On 30 December 2012, some amendments were adopted in relation to registration of rights to property, as part of the Federal Law “On Amending Headings 1, 2, 3 and 4 of Part 1 of the Russian Civil Code” (the “Law”).
The new rules are of general application and relate not only to the registration of rights to immovable property, but also to any other property rights which, in accordance with the law, are subject to state registration.
During the first months of its entry into force (effective from 1 March 2013), some uncertainties in the Law may complicate the process for concluding immovable property lease agreements.
For this reason, we recommend:
- monitoring closely any changes and clarifications on the subject from the competent authorities (we will keep you informed about any relevant clarifications and comments); and
- if you are involved in any on-going projects involving the long-term lease of immovable property, it may be preferable (whenever possible) to conclude the lease agreement(-s) and file the documents for registration within time frames allowing for registration of the lease agreement(-s) prior to 1 March 2013.
Registration of lease rights on immovable property
The Law repeals the requirement to register agreements relating to immovable property (including immovable property leases). This actually creates some legal uncertainties regarding the need for state registration of lease rights.
A number of questions remain open, e.g.:
- whether it is required to register the lease as an encumbrance over the immovable property; and
- if registration is mandatory, whether any type of leases (i.e. long-term, short-term lease and lease for an indefinite term) or only long-term leases are subject to registration.
Because the Law was adopted only recently (30 December 2012), there are still no court practice or clarifications from the authority conducting state registration of rights to immovable property (currently, the Federal Service for State Registration, Cadastre and Cartography) (the “Russian State Registrar”).
These changes do not seem to apply to land leases or, at least, this is not expressly set forth in the Law. In this respect, the registration rules set out in the Land Code of the Russian Federation have not been repealed. In all events, the rule stipulating that a land lease made for a period of less than one year is not subject to state registration continues to apply.
In addition to the above, the Law also introduces a number of innovations.
The following principles of state registration of property rights have been introduced: (a) the principle of verifying the legality of grounds for registration and (b) the principle of publicity and reliability of the information entered into the state register (the "Register"). The principle of publicity and reliability means that any bona fide person may rely on any record made in the Register. In this regard, it is established that any losses incurred by a person as a result of the entry of illegal or incorrect data into the Register due to a fault of the Russian State Registrar, must be indemnified from the Treasury of the Russian Federation.
Notation of objection / litigation
It will be possible to enter into the Register a notation of objection or a notation of court dispute over the rights to an immovable property.
A notation of objection may be entered into the Register only upon the application of a previously registered titleholder. For instance, if a person believes that he/she was wrongfully excluded from the Register as the titleholder of rights over an immovable property, he/she may demand that a notation of objection be entered into the Register and subsequently challenge in court the registered titleholder’s rights. If the Register contains a notation of objection, any subsequent titleholder will be prevented from alleging his/her good faith in the event of a claim asserted against him/her for recovery of property.
A dispute notation is entered into the Register upon the application of any person challenging the validity of the registered right.
Notarisation of transactions subject to state registration
In preparing the final version of the Law, the legislator decided to abandon the requirement of mandatory notarisation of transactions subject to state registration. It should be pointed out that the initial draft amendments to the Russian Civil Code that were introduced to the State Duma included such a requirement. Thus, under the adopted Law, any transactions entailing the emergence, the change or the termination of rights subject to state registration must be notarised only if so required by law or by agreement.
The Law will take effect on 1 March 2013.