On April 1 2012 amendments to the Federal Law on the Enactment of the Land Code(1) came into force. Among other things, they give the local authorities of Moscow and Saint Petersburg a right of unilateral termination in respect of leases concluded before January 1 2011.(2) The authorities may exercise this right in the event of a substantial breach of the conditions of the lease or a substantial change in the circumstances on which the conclusion of the lease agreement was based.
For the purposes of the amendment, a 'substantial breach of lease conditions' includes:
- failure to construct or rebuild a property within a reasonable time as stipulated in the lease agreement or, if the agreement includes no such term, within a reasonable period for which a construction permit was issued if the property is less than 40% complete on the last day of this period; and
- failure to obtain a construction permit for the property within five years of conclusion of the lease agreement (if the term for the completion of the property's construction or renovation is stipulated in the agreement).
A substantial change of circumstances is deemed to occur in the event of cancellation of another agreement signed with the state or local authorities and providing for the construction or renovation of the property (eg, an investment agreement).
Similar changes were made in February 2012 to the Federal Law on Investment Activity,(3) introducing a right of unilateral termination in respect of investment agreements that provide for the construction or renovation of property on land under state or municipal ownership in Moscow or Saint Petersburg.
The changes to both laws pose a serious risk to the status of vacant land and properties under development that are left unfinished.
For further information on this topic please contact Arsen Ayupov at Noerr by telephone (+7 495 799 56 96), fax (+7 495 799 56 97) or email ([email protected]).