Russia: Real estate legal update

December 03 – January 2004

Federal legislation

Compulsory re-registration of land rights acquired prior to the enactment of the Land Code

As a general rule, the Land Code of the Russian Federation applies only to transactions occurring after its enactment. However, pre-existing ownership rights that are inconsistent with the provisions of the Land Code must now be re-registered. So, for example, a legal entity/individual that acquired a permanent right to use a plot of land before the enactment of the Land Code is now required to either re-register its/his rights as a lease or to purchase the right of ownership to this land. Similarly, where a building (or other item of immovable property) has been acquired, the land underneath that structure or which is necessary for its use and which had previously been granted on the basis of a permanent right of use should be either re-registered as a lease or the land acquired outright. The deadline for re-registration was originally set as 1 January 2004. Federal Law No. 16-FZ of 8 December 2003 has now, however, extended this deadline to 1 January 2006.

Unless and until land plots to which an earlier registered right of permanent use is attached are re-registered, further dealings with that land will not be permitted. (Note, however, that state and municipal institutions, federal state-owned enterprises, governmental and local government bodies are not required to re-register their permanent rights to use land plots). In particular, note that it is no longer permissible for a permanent right to use land to be contributed to the charter capital of a company.

Anyone entering into any transactions involving land should carry out due diligence on the title and registration documents of the land concerned. If the land is not owned or held on an appropriate lease by the counter-party, then re-registration of the land use rights should be made a condition precedent to completing the transaction. This is of particular importance in the context of secured financings where part of the security package to be taken by the lender consists of a mortgage over immovable property.

City of Moscow legislation

Disposition of state-owned land in the City of Moscow

In Russia, land belonging to the State is variously owned by the Federation, the Regions and the Cities and may be disposed of by the appropriate authorised body: for example, the Federal Government, the Regional Executive or the City Mayor. Demarcation disputes between the authorities are not uncommon and there is a need to introduce procedures by which land will be allocated between the respective authorities. Moscow City Government Resolution No. 961-PP of 18 November 2003 «On the provision of ownership rights to citizens of land plots in the territory of the City of Moscow» provides that decisions to grant ownership rights to state-owned land in the City of Moscow can only be made by the Moscow City Government or by prefects of the administrative regions, and only further to consultations with, and the approval of, a special city commission.

Moscow City Government Resolution No. 1014-pp of 2 December 2003 has been passed to increase the efficient use of non-residential real estate in investment activities carried out by the Moscow City Government. The Resolution establishes a standard investment contract to be used when constructing non-residential buildings and a form for reporting on the progress of investment projects. It also provides that tenders for investment contracts to construct non-residential real estate must now include the condition that a share of the completed premises will be allocated to the city.

Moscow City Government Resolution No. 1017-pp provides that, with effect from 1 January 2004, the fee for registering rights to real estate in the City of Moscow will be increased. The new maximum fee will be 7,500 roubles for legal entities and 490 roubles for individuals.

Moscow City Law No. 73 of 3 December 2003 provides that any amount paid by a citizen for his/her residential premises will, regardless of such individual's tenure, include payment for the: (i) maintenance and repair of the building's common areas/technical and engineering systems; (ii) maintenance of the territory surrounding the building; and (iii) utilities payments.

Moscow City Government Decree dated 20 January 2004 sets new favourable conditions on the renewal of ground lease agreements by enterprises carrying out production in Moscow. i.e., when a production enterprise renews its land lease agreement, it is now entitled to pay less for the lease of land which it uses directly for production purposes.

If you require any further information please contact Steven Shone at: [email protected].