On 13 May 2011 the State Duma passed the draft Federal Law №417505-4 "On amending the Russian Urban Planning Code and certain legislative acts of the Russian Federation" (the "Bill") at the first reading. Currently the Bill is being prepared for the second reading, the voting on which is to take place before the end of the summer session of the State Duma, unless postponed to the autumn session. Though the Bill was initially introduced by a group of Deputies as early as 2007, the Ministry of Economic Development is spearheading the process.

Following tragic events of "Transvaal Park" and Basmannyi market in Moscow where the collapse of the roof led to numerous casualties, as well as the fire in Perm's nightclub and other recent major accidents, the government has initiated development of a tighter legal framework in respect of the operation of buildings and liability for injuries suffered due to destruction and damage of buildings and breach of safety requirements. The Bill is therefore expected to enhance the safety of non-residential buildings.

The Bill introduces three sets of major amendments:

  1. Non-state (private) expert examination of detailed designs and engineering surveys

Private examination institutions are expected to operate alongside state expert examination, and the developer will have the right to choose one or the other. Mandatory state expert examination will remain only in respect of the most complex properties. The assumption is that private expert examination will work faster. The maximum term for both state and non-state expert examination has already, on the first reading, been decreased from 90 to 60 days. This maximum term may be shortened even further to 45 days on the second reading, as one of the main reasons for the reform is the simplification and acceleration of bureaucratic procedures.

This concept has been under public discussion for over 18 months and, though commentators have at times expressed grave doubts as to the competence of the future private experts and the quality of their examinations, by this time the concept is comparatively uncontroversial and is likely to be adopted and become law in due course. Furthermore, if private examination system proves to be successful in the first years, it is rumoured that state examination for ordinary buildings may be abolished altogether.

  1. Statutory requirements for operation and management of non-residential buildings

The Bill introduces legal definitions of "operation of the building" and "a person responsible for operation of the building" – the owner or tenant (if the lease so provides), or a management company engaged by the owner or the tenant. Administrative fines for faulty operation have been increased, accident notification and state inspection rules set out, and, as a worst case scenario, suspension of the building's operations is envisaged in case of violations (the particulars of the latter are to be further elaborated upon in special legislation to be adopted).

This concept is controversial, as until now operation of buildings was not subject to extensive regulation at statutory level (whilst, of course, technical rules did exist). The Ministry has suggested that some of the articles should be removed from the Bill as under-researched. However, these provisions will apparently remain for the time being. The Ministry is expected to produce a separate bill on the operation of non-residential buildings, in which case the issue would be governed by a separate law and not by Urban Planning Code. However, in any case, the detailed designs to be submitted to expert examination will now have to have a separate section on safe operation of the building when it is completed.

  1. Liability of building owners and management companies for third party losses caused by improper management, destruction or damage of buildings

This concept, extremely controversial, is the focal point of heated debate among the experts. In case of accidents the Bill requires the building owner to pay damages in accordance with the civil law rules, and in addition to pay 1-3 million rubles to injured persons or their heirs. Only the owners who discharged this liability would be entitled to proceed with regress claims against the contractors, service providers and experts (or their respective self-regulating organizations) whose acts or omissions whilst performing their contractual obligations actually occasioned the destruction or damage to the building in the first place.

New regulation is supposed to change the current system of liability where the government ultimately has to pay all compensation. However, experts note that in practice it may be difficult to make the owner pay due to the widespread use of special purpose vehicles. Moreover, if the owner is an SPV or a small-time entrepreneur, in case of the destruction of the building it is likely to go bankrupt. The Ministry is not averse to the idea in theory. However, due to the lack of a developed insurance market, the high costs of liability insurance and insurers' general unwillingness to satisfy liability insurance claims, and out of consideration to small-time owners who have no assets other than the damaged or destroyed building, the Ministry considers introduction of these rules premature.

At the same time, it is understood that the concept of owner liability is in line with the general rules of civil law, would promote best practice in construction and operation of buildings as well as responsible selection of reputable contractors and service companies by the owners, and that insurance market would develop in line with the increased demand for affordable insurance products.

When the Bill is passed in the second reading, Art. 60 introducing liability rules may either be removed from the Bill, or its effective date might be deferred for a period of time sufficient to develop measures to allay the potential distress of small businesses.