Significant changes made in the procedure for state registration of rights to and transactions with immovable property came into force on 1 January 2017 in Russia. The main goal of the reform is to provide better guarantees to state registration applicants, increase the liability of the registration authorities, make real estate transactions more efficient and reduce the related investment risks. In many respects, the new provisions will make the state registration of immovable property simpler than in the past. However, some teething problems are expected in the coming months as the registration authorities adjust to the new system.

The new legislative provisions will no doubt impact the businesses of professional real estate market players, including project owners, property developers and major landlords, as well as the interests of practically any company that is involved, in one way or another, in the state registration of immovable property in Russia.

The key amendments were introduced by Federal Law No. 218-FZ “On State Registration of Immovable Property” (the “Law”) that was enacted in July 2015. This Law sets out a new regulatory regime for what seemed to be a well-established registration system of rights to immovable property.

The Unified State Register of Immovable Property

Until recently, there were two main information resources for cadastral registration and state registration of rights to immovable property, namely, the Unified State Register of Rights to and Transactions with Immovable Property (the “EGRP”) and the State Cadastre of Immovable Property (the “Cadastre”). In practice, this often resulted in duplications and inconsistencies of the records made in these two interrelated but independent systems.

In accordance with the Law, the EGRP and the Cadastre will be merged to form a new information resource, namely the Unified State Register of Immovable Property (the “Register”). The Register will only be kept electronically by the existing registration authority (i.e. the Federal Service for State Registration, Cadastre and Cartography).

This new Register will include: (1) a register of immovable property, (2) a register of rights to, liens on and encumbrances over immovable property, (3) a register of boundaries (in particular, the boundaries between Russian regions and municipalities, those of use-restricted zones, territorial zones and special economic zones, as well as other special territories) and (4) registration files, cadastral maps and document journals. Thus, the Register will contain the information on both an immovable property and the rights to it. The Register will now reflect the essential terms and conditions of immovable property transactions (e.g. the price conditions of a sale and purchase agreement), which were previously not available in the public registers.

Which novelties will simplify state registration?

The Law includes a number of provisions aimed at simplifying the state registration of rights to immovable property, namely:

  • The principle of extraterritoriality has been introduced to allow state registration of immovable property in any Russian region, regardless of its location. It will also now be possible to submit immovable property registration documents to representatives of a registration authority during their on-site visits.

  • State registration of rights to immovable property will be effected faster. For instance, if an application for state registration is submitted directly to the registration authority, state registration has to be made within seven business days (this was previously done within ten business days).

  • The state cadastral registration of a newly-built building or structure will be based on the application of the authority that issued the commissioning permit. This authority has to submit such an application to the registration authority within five business days.

  • If the rights to immovable property arise from the acts of state or municipal authorities or transactions with such authorities, the application for state registration of these rights, together with the relevant documents, will be submitted to the registration authority by the state or municipal authority within five business days of the enactment of these acts or the transaction date.

  • It is specified that for the purpose of state registration of the ownership title to a newly-built building or structure, it is sufficient that the lease agreement on the land occupied by the property is effective on the commissioning date.

  • When the applicant is a Russian legal entity, the registration authority will now be obliged to request its constituent documents directly from the competent authorities as a part of the interagency information exchange system.

  • The registration authority can refuse to accept a complete application for state registration only in one case: if the applicant’s identity cannot be established.

  • The registration authority will now be obliged to immediately notify the person/entity who has rights over an immovable property that an application for state registration has been filed for their property.

  • Extracts of records from the Cadastre have been abolished. From now on, both state cadastral registration and state registration of the creation of rights and their transfer will be evidenced by an extract from the Register.

What will complicate the state registration procedure?

Despite the great number of positive innovations, some provisions of the Law may adversely affect the activities of real estate market players. This may, in practice, lead to difficulties and delays in the state registration of immovable property and the rights to them for some of the reasons stated below.

The registration authority now has more grounds to deny state registration of rights. Formally, the Law provides for a single ground for such denial – the failure to eliminate the reasons that had prevented the state registration of rights within the period the registration authority had suspended the state registration of such rights. However, at the same time, the Law has laid down 55 grounds for suspending state registration. Quite a number of these grounds are controversial, in particular, because an applicant has no control over some of them (e.g. when a state authority failed to deliver any documents or information requested by the Register as a part of the interagency information exchange system, when a transaction subject to state registration is void, when a state authority issued an act outside the scope of its competence or that of the official who signed the act). As a result, the number of grounds for refusing state registration of immovable property has increased from 30 to 55.

Furthermore, some provisions of Federal Law No. 122-FZ dated 21 July 1997 “On State Registration of Rights to and Transactions with Immovable Property” (i.e. regarding the payment of state compensation for lost title to residential premises) will remain valid until 31 December 2019 inclusive. In addition, many provisions of Federal Law No. 221-FZ dated 24 July 2007 “On State Cadastre of Immovable Property” will remain in force, and this law has been renamed the Federal Law “On Cadastral Activities” with effect from 1 January 2017. Despite the fact that the previous legislation must apply as far as it does not contradict the new Law, such situation may lead to some practical problems in the procedure of state registration of immovable property. This is because the registration authorities will need to develop a new practice for recording and registering the rights to and transactions with immovable property.

Finally, the Law presupposes the enactment of about 25 regulations to implement its provisions (e.g. on the procedures for keeping the Register, filing an application for registration of rights and accompanying documents, on the forms of documents and their requirements, on the types and contents of extracts from the Register). To date, many of these provisions have been drafted and they took effect on 1 January 2017.

Comments

Though the Law, overall, contains many positive aspects, it has not resolved a number of pending problems relating to transactions with immovable property. In particular, no fundamental changes have been proposed to the procedure for implementing the Register’s transparency principle. Also, the Law has not set any limitation period for contesting registered rights.

The Cadastre and EGRP merger will take place gradually. Thus, at first, the practice of state cadastral registration, state registration of rights and provision of information from the Register will vary from region to region. Therefore, we recommend all interested parties to closely monitor the application of these new rules in practice and the process of transferring data on immovable property to the Register.