Amendments to real estate legislation for the third quarter of 2013

A number of amendments to the RF Civil Code that were provided for in other federal laws entered into force on September 1 and October 1.1 Federal Law of 30.09.2013 No. 260-FZ on Amendments to Part III of the RF Civil Code (“RF CC Amendment Law”) (effective 01.11.2013) The RF CC Amendment Law is the next step in ongoing civil law reform. These amendments primarily concern international private law and include a number of innovations concerning form of transaction; applicable law for shareholders agreements ; transfer of creditor rights to another entity by force of law; termination of an obligation by set off; obligations, establishing the permissibility of claims for compensation of damages by an insurer; and obligations arising as a result of bad faith contract negotiations. The most significant changes concern representation, whether on the basis of a power of attorney or an agreement. These new rules will need to be considered when entering into real estate transactions. The RF CC Amendment Law introduces a new article 1217.1, governing the law applicable to representation. If the representation is by agreement, the relations between the principal and representative are subject to the rules of the governing law of the agreement. If the representation is based on power of attorney, the relations between the principal or representative and third parties are governed by: (i) the law of the country chosen by the principal (if the third party and representative have been notified of such choice); (ii) the law of the country of residence or the main place of business of the representative (if the representative has not chosen the applicable law or the selected jurisdiction is not applicable by law); or (iii) the law of the country in which the representative mainly acted in the specific case (if the third party did not and could not have known of the representative’s place of residence or main place of business). If the powers were given to the representative to enter into a real estate transaction, and the transaction or the creation, transfer, restriction, or termination of rights thereunder is subject to mandatory state registration, the law of the country where the immovable property is entered in the state register applies. According to the new rules, the transaction form is subject to the law of the country applicable in the transaction (in the version of the RF CC applicable on the date of this Alert, the law of the place where the transaction is effected). If a transaction or the creation, transfer, restriction, or termination of rights thereunder is subject to mandatory state registration in Russia, then the form of the transaction is subject to Russian law. The presumption that the form of a real estate transaction is subject to the law of the country where the real estate is located remains, which for property registered in Russia is Russian law.