement between the employer and employee. When an employee does work overtime, certain limits must be observed. An employee’s working time together with overtime work may generally not exceed an average of 48 hours per week over a four-month period.
Wages
The Wages Act sets forth rules regarding the remuneration of those who work pursuant to an employment contract. Employment contracts must specify the employee’s wage rate, any additional salary or payment amounts, the method for calculating the employee’s remuneration, and the procedures for paying remuneration. These conditions may only be altered by mutual agreement between the employer and the employee.
Employees who perform additional work at the request of the employer during the regular workday must be paid extra remuneration. Overtime work must be compensated at a rate of at least 50% of the employee’s hourly wage or, alternatively, employees may receive time off as compensation.
Vacations and Leaves of Absence
The Holidays Act (the ‘HA’) regulates the terms of vacations and other forms of leave for all employees who have entered into employment contracts. Employees are entitled to a certain amount of annual vacation time under the HA. Both full-time and part-time employees generally receive 28 days of vacation annually. Employees who have worked for at least six months during their first working year must be granted annual vacation time in proportion to the number of months worked. Certain individuals, such as pregnant women, are entitled to the full amount of annual vacation time during their first year of work regardless of the number of months worked in that period. After the first year of work, all employees are entitled to the full amount of annual vacation time.
Employers must pay employees during their annual vacation. The method for calculating the amount of vacation pay is established by government regulations. The HA allows employers to impose additional, partially paid vacations on employees where there has been a temporary decrease in the volume of business, or in other such situations. Such compulsory, unpaid vacations require the prior approval of the local labour inspector, and they cannot exceed a three-month period. Employers must also grant unpaid vacations to employees during some school examination periods.
The HA requires employers to prepare a vacation schedule each calendar year, and to distribute this schedule to employees in January. Employers are required to take employees’ vacation requests into account where feasible. The requests of certain employees, such as a parent raising a child under the age of seven, must be honoured. If the employer fails to distribute a vacation schedule in January, employees may choose their own vacation schedule and notify the employer of this schedule at least two weeks in advance.
By law, employers may not deny vacations to employees. Likewise, employees may not waive their right to vacations. Vacations, in addition to those required by law may be granted to employees through a collective agreement, an employment contract, or a separate agreement between the employer and the employee. In addition to annual vacations, leave is granted to employees in certain circumstances. Pregnant women are generally entitled to a maternity leave of up to 140 days. During this period, benefits must be paid in accordance with the Health Insurance Act (Ravikindlustuse seadus). Fathers may receive two weeks of paternity leave. Adoptive parents are entitled to seventy days of leave. Either parent may also be granted up to three years of parental leave to raise a child under the age of three. The employment contract is suspended during parental leave periods and, throughout these periods, employees receive a child care allowance from the state. Finally, employers are sometimes required to grant leave to employees who are pursuing educational opportunities.
Collective Agreements
The Collective Agreement Act governs labour relations agreements between employers and employees. Entry into such collective agreements is voluntary. Trade unions, federations of trade unions, or elected employee representatives may enter into collective agreements on behalf of employees. Collective agreements may only confer additional benefits upon employees; they may not restrict the rights guaranteed to employees by law.
The law contains no strict requirements regarding the terms or contents of a collective agreement. A collective agreement may regulate various working conditions, including:
- wages;
- rest time;
- suspension, amendment or termination of an employment contract;
- lay-offs and rights in the event of a lay-off; and
- occupational health and safety.
Collective agreements may also grant rights and guarantees to individuals or bodies that represent employees in labour relations.
PROPERTY LAW
Applicable Legislation
Estonia’s property law regime is set forth principally in the Property Law Act (Asjaõigusseadus, effective 1 December 1993) (the ‘PLA’). Components of the General Principles of Civil Law Act (Tsiviilseadustiku üldosa seadus, effective 1 July 2002) also apply to Estonian property law.
The PLA provides the basis for several other acts, such as the Land Register Act (Kinnistusraamatuseadus, effective 1 December 1993), the Land Readjustment Act (Maakorraldusseadus, effective 20 February 1995), and the Apartment Ownership Act (Korteriomandiseadus, effective 1 July 2001). The Law of Obligations Act (Võlaõigusseadus, effective 1 July 2002) regulates leases of property.
Principles of Ownership
The PLA defines ownership as the right of full legal control over an item of property. Under the PLA, owners have the right to freely possess, use and dispose of their property and to prevent others from violating these rights.
Real Property and Movable Property
Estonian property law draws a distinction between real or immovable property (kinnisasjad) on the one hand and movable property (vallasasjad) on the other. Real property consists of land and anything affixed or attached to the land, such as buildings that are registered on the Real Estate Register (Kinnistusraamat), crops, and other vegetation. All other property is considered movable property.
Real property must be registered in the Real Estate Register in order to establish ownership rights, to encumber the property, or to effect transfers of ownership. With regard to movable property, mere possession is, as a general rule, sufficient to establish ownership rights or to effect transfers.
Transfers of Real Property
Land
In order to complete a transaction for the acquisition or disposal of land, the parties must execute a notarised agreement and make a corresponding entry in the Real Estate Register.
Buildings and Building Title
Buildings are considered to be an essential part of the land to which they are affixed, and therefore generally cannot be transferred separately from that land. However, Estonian law does provide for a mechanism by which ownership of a plot of land may be separated from ownership of any buildings on that land. One may acquire a building title (hoonestusõigus) with regard to a particular plot of land, and thereby obtain ownership rights in any existing or later-erected buildings on that land. Ownership rights in these buildings then transfer along with the building title, and not with the land itself.
A notarised agreement and an appropriate entry in the Real Estate Register are required in order to create or transfer a building title. Building titles are established for a specified term which may not exceed ninety-nine years. Upon expiration of the term, the owner of the land and the holder of the building title may renew the building title for another term not exceeding 99 years. While building titles are transferable and inheritable, the owner of the land that is encumbered with the building title may demand that any transfers be made only with the owner’s consent. Such demands must be entered in the Real Estate Register in order to be effective against third-party purchasers.
The holder of a building title has the right to remove any structures within one year before the building title expires unless the owner of the land pays compensation to the holder of the building title.
Rights of Use in Property
In addition to effecting outright transfers of property, property owners may grant others certain rights of use in their property.
Leases
Leases are primarily governed by the principles of Estonian contract law set forth in the Law of Obligations Act, although some aspects of leases are also regulated under the PLA. With a lease, the owner of real or immovable property allows another to use the property in exchange for remuneration. The property that is the subject of the lease is transferred to the lessee along with the accessories necessary for the use of the property. The lessee is obliged to use the leased property prudently and in accordance with the purpose agreed upon by the parties.
The law provides for two kinds of leases: personal leases and commercial leases. The main distinction between these two forms of lease is that the holder of a personal lease is simply entitled to the use of the leased property, while the holder of a commercial lease also has the right to keep any gains produced through the use of the property.
Leases are created through an agreement between the lessor and lessee. Leases of real property do not need to be recorded on the Real Estate Register, although the parties may choose to do so. The entry of a lease on the Real Estate Register preserves the lessee’s right to use the leased property pursuant to the lease agreement even if the property is transferred to a new owner.
Easements
Easements or servitudes are another form of use rights in property. The PLA provides for various types of easements. A real easement (reaalservituut) is one that either allows the owner of real property to use part of another owner’s real property for a certain purpose or requires the other owner to refrain from using its property in a particular manner. For example, one may obtain an easement to use part of an adjoining plot of land to gain access to a nearby road. The law also allows personal easements (isiklik servituut), which permit the holder of the easement to use another’s land to an unlimited extent. As an example, an individual may transfer his or her ownership rights in land but retain a personal easement in the land that allows the individual to live on it until his or her death.
Easements are established through the execution of a notarised agreement and the entry of the easement on the Real Estate Register.
Expropriation of Property
The Constitution of the Republic of Estonia (Eesti Vabariigi põhiseadus) provides that property rights are inviolable, and that the property of all individuals is protected equally under the law.
The Government may expropriate real property without an owner’s consent only if expropriation is necessary to serve the public interest. Expropriation must be carried out in accordance with the proper procedures set forth in the Immovables Expropriation Act (Kinnisasja sundvõõrandamise seadus, effective 31 March 1995), and property owners must be paid fair and immediate compensation for the expropriated property. Those whose property is expropriated without their consent may contest the expropriation and the amount of compensation in the courts.
The Immovables Expropriation Act contains a non-exhaustive list of circumstances justifying expropriation, including the construction or expansion of buildings belonging to national defence, the border guard, the police, customs officials, or fire brigade and rescue services; the construction or expansion of buildings necessary for energy production; the construction or expansion of public ports or airports; the extraction of mineral resources; the construction or expansion of public streets, roads and squares; and the construction or expansion of public educational, medical and welfare institutions.
Expropriation is not permitted if the purpose for the expropriation may be achieved in another, permissible manner.
Legal Regulation of Development Planning and Construction
The main Estonian laws regulating development planning and construction are the Planning Act (Planeerimisseadus) and the Building Act (Ehitusseadus), both of which came into force on 1 January 2003. Numerous regulations of the Ministry of Economics and Communications and of the government also apply to aspects such as building permits, supervision of construction sites, and permits for the use of new structures.
Development Planning
The Planning Act regulates relations between the state, local governments and others in the preparation of development plans. The Planning Act seeks to ensure conditions that accommodate the needs and interests of the widest possible range of society to achieve balanced and sustainable spatial development, spatial planning, land use and construction.
Planning activities are public. The local government organises public discussions to present initial planning outlines and draft plans, and may organise additional discussions once more detailed plans have been prepared. After a plan has received approval from the appropriate officials, the plan is presented to the public. The public is permitted to comment upon and present objections to the plan during this presentation period. Necessary amendments to the plan may be made after public presentation and discussion.
Where plans are particularly detailed, the local municipality may decide in certain circumstances to forego the requirement of public display and instead apply for approvals from the owner of the plot of land in question and the owners of neighbouring plots.
After the adoption of any plan by a competent authority, any individual who contends that the decision to adopt the plan violates the law or restricts the individual’s rights or freedoms may contest the decision in a court of first instance. In addition, one may also submit a proposal to the competent authority to bring the plan into compliance with the law.
Building Construction
The Building Act regulates construction works, building materials and construction products, building design documentation and drawings of construction works, procedures for the design, construction, use and registration of new structures, and supervision by the state supervisory authority and the construction supervisor. The legal category of ‘construction works’ comprises both buildings and works of civil engineering. The requirements of the Building Act apply not only to the erection of construction works, but also to the expansion, reconstruction, modification and demolition of these works. Construction works must be designed and built in accordance with good building practices and must not pose a threat to the environment or to the life, health or property of individuals.
Builders must obtain a building permit from the local government. To do so, builders must file the proper application together with documentation of the building design and the requisite state fee. Once the building process has commenced, the owner of the construction work is responsible for carrying out the project in a manner consistent with the building design documentation and for maintaining the safety of the surroundings. Owners must also allow the state supervisory authority and the construction supervisor access to the construction work and construction documentation, and must preserve the building documentation and organise any required technical inspections.
Once a construction work has been completed, the owner must apply for a permit to use the new structure. A use permit is a certification by the local government that a completed construction work conforms to all legal requirements and that it may be used for its intended purpose.
