Our traditional overview of the most important changes that have occurred in the third quarter of 2016 in Russian real estate legislation
Amendments to federal laws
Changes to the RF Town-Planning Code
In the summer of 2016, roughly a dozen federal laws were adopted to amend the RF Town-Planning Code (RF TPC).1 The main changes of significance to developers include the following:
- Establishment of an exhaustive list of cases requiring the development of territorial planning designs and territorial site designs (hereinafter – “TPD/TSD”), such as, inter alia, cases necessitating the establishment/modification/lifting of red lines,2 and cases involving the formation of a land plot within the boundaries of a previously-built-up area, micro-neighborhood, etc. In most instances, this applies to residential developments. The amendments enter into force on 1 July 2017.
- Establishment of the validity period of land plot urban-development plans (hereinafter – “LPUDP”): a building permit (hereinafter – “BP”) may be obtained within a period of three years from the date of issuance of the respective LPUDP. LPUDP issued prior to 1 January 2017 remain effective throughout the period established by the corresponding RF constituent entity, which may not be less than three or more than eight years after 1 January 2017. As of the date of this Alert, the validity period for St. Petersburg had not been established. The amendments enter into force on 1 January 2017.
- After 1 January 2017, the BP confirms the conformance of design documentation to town-planning regulations and TPD/TSD (where their development is required) as of the date of LPUDP issuance, just as it affirms the permissibility of locating the anticipated structure on the land plot in accordance with the permitted use of that land plot and any restrictions established in connection therewith pursuant to land and other legislation.
After 1 January 2017, the commissioning permit for a structure will certify the structure’s conformance to the BP, design documentation, town-planning regulations, TPD/TSD, permitted use of the land plot, and any restrictions established pursuant to land and other legislation as of the date of LPUDP issuance.
As concerns the last point (conformance to any restrictions established pursuant to land and other legislation), it is important to note that this particular wording is needlessly vague. In this connection, we cannot exclude the possibility that developers could potentially face additional requirements in obtaining the BP / commissioning permit for a structure under the new rules.
- As of 1 January 2017, parking spots in buildings (even if they are simply marked off) are assigned the status of independent real estate properties, and as such, they can be the subject matter of civil transactions (sale-purchase, lease, mortgage, etc.). Parking spots are subject to cadastral registration, and ownership rights to parking spots (title) are registered to the proper titleholder according to the usual procedure.
- 1 January 2017 will see the introduction of a new mechanism for interaction between the local government authorities and developers—agreements on integrated territorial development (hereinafter – “ITD”). The ITD is intended for implementation on large territories. The conclusion of an ITD agreement is possible with respect to land plots held in both public and private ownership (including land plots held in joint ownership; that said, a separate contract must be concluded between any such private owners governing their relations for ITD implementation). The ITD allows both for the allocation of publicly-owned land plots for the construction of infrastructure without benefit of tender, as well as for the provision of specific measures of state support to developers. The ITD is possible on the basis of public and private initiative alike. At the same time, it is important to note the existence of certain characteristics that may make ITDs less attractive to developers. In particular, a local government authority will be entitled to repudiate ITD if there aren’t enough funds to build the infrastructure envisioned by the ITD. It would seem that the “gaps” in the ITD mechanism could be closed by local legislation and/or the practice of applying the respective norms.
- As of 1 July 2017, an organization will be entitled to perform work affecting the safety of capital structures without the respective clearances from the concerned self-regulating organizations, if the amount of contractual obligations does not exceed three million rubles.
- Starting on 1 January 2017, according to a general rule, liability for any harm caused in the event of the destruction / damage of structures under construction will be borne directly by the developer (at present, this liability can be “shifted” to the technical customer where this possibility is envisioned by the respective agreement with the technical customer).
Other changes to the RF TPC introduce the concept of repeat-use design documentation (design documentation that has received a positive expert-appraisal conclusion and can therefore be used in the development of design documentation for the construction of similarly-purposed and rated facilities), and also envision the introduction of a public register of design-documentation expert-appraisal conclusions (the amendments entered into force on 1 September 2016).
Amendments to legislation on the turnover of agricultural land
Federal Law No. 354-FZ dated 3 July 2016 “On Amendments to Certain RF Legislative Acts Concerning Improvement of the Procedure for the Expropriation of Land Plots from Agricultural Land Due to Non-Use According to Designated Purpose or Use in Violation of RF Law”
The aim of the adopted amendments, which entered into effect on 4 July 2016 (aside from individual provisions entering into effect on 1 January 2017), is to bring idle agricultural land into turnover, as well as to improve the procedure for the expropriation of such land when it is used inappropriately.
The law establishes that, from now on, land plots classified as agricultural land located within the boundaries of rural settlements and/or at a distance of no more than 30 km from the boundaries of rural population centers cannot be used for purposes unrelated to agricultural pursuits.
Pursuant to the amendments, an agriculturally purposed land plot can be expropriated from its owner in judicial proceedings in the event that:
- the land plot is being used in violation of the requirements established by applicable legislation, resulting in a significant reduction of soil fertility or causing environmental damage;
- for three or more consecutive years (including the period of plot development) from the moment of discovery of the respective violation, the land plot is not used for agricultural pursuits or other activity associated with agricultural production.
There are some exceptions to the aforementioned rules: not subject to expropriation are land plots encumbered by mortgage, as well as land plots whose owner is the subject of court-ordered bankruptcy proceedings.
Moreover, the law augments the RF Administrative Offences Code (RF AOC) with provisions establishing the administrative liability of legal entities for the non-use of agricultural land according to its designated purpose for one year – up to 6% of cadastral value, but no less than RUB 100,000.
Federal Law No. 336-FZ dated 3 July 2016 “On Amendments to the RF Land Code and Article 10 of the Federal Law ‘On the Turnover of Agricultural Land’”
In furtherance of the provisions of Law No. 354-FZ, this law clarifies the right of a lessee to buy out a land plot allocated for agricultural production without benefit of tender, provided the competent authority has no information on discovered and uncorrected violations in the use of the respective land plot.
This right arises on the part of the lessee upon the expiration of three years from the conclusion of the respective lease agreement or transfer of rights and obligations under the lease agreement to the lessee.
Furthermore, in these circumstances, the conclusion of a lease agreement for the land plot with the previous lessee is also permitted without benefit of tender.
The law entered into force on 15 July 2016.
Federal Law No. 237-FZ dated 3 July 2016 “On State Cadastral Valuation”
Lawmakers have made yet another attempt to streamline relations in the area of state cadastral valuation (hereinafter – “SCV”) for the purposes of calculating the tax base.
From now on, determining cadastral value will be the responsibility not of private appraisers selected on the basis of competitive tender (pursuant to applicable legislation), but of special budgetary institutions created by RF constituent entities.
These institutions will also be responsible for making restitution for any damages caused as a result of the determination of cadastral value; that said, the respective RF constituent entity will bear subsidiary liability for the obligation to make such restitution. The law envisions an oversight function on the part of Rosreestr in terms of cadastral valuation activities.
The law envisions the overall frequency of SCV: not more than once every three years (in cities of federal importance—not more than once every two years) and not less than once every five years. Pursuant to the provisions of the law, the performance of an unscheduled SCV is possible in the event of a price-index decline on the real estate market in the respective RF constituent entity by thirty percent or more since the date of the last SCV.
The results of cadastral-value determination can be challenged at the commission on the consideration of disputes involving the results of cadastral-value determination—in the event that such a commission has been created in the respective RF constituent entity3 — or in court. Seeking recourse to a court no longer requires preliminary filing with the commission (with the exception of challenges to the results of SCV conducted prior to 1 January 2017), which changes the current appeal procedure and could lead to a dramatic increase in the existing case load.
The law enters into force on 1 January 2017, with the exception of individual provisions.
Federal Law No. 360-FZ dated 3 July 2016 “On the Amendment of Certain Legislative Acts of the Russian Federation”
The law entered into force on 15 July 2016 and envisions that title to real estate property can only be confirmed by the respective excerpt from the Unified State Register of Real Estate Rights and Transactions (EGRP).
Federal Law No. 332-FZ dated 3 July 2016 “On the Amendment of Articles 188 and 189, Part One of the RF Civil Code and RF Framework Legislation on the Notary Public”
The law entered into force on 4 July 2016, with the exception of certain provisions. The law clarifies that powers of attorney are to be rescinded in the same form in which they were originally issued, or in notarial form.
As of 1 January 2017, information on the rescinding of a power of attorney executed in notarial form is entered by the notary public in the register of notarial actions, which is administered electronically. That said, third parties are considered to have been notified of the notarial rescinding of a power of attorney as of the day following the entry of information to that effect in the register of notarial actions.
After 1 January 2017, information on the rescinding of a power of attorney executed in simple written form can be published in the official publication in which bankruptcy information is released.4 Third parties are considered to have been notified of the rescinding of a power of attorney upon the expiration of one month from the date of publication of the respective information.
As of 1 January 2017, it will be possible—around the clock and free of charge—to ascertain online, among other things, who witnessed a power of attorney and when, and to find out its registration number (today, access is only available to information on powers of attorney that have been rescinded).
Federal Law No. 315-FZ dated 3 July 2016 “On the Amendment of Part One of the RF Civil Code and Certain RF Legislative Acts”
Starting on 1 January 2017, owners of real estate properties with more than 20 individual owners will be able, instead of a written notice, to post an announcement on the Rosreestr website on the sale of a share in the property to a third party. An exception to this rule is provided by instances involving the sale of a share in a dwelling. Now, shareholders in common property must be notified by mail or via notary public.
As of 1 August 2016, the interest rate under financial obligations (Arts. 317.1 and 395 of the RF Civil Code) is determined by the key rate of the Bank of Russia (instead of the refinancing rate previously used).
Order of the Ministry of Economic Development of Russia No. 291 dated 10 May 2016 “On the Setting of Fees for Provision of the Information Contained in the Unified State Register of Real Estate”
The order sets the fees for the provision of information from the Unified State Register of Real Estate (EGRN), which enter into force starting 1 January 2017.
The amounts of fees for provision of the information contained in the EGRN are differentiated, inter alia, by the form in which such information is provided (in the form of a paper document or in the form of an electronic document). For legal entities, an excerpt from the EGRN on a real estate property in the form of a paper document costs RUB 2,200, in the form of an electronic document – RUB 600.
Order of the Ministry of Construction of Russia No. 400/pr dated 6 June 2016 “On Affirmation of the Form of a Land-Plot Urban-Development Plan” (registered with the Ministry of Justice of Russia under No. 42935 on 21 July 2016)
The new form of the LPUDP affirmed by the order has been in use since 2 August 2016. The LPUDP continues to reflect a diagram of the plan, information on applicable town-planning regulations or the requirements to the designated purpose, parameters and positioning of the capital structure, information on capital structures and cultural heritage sites located within the boundaries of the land plot, and information on the division of the plot.
Additionally reflected is information on the technical specifications of the hook-up (technological connection) of capital structures to utility networks and engineering systems.
Following the entry into force of the RF TPC amendments concerning the LPUDP mentioned above, amendments are also expected to be made to the LPUDP form affirmed by the order.
RF Ministry of Finance Letter No. 03-03-R3/39299 dated 5 July 2016
The RF Ministry of Finance has affirmed that the costs incurred by developers in the construction of engineering infrastructure facilities in the implementation of residential projects satisfy the requirements of Article 252 of the RF Tax Code and may be counted among costs reducing taxable earnings.
That said, the list of the infrastructure facilities must envision design documentation, as well as the technical specifications of hook-up to utility networks or the approved documentation for site planning.
The letter also clarifies the accounting procedure for the costs, depending on the specific activities of the developer.
RF Governmental Resolution No. 806 dated 17 August 2016 “On Taking a Risk-Based Approach in the Organization of Certain Types of State Control (Oversight) and Amendment of Certain Acts of the RF Government”
In 2015, Federal Law No. 294-FZ dated 26 December 2008 “On Protecting the Interests of Legal Entities…”5 was amended to introduce a risk-based approach in the exercise of certain types of state control.6
The Resolution establishes that the types of state control (oversight) to be exercised under a risk-based approach include fire-safety oversight, sanitary-and-epidemiological oversight, and communications oversight.
The Resolution affirms the rules governing the assignment of the activities of legal entities and/or the production facilities operated by them (hereinafter – “Controlled Assets”) to a certain category of risk or certain class (category) of hazard. The criteria for assigning Controlled Assets to a certain risk category / hazard class are established by the Regulations governing each type of state control. Among other things, depending on risk category / hazard class, the frequency of regular inspections is established. For instance, regular inspections are not conducted for controlled assets assigned to a low risk category (hazard class 6).
The Resolution entered into force on 3 September 2016.
RF Governmental Resolution No. 760 dated 9 August 2016 “On the Procedure for the Adoption of a Conclusion as to the Possibility or Impossibility of Transferring the Property and Obligations of a Developer to a Party Intending to Become the Acquirer”
The Resolution determines the grounds for the adoption by the Ministry of Construction of Russia of a conclusion as to the possible transfer of the property and obligations of a developer facing the introduction of bankruptcy proceedings to another party. In particular, these grounds include:
- satisfaction of the requirements of Art. 3 of Federal Law No. 214-FZ dated 30 December 20047;
- availability of funds and resources sufficient to finish construction of the property being transferred;
- lack of tax arrears and/or unpaid levies;
- lack of undischarged (more than nine months overdue) obligations for other construction properties.
Amendments to the laws of St. Petersburg and Leningrad Region
Law of St. Petersburg No. 437-83 dated 7 July 2016 “On Amendment of the St. Petersburg Law ‘On the Boundaries of Protection Zones for Cultural Heritage Sites in St. Petersburg and Regulations for Using Land Within the Boundaries of Said Zones’ and Amendment of the St. Petersburg Law ‘On the General Plan of St. Petersburg and the Boundaries of Protection Zones for Cultural Heritage Sites in St. Petersburg’”
The law enters into force on 15 January 2017 and constitutes an updated version of Law of St. Petersburg No. 820-7 dated 24 December 2008.
The law affirms new categories of combined protection zones for cultural heritage sites in St. Petersburg. The law contains a map of the boundaries of such protection zones, a map of height regulations, and the general requirements governing the town-planning regulations for the respective protection zones. The specific requirements to town-planning regulations are subject to elaboration and approval as part of the land use and development rules (hereinafter – “LUDR”).
With respect to the requirements governing town-planning activity on land plots within the boundaries of protection zones, the law prevails over LUDR.
Pursuant to the law, its restrictions will not be applicable to land plots for which building permits are obtained by 15 January 2017.
Resolution of the Government of St. Petersburg No. 706 dated 22 August 2016 “On Creation of the State Information System of St. Petersburg ‘Integrated System of the St. Petersburg Construction Complex’”
It is planned that the Integrated System of the St. Petersburg Construction Complex (hereinafter – the “System”) will contain information on all processes associated with the construction industry, and will also allow developers to obtain the necessary construction permits in electronic form.
Resolution of the Government of St. Petersburg No. 795 dated 14 September 2016 “On the Drafting of the St. Petersburg Bill ‘On Amendment of the Law of St. Petersburg “On the St. Petersburg General Plan”’”
Pursuant to the Resolution, the bill on amendment of the General Plan must be drafted by the Committee for City Planning and Architecture (KGA) by 1 September 2018.
Instruction No. 9-n of the Committee for City Planning and Architecture at the Government of St. Petersburg dated 27 September 2016 “On Affirmation of the Administrative Regulation of the Committee for City Planning and Architecture on the Provision of State Services in the Rendering of Decisions on Approval of the Architectural-Planning Appearance of a Residential Construction Property”
As you may recall, 18 January 2016 saw the entry into force of a St. Petersburg law8envisioning the need to obtain a decision on approval of the architectural-planning appearance of a residential construction property prior to approval of the corresponding LPUDP.
The instruction, which entered into force on 8 October 2016, affirmed the administrative regulation governing the approval of a property’s architectural-planning appearance, the form of the approval statement, the forms of conclusions on the approval of deviations, and a list of materials to be submitted for approval.
Judicial Review of the RF Supreme Court No. 2 (2016) (affirmed by the Presidium of the RF Supreme Court on 6 July 2016)
The RF Supreme Court has affirmed its Judicial Review No. 2, containing, inter alia, the following conclusions:
- Structures and installations built closer to gas-supply facilities than the minimum distances established by applicable construction rules and regulations are subject to demolition irrespective of the insignificance of the infraction against minimum-permissible distances.
- Title to an unauthorized structure cannot be recognized on the part of anyone whose reconstruction efforts result in the creation of a new structure, where said structure was erected in material breach of applicable town-planning/ construction rules and regulations and poses a threat to public health and safety.
- In the event that a facility is created solely for the purposes of improving the quality and maintenance of a land plot and has no independent functional purpose (such as a rice-engineering system facility), it constitutes an integral part of that land plot and may not be recognized as a real estate property. The right to file claims seeking recognition of the non-existence of separate title to such a facility is held, inter alia, by the land plot’s lessee.
RF Supreme Court Determination No. 308-ES16-4658 dated 15 August 2016 in Case No. А53-2012/2015
In this case, a third party had made a partial (small) payment toward discharging the arrears of a debtor, thereby lowering its debt load below the minimum threshold established by applicable law for the initiation of bankruptcy proceedings against the debtor. According to the position taken by the RF Supreme Court, a third party’s discharge of creditors’ claims on behalf of a debtor may be treated as an abuse of privilege in the event that the actions of said third party are aimed not at the discharge of debt but at depriving a creditor of the status of claimant under bankruptcy proceedings.
St. Petersburg case law on the imposition of administrative sanctions for the use of a land plot for reasons other than designated purpose
Decision by the Arbitration Court of St. Petersburg and Leningrad Region dated 5 August 2016 in Case No. А56-24853/2016
Rosreestr had fined LSR Real Estate-Northwest LLC for the non-purpose use of a land plot that had been designated “for agricultural use” but was actually being used to accommodate a parking lot and a garage/warehouse. The court rescinded the fining ruling, noting that the land plot in question was located within a territorial zone where, pursuant to applicable town-planning regulations, one of its permitted uses was the accommodation of garages and parking lots. The court explained that the existence in the cadaster of information on the permitted use of a land plot does not prevent the plot from being used for any type of permitted use envisioned by applicable town-planning regulations.
Decision by the Arbitration Court of St. Petersburg and Leningrad Region dated 25 August 2016 in Case No. А56-30630/2016
In a similar case, the court rejected the claimant’s demand challenging a ruling by Rosreestr to impose administrative fine when a land plot with a permitted use of “for the accommodation of industrial facilities” was actually used to accommodate a business center. The court indicated that, on the one hand, the landowner has the right to choose and modify the permitted use of a land plot, while on the other this concerns the public interest, insofar as the type of permitted use indicated in the cadaster determines the cadastral value of a land plot used in the calculation of land tax.
In light of the cases mentioned above, we recommend that owners of land plots promptly make the necessary changes to cadaster information on the permitted use of the concerned land plots, bringing it into conformity with their actual use.