Important to Know: Can the Obligation to Construct Public Infrastructure Come with Property Purchase?
Administrative agreements related to detailed planning help municipalities direct the costs of public infrastructure construction, often to developers. In practice, however, this can lead to complicated disputes over who actually fulfills the obligations. So in addition to large developments, an ordinary home buyer can also find themselves in a situation where, before obtaining a building permit, they are required to construct, at their own expense, for example an illuminated access road. How to act in such situations is explained by lawyers Elvi Tuisk and Villy Lopman from the law firm RASK.
Today it is common that when a developer wants to start a larger or smaller development, the local municipality tries to avoid its own costs and begins negotiating the terms of an administrative agreement for cost-sharing during the detailed planning process.
With an administrative agreement, the developer can be obligated to construct public infrastructure related to the planning or bear the costs of its construction. On one hand, this seems to be a fair solution for all parties – the developer gets the right to build, for example, a new residential district, and the municipality gets new cycle paths or a kindergarten without bearing the costs themselves. On the other hand, it can happen that the developer is given too large obligations or it remains unclear who actually has to bear the costs.
The situation is simple if everything proceeds as planned: the parties sign an administrative agreement, the detailed plan is adopted, the property owner constructs the public infrastructure, and then realizes their development plans. However, matters become more complicated when the property owner who signed the administrative agreement sells the property after the detailed plan is adopted but before the infrastructure is constructed. Then the question arises of who is obligated to construct the public infrastructure – the new owner, the former owner, or indeed the local municipality.
Such confusions do not affect only large developments but can also affect a completely ordinary home buyer. For example, consider a typical case where a family purchases a plot of land with a valid detailed plan for building a home. Unexpectedly, the local municipality refuses to issue a building permit until the family, at their own expense, has constructed an asphalt and illuminated access road in place of the existing gravel road, which is necessary to serve a larger planning area. This is a significant additional expense that the family could not have anticipated at the time of purchase. The municipality, however, refers to the detailed plan, according to which the access road must be constructed, and to the administrative agreement by which the previous owner of the property was obligated to do so.
Must a good-faith family in such a situation construct the asphalt road at their own expense?
The answer is no. An administrative agreement is like any other contract – obligations can only be imposed on the parties who signed the contract. If the previous owner undertook to construct the road, this obligation does not automatically transfer to the new owner.
Who then must construct the road?
According to the law, the local municipality has the obligation to construct at its own expense the roads provided for in the detailed plan for public use and the facilities associated with them. The municipality can only transfer this obligation to a person with whom it has signed an administrative agreement. Even in this case, the municipality must ensure that the road is actually completed. To do this, it has two options: demand that the former owner fulfill the obligation arising from the administrative agreement, or construct the road itself and then present a claim for damages to the former owner.
The situation becomes complicated if the former owner is, for example, a legal entity that goes bankrupt and ceases operations after selling the property. In such a case, the obligation to construct the public infrastructure provided for in the detailed plan remains with the local municipality.
Can the local municipality fail to fulfill such an obligation?
On one hand, it should be taken into account that the detailed plan does indeed determine the maximum building rights, but this does not exclude construction on a smaller scale. On the other hand, the municipality must, if the plan is being implemented, ensure that the solutions provided for in the plan are implemented in full. In other words, the municipality can postpone fulfilling the obligation until a person has emerged whose interests the obligation is meant to protect. For example, if the municipality is left with the obligation to construct sewerage to the boundaries of residential plots defined in the detailed plan, it can postpone this until someone begins development activities on the respective plots. However, once residential construction begins, the municipality must construct the sewerage, as it is intended to serve the properties. Interested parties, in turn, have the right to demand that the municipality fulfill its obligation.
How can a good-faith buyer protect themselves?
Legally, the buyer has no reason to worry – obligations set out in an administrative agreement signed by someone else cannot be transferred to them without their informed consent. In practice, however, confusion can still make building a new home difficult and lead to years of litigation with the local municipality if the latter tries to demand alleged obligations from the buyer.
Even if the dispute ends in the buyer's favor, it means years of an unpleasant process. To avoid such situations, before purchasing a property, a thorough property analysis should be conducted: familiarize yourself with the detailed planning materials, check the administrative agreements associated with it, and if necessary, ask the municipality even before the purchase whether and under what conditions it is willing to issue a building permit.
How can the buyer act if problems have already occurred?
If after purchasing the property it becomes clear that the local municipality refuses to issue a building permit before the obligations set out in an administrative agreement signed by someone else are fulfilled, one should first try to resolve the situation out of court. The municipality should be explained that there is no legal basis for making such a demand. In such disputes, advisors specializing in administrative law are also a great help, as they can help avoid long and exhausting legal proceedings.
