Main risks when buying real estate in Estonia

An apartment may appear to be in perfect condition, the building's location may be good and the price suitable. Only after the purchase may it emerge that the necessary records are missing for a basement conversion, that the apartment association is facing costly façade work, or that the seller had no right to transfer the property alone. The risks of purchasing real estate in Estonia are therefore not limited to the question of whether one likes the property. Before signing, it is essential to understand exactly what is being purchased, what rights and obligations come with it, and whether the agreements are set out in the contract with sufficient clarity.

A real estate purchase is, for many people, the largest transaction of their lives. Haste, a verbal promise or a decision made solely on the basis of a listing may later mean a costly dispute. Reasonable due diligence before the transaction does not imply distrust of the seller. It gives the buyer the opportunity to make an informed decision and to avoid a situation where a problem can only be resolved after the money has been paid and the keys received.

The risks of purchasing real estate in Estonia begin with the documents

The first point of verification is the land register. It shows who owns the immovable property or apartment ownership and whether a mortgage, personal right of use, servitude, real encumbrance or other restriction has been registered against it. For example, a third party may have the right to use a road, a living space or a parking space on the property. That right does not automatically disappear upon a change of owner.

A mortgage does not always mean the purchase must be abandoned. In many cases the seller's loan is discharged in the course of the transaction and the bank gives its consent to the deletion of the mortgage. What matters is that the order of payments, the bank's consent and the deletion procedure are clearly arranged in the notarial contract. The buyer should not assume that the seller will resolve this matter independently at a later stage.

It must also be verified whether the seller is in fact the sole owner and whether the consent of a spouse, co-owner, heir or other person is required for the transfer. In the case of property acquired during a marriage, the matrimonial property regime may be decisive. Even following succession, the question of ownership may remain substantively unresolved if all the necessary entries have not been reflected in the land register.

If an attachment has been placed on the property, enforcement proceedings are under way against it, or the seller's financial situation is uncertain, the transaction requires particularly careful structuring. The seller's potential insolvency after the transaction may make any subsequent communication and the pursuit of claims considerably more difficult.

The actual condition of an apartment may not correspond to the documents

A second common problem concerns the building and the works carried out within it. An apartment may have had a wall removed, a loft converted, a balcony enclosed, a heating system altered or a bathroom installed in a room whose permitted use is recorded differently in the documents. A visually sound solution is not necessarily a legally compliant one.

Before purchasing, it is worth comparing the actual situation with the data, plans and permitted use recorded in the building register. This is particularly important in the case of older buildings, detached houses and extensively renovated apartments. In some cases deficiencies can be rectified after the fact, but this may require a project, approvals, the consent of neighbours or construction works. In some cases, legalising the desired solution is not straightforward at all.

In the case of a detached house, the documents relating to the occupancy permit, building permit and technical systems should also be examined. If the property is being purchased with the intention of financing it through a bank loan, incomplete documentation may also affect the bank's decision. If the intention is to extend the building at a later stage, it is worth checking the relevant plans, building rights, access and any applicable nature conservation or restricted zones before the purchase.

The risk of latent defects is a separate matter. Moisture, mould, a leaking roof, inadequate ventilation, a problematic foundation or an outdated electrical system may not become apparent immediately upon inspection. The seller's liability depends, among other things, on what the seller knew or ought to have known, what was disclosed to the buyer and what was agreed in the contract. As a general rule, the buyer cannot rely on a defect that was known to them before the transaction or that was clearly apparent during a routine inspection.

It is therefore advisable to ask the seller in writing specific questions: whether there have been any water damage incidents, insurance claims, disputes with neighbours, heating system failures or construction works. Where necessary, an assessment by a construction specialist can help determine whether the risk is acceptable, whether the price should be adjusted or whether to withdraw from the purchase.

The apartment association may entail costs not shown in the listing

When purchasing an apartment, one is not buying only a living space. The owner becomes a member of the apartment association and participates in bearing the building's shared costs. It is therefore worth requesting, before making a decision, the apartment association's budget, the minutes of the most recent general meetings and information about any loans, arrears and planned works.

A building where the roof, façade or heating system will soon need to be replaced or renovated may, in the longer term, be a sound investment. However, the buyer must know what financial obligations lie ahead. The funds held in a repair reserve and the regular maintenance charge do not yet give a complete picture. What matters is whether a decision on the works has already been made, what the estimated cost is and whether the association intends to take out a loan.

It is also worth checking whether any arrears exist in relation to the apartment being sold. Depending on the law and the specific circumstances, obligations associated with apartment ownership may give rise to uncomfortable issues for the buyer even after the transfer of ownership. The contract should specify as precisely as possible which invoices the seller will pay, up to which date the seller is responsible for utility costs and how invoices arriving at a later date will be handled.

Promises relating to parking spaces also need to be verified. In some cases a parking space constitutes a separate ownership right attached to the apartment ownership, in others it is a matter of a usage arrangement and in others still merely an established practice. These situations are not legally equivalent. If a parking space or storage room is an important factor in the purchase decision, the legal basis for it must be clear before the transaction.

A preliminary agreement, reservation and payment of money require clear terms

The risk in a transaction does not arise only at the notary's office. A problem may begin with a reservation agreement or the payment of a deposit. The buyer often pays money so that the seller will not offer the property to others, yet the most important questions may remain open in the document: what happens if the bank does not grant a loan, if the valuation comes in lower than the purchase price or if a material defect comes to light during due diligence.

Before handing over any money, it is essential to understand whether the payment constitutes a booking fee, an advance payment, a deposit or a contractual penalty, and when and due to whose fault the money will be refunded or forfeited. The everyday use of a term does not yet determine its legal consequence. That is determined by the wording of the contract and the parties' actual agreement.

When purchasing with a loan, it is practical to make the purchase obligation conditional on obtaining financing, if the buyer does not have the means to pay for the property from their own resources. Such a condition may seem inconvenient to the seller, as it leaves the transaction open for a period. For the buyer, however, it may be a reasonable safeguard if the bank's decision is not yet available. The wording of the condition must be balanced: it should include a deadline, the buyer's obligation to engage actively with the bank and a clear consequence in the event that the loan is not obtained.

The notarial contract must also describe the practical handover

The notary certifies the real estate transaction and explains its legal content, but the notary does not carry out a full structural and technical inspection on the buyer's behalf, nor does the notary determine whether the purchase price reflects the condition of the property. For the protection of the buyer's interests, the contract must set out with sufficient precision what the seller is transferring and for what the seller is liable.

The contract should address at minimum the time of handover of possession, keys, remote controls, storage rooms, furniture, appliances, the recording of meter readings and the procedure for payment of the purchase price. If the seller is to temporarily remain in occupation of the living space after the transfer of ownership, a specific deadline must be established along with the consequence if the seller fails to vacate in time.

The seller's representations regarding the absence of defects, arrears and disputes are particularly valuable when they are specific. A general statement that the buyer has familiarised themselves with the condition of the property should not become a reason why important questions go unasked. At the same time, it must be borne in mind that overly broad or unrealistic representations may obstruct the transaction. A well-drafted contract distributes the risks in an intelligible manner and provides both parties with a clear course of action.

When is it worth seeking advice before signing?

Legal advice is particularly warranted where there are restrictions registered in the land register, where the seller is not the sole owner, where the building's documentation is unclear, where the purchase is into co-ownership, where the property is part of an estate or where the parties wish to enter into a preliminary agreement. Equally so where the seller wishes to use a document of their own drafting or where the buyer is required to pay a large sum before the notarial transaction.

Eurocity Law Office assists in assessing the documents and risks of a real estate transaction so that the client understands their options and the necessary agreements take the appropriate form. In some cases due diligence confirms that the transaction has been well prepared. In others it provides grounds to renegotiate the price, amend the terms or calmly withdraw from the purchase.

A sound real estate decision does not arise merely from the property feeling right. It arises when the documents, the actual condition, the financing and the handover arrangements all hold up at the same time.