To date, a large proportion of land in Russia owned by the state (that is, public land) remains undeveloped and the state authorities are interested in bringing in private investors to develop it. To this end, a real effort is being made to improve land and town planning legislation to make the construction process easier for private developers.
Important recent amendments to the law in this area have been made with the aim, among other things, of simplifying the public land allocation procedure for commercial construction purposes.
These changes take effect from 1 March 2015, and this article examines the amendments and their impact.
New public land allocation procedure
Current land legislation provides for two different procedures for allocating public land to interested parties depending on the purposes of the land use: (i) for construction; or (ii) for purposes which are not connected with construction. Public land may be allocated for construction purposes through: (i) a tender; or (ii) “the prior approval of the property location” procedure.
The current regulation of the public land allocation procedure for construction purposes is rather ambiguous and may be interpreted in different ways. In addition, it is not entirely clear when a tender is required and when the prior approval of the property location procedure may be applied.
Such uncertainty may lead to the disastrous situation of immovable property, which has been constructed in compliance with established requirements on a plot of public land allocated in accordance with the prior approval of the property location procedure, being deemed to be illegal and subject to a demolition order.
Under the new regulations, public land should be allocated through a tender in the form of a public auction regardless of its intended use (for construction or other purposes). In addition, public land designated for commercial construction may be allocated to interested parties on a lease basis only and it cannot be privatized until after construction is completed.
There are some exceptional cases, strictly limited by law, when public land may be allocated for a construction lease without a tender. Such exceptions, among other things, include the following cases when rights to plots of public land are granted:
- on the basis of a decree of the Russian president;
- on the basis of a decree of the Russian Government regarding the placement of property for social or cultural needs, or regarding the implementation of major investment projects which meet criteria established by the Russian Government in a separate Act (to date, no Act has yet been adopted);
- in order to fulfil the international obligations of the Russian Federation, etc.
The law does not stipulate a specific term for lease agreements affecting public land. Under the new amendments, different terms may apply, depending on the type of property to be constructed. For example, in the case of the development of buildings or facilities, the lease term may vary from three to ten years, while leases on land where infrastructure is being constructed may last for a term of up to 49 years.
In addition, if the construction process is not completed within the term of the lease agreement, the courts may order the unfinished construction project to cease and that the land be sold by public tender.
Another important change is that every interested party is entitled to initiate an auction in relation to the specific plot of land. This is a step towards establishing the developers’ right to choose plots of land for construction on an independent basis without relying on the local authorities’ discretion.
An additional advantage claimed for the new procedure is the reduction of allocation terms to between two and three months in comparison to the three-year term employed under the current procedure.
Use of public land without a lease
Another important amendment is that, from 1 March 2015, public land may be used for certain purposes without the need to obtain a lease or easement right. This use will be allowed subject to a permit from the competent state/ municipal authority and only if the intended use of the plot of land is one of the following:
- conducting engineering surveys or exploration;
- carrying out capital or current repair of infrastructure (for example, pipelines, high voltage electricity lines, etc.) or the reconstruction of federal, regional or local infrastructure;
- constructing temporary or support facilities or storing construction materials or construction equipment;
- placing temporary retail facilities and advertising structures, etc.
Complex development of public land
The amendments also affect existing regulation of land marked out for complex development, with the aim of creating an integrated approach to construction on public land. In general, the concept of complex development covers a set of actions performed by a private developer with the support of local authorities aimed at reclaiming a large amount of undeveloped public land (see Oksana Derevyanko, “Issues Relating to Complex Development Projects Under Russian Law” Real Estate Gazette (Issue 18, 2014) page 33 (hard copy) or page 58 (soft copy) for more on complex development projects in Russia).
Such development generally includes: (i) preparation of the development concept (for example, construction of an industrial site with production facilities, residential buildings for its employees, etc); (ii) development of town planning documentation; (iii) formation of separate land plots, and (iv) construction of immovable properties on the newly formed land plots together with the infrastructure facilities necessary for their operation (roads, driveways, utilities, etc.). As a result, after construction is complete, the developed land should be fully provided with all facilities necessary for its operation; this is in contrast to high-rise development when a separate building is constructed near other facilities on already developed land.
Under the current land legislation, complex development is only applicable to the implementation of residential development projects. From 1 March 2015 the construction of manufacturing sites or logistics parks or indeed any other property will also be possible under the complex development procedure.
Potential impact of the amendments
The adoption of the amendments described above is aimed, first and foremost, at making the public land allocation procedure simpler, more efficient and clearer for all those involved in the development of land. However, the amendments do not contain regulations affecting or clarifications on all issues connected with the new procedure, and it may be anticipated that the implementation of the procedure will face a number of practical problems which will have to be resolved, in order for it to work.