The Supreme Court has ruled that when planning a new residential area, it is permissible to require a property developer to fund the creation of new kindergarten places. This applies especially in cases where doing so would otherwise be beyond the financial means of the city or municipality.
For several years, there has been debate over whether a city or municipality can require a developer to provide funding for services such as new kindergarten places when planning to build new housing in a given area. And it’s not just about kindergartens — social infrastructure also includes schools, libraries, sports facilities and other buildings needed to provide public services to people moving into a new neighborhood.
On one hand, an influx of residents creates additional costs for the city or municipality. On the other, there is concern that local governments might abuse the right to demand financial contributions from developers.
The Supreme Court has now ruled that a municipality may request such funding from a developer if covering these costs would be beyond its financial capacity.
“In the case of individual homes or very small developments, it will likely be difficult for a municipality to demonstrate that the cost burden is too much. That’s why we emphasized that this possibility applies primarily to larger developments where there is a sudden increase in population. The municipality must clearly demonstrate a causal link — that the new development directly creates a need for additional spending, such as extra kindergarten or school places,” said Supreme Court Justice Ivo Pilving.
The Supreme Court also ruled that in certain cases, a city or municipality may refuse to approve a new residential zoning plan — for example, if the existing social infrastructure is already overloaded and the municipality is unable to provide public services to the large number of new residents.
According to the court, a developer can only be required to make a reasonable contribution. This means the city or municipality may request only a fair share, calculated in a transparent, understandable and verifiable manner.
Pilving added that lawmakers should clarify the current mechanism for collecting such contributions.
“This kind of vague legal framework, where there are no clear limits on what can be asked, could lead to negative consequences like unequal treatment or restrictions on the freedom to conduct business. A better solution going forward would be to establish maximum contribution levels and a more precise framework. For instance, if a kindergarten needs to be built as a result of multiple development projects happening at different times, it can create a great deal of confusion,” Pilving noted.
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