Narva City Government has failed to make private partners adhere to right of superficies contracts

Toomas Mattson | 10/3/2012 | 11:00 AM

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TALLINN, 3 October 2012 - The National Audit Office audited Narva City, which has established a remarkably large number of rights of superficies in favour of private businesses. The National Audit Office assessed whether the city has monitored that developers perform the contractual obligations and investigated whether the city has taken the measures applicable in the event of failure to perform contracts pursuant to the city’s procedures, such as contractual penalties.

The National Audit Office found that Narva City has established 23 rights of superficies on municipal land from 2000-2010, but the intended buildings had been erected on only seven properties whereas the other plots of land are still empty. Although the contracts are correct and comply with the procedures established by the council, the City Government has not demanded that developers perform the contracts or demanded that the developers who are in breach of contract pay contractual penalties.

Narva City Government has adopted procedures that thoroughly regulate the establishment of rights of superficies, which leaves the city with no room to consider whether or not sanctions should be applied to developers who have ignored their obligations.The National Audit Office is of the opinion that failure to exercise supervision creates the risk that the establishment and sale of rights of superficies serve the business interests of contractual partners and cause significant damage to public interests.

The National Audit Office also found that whenever a developer who failed to perform its obligation wanted to dispose the right of superficies, the city agreed to this even in the cases where the developer even failed to submit the draft detailed plan that is the basis for construction works. The city has thereby allowed private partners who have not invested anything into the land to earn considerable income from the disposals. For example, a company that obtained the right to build on several properties earned more than 50,000 euros from the disposal despite its failure to adhere to a single contractual obligation in years. The right of superficies had been disposed of in 12 cases in total. There were 14 disposal transactions and a fee was charges in nine of these.

The city’s representatives explained that the city’s main interest was to find developers able to develop any economic activities on the properties. The developer was free to decide on the specific direction on the basis of its own interests. Also, the city has no objections if developers changed their activity directions after signing the right of superficies contracts, even though this in contravention to the procedures established by the city.

The National Audit Office is of the opinion that such contracts should have been terminated and the city should have organised a competition to find new developers.The National Audit Office finds that the internal control system of Narva City is not working despite the thorough procedures that regulate supervision of the performance of right of superficies contracts. The documents relating to the amendment and termination of right of superficies contracts, which were analysed in the audit and which are in contravention to procedures, had been approved by all necessary agencies of the city (incl. the City Assets and Economy Board and the City Assets Committee of the City Government) without any major problems.

Toomas Mattson
Head of Communication Service
National Audit Office
[email protected]

  • Posted: 10/3/2012 11:00 AM
  • Last Update: 11/10/2015 5:32 PM
  • Last Review: 11/10/2015 5:32 PM

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