Federal Amendments

RF Supreme Arbitration Court (RF SAC) Plenum Resolution of January 25, 2013 No. 13 on Amendments to RF SAC Plenum Resolution of 17.11.2011 No. 73 on Certain Matters Concerning Practice in Consideration of the Application of the Civil Code of the Russian Federation Rules on Lease Agreements (“Resolution”)

This Resolution contains a number of important clarifications of the Civil Code provisions relating to the conclusion and performance of lease agreements, including lease agreements for state and municipal property. The most important amendments are detailed below: 1

  • A part of a thing may be leased

Publicly-owned land plots are an exception to this rule. At the same time, encumbrances under a lease agreement for a part of a thing apply to the entire immovable property.

  • Lease agreements for future things are legitimate

The RF SAC has confirmed that the conclusion of lease agreements for properties (including land plots) to be created in the future (or to which the landlord will subsequently acquire rights) is not contrary to the Civil Code.

At the same time, the RF SAC clarified that the landlord must hold title to the leased property at the time the property is transferred to the tenant.

The RF SAC has advanced this position in order to change the existing practice of concluding preliminary and short-term lease agreements for new buildings/premises before the title has been registered to the developer/landlord.

  • Transfer under lease of an immovable property that has not been commissioned, including for the purpose of renovation or fit out works, is lawful

A lease agreement is not invalid if a commissioning permit for the capital structure has not been obtained by the time the property is transferred to the tenant. This position legalizes the tenant’s “right of access” and “payment for access” to a leased property that has yet to be commissioned for the purpose of fitting it out for the tenant’s needs. It should be noted that operating a capital structure without a commissioning permit is subject to administrative liability, and in the event that it causes injury, death, or major damage to property it may result in criminal liability.

  • The landlord’s lack of title to the leased property does not release the tenant from the obligation to pay rent

A lease agreement with a landlord that is not the owner of the leased property is not invalid. The tenant must pay for the use of the property irrespective of whether the landlord is acting in good faith. At the same time, the RF SAC provides the owners of properties for which a lease agreement has been signed with considerable scope for defending their rights against dishonest tenants and landlords (claim against a dishonest landlord for all received (or potential) income, etc.).

  • If several lease agreements are concluded with respect to the same property, the tenant shall be deemed the person to which the landlord transferred the property

The remaining tenants will only be able to seek the reimbursement of their losses and the payment of the penalties established in the agreement. Therefore, the crucial factor for the tenant when leasing a future thing is the transfer certificate.

  • Lack of due identification of a leased property cannot be a basis for challenging the agreement, provided it is performed by the parties

If an agreement is actually performed by the parties, the parties cannot challenge the agreement on the basis that the subject of the agreement has not been agreed, even if the agreement does not duly identify the property. Although the RF SAC’s position has a reasonable practical basis, it is nevertheless contrary to the Civil Code principle that the subject of the agreement must be identified.

  • The tenant failing to pay rent more than twice consecutively gives the landlord the right to seek termination of the agreement in court even if the tenant pays the debt

The landlord has the right to bring a claim even if the debt is paid, but only within a reasonable period from the time of payment. Failure to bring the claim within a reasonable period deprives the landlord of the right to seek termination of the agreement on the basis of this particular breach. Neither the law nor legal doctrine provides a clear definition of the notion of “reasonable period”. This means that reasonable periods will be determined on a case-by-case basis and will depend primarily on the subjective position of the court.

  • Upon registration of its title to premises in a new building, a person shall acquire rights to the land plot which belonged to the seller of premises in a building

The RF SAC has introduced this rule based on the principle that land and the immovable property standing on it form a single whole, as well as by analogy with the rule established by the RF Housing Code with respect to residential premises in buildings.

Federal Law No. 21-FZ of March 4, 2013 on Amendments to Certain Legislative Acts of the Russian Federation and the Rescinding of Certain Provisions of Legislative Acts of the Russian Federation

Federal Law No. 302-FZ on Amendments to Chapters 1, 2, 3, and 4 of Part I of the Civil Code of the Russian Federation was adopted on December 30, 2012 and, among other things, abolished the requirement for state registration of lease agreements for immovable property, buildings, structures, and businesses (arts. 609, 651, 658 RF Civil Code). These articles were rescinded as of March 1, 2013, which has given rise to uncertainty as to the need for registration of leases as such.

Federal Law No. 21-FZ was adopted on March 4, 2013 and reinstates the rule that lease agreements must be registered.

The key point here is that the rule abolishing registration of lease agreements did in fact apply for three days (March 1 to 4, 2013). Therefore, it could be argued that any (including long-term) lease agreements concluded during that period should be deemed valid upon execution by the parties (i.e., without registration). This should be noted, in particular, by anyone acquiring real estate: buyers will have good reason to be concerned about the existence of lease agreements concluded during that “legal vacuum” period.

Federal Law of March 4, 2013 No. 22-FZ on Amendments to the Federal Law on the Industrial Safety of Hazardous Industrial Facilities, Certain Legislative Acts of the Russian Federation, and the Rescinding of Article 333.33(1)(114) of Part II of the Tax Code of the Russian Federation

Substantial amendments have been made with respect to hazardous industrial facilities. The said Law introduces a classification of such facilities, which divides them into four classes: Class I – extremely hazardous, Class II – hazardous, Class III – moderately hazardous, and Class IV – low hazard. The criteria for this classification are based on the potential risk of accidents at the facilities. The Law on Industrial Safety of Hazardous Industrial Facilities did not previously provide for degrees of hazard.

All hazardous industrial facilities were registered in a special register. Previously registered facilities must now be re-registered by January 1, 2014 in order to be assigned a hazard class.

It should be noted that there will be different requirements for facilities in different hazard classes. For example, Class IV facilities will require a license to operate explosive hazard and chemical hazard industrial facilities from July 1, 2013. Furthermore, as of January 1, 2014, such facilities will no longer be subject to scheduled inspections.

Federal Law No. 16-FZ of February 25, 2013 on Amendments to Article 2 of the Federal Law on the Enactment of the Housing Code RF

Amendments to the Law on Privatization of the Residential Fund in the Russian Federation extend free privatization of state and municipally-owned residential premises by citizens until March 1, 2015.

Federal Law No. 221-FZ of July 24, 2007 on the State Cadaster of Real Estate

This Law applies to buildings/structures/premises/unfinished buildings as of January 1, 2013. Before January 1, 2013, such properties were registered by state registration or technical inventory authorities. The Law provides for a transition period from January 1, 2013 to January 1, 2014, in which cadastral activities with respect to real estate will be performed by both technical inventory authorities and cadastral engineers. As of January 1, 2014, all powers will pass to cadastral engineers.

Rosreestr letter of February 15, 2013 No. 14-00559/13 on the Ability to Site Several Apartment Buildings on a Land Plot

The land plot underlying an apartment building is under the mutual shared ownership of the owners of premises in the building (art. 16 FZ on the Enactment of the Housing Code).

It remains unclear what the consequences of several apartment buildings being situated on a single land plot will be. Rosreestr states its position in the letter, which is that a land plot must be formed for the operation of each apartment building). In this respect, the owners of premises have the right to apply to the state/local authorities for the formation of a land plot.

Although this Letter is recommendatory, Rosreestr will follow it when forming such land plots.

Local Amendments (St. Petersburg)

St. Petersburg Law No. 107-21 of March 13, 2013 on the Procedure for Establishing Discount Lease Rates with Respect to Cultural Heritage Properties Owned by St. Petersburg and Amendments to the St. Petersburg Law on the Methods for Determining Lease Payments for Non-Residential Property Let by St. Petersburg, and the St. Petersburg Law on Discount Lease Rates for Non-Residential Properties Let by St. Petersburg

As of March 25, 2013, tenants have the right to discount rents for leases of cultural heritage properties for a term of one year or more, on the conditions set out exhaustively in the Law:

  • If the tenant has invested its own funds in preservation works on the cultural heritage property and ensured the performance of such works (without any connection to culpable acts/omissions of the tenant);
  • The said works have been accepted;
  • The tenant was not reimbursed for the said works;
  • The tenant has no outstanding tax arrears.

It should be noted that the discount rent benefit is not available: (a) if the cultural heritage property is sublet; or (b) if during the period the discount rent is applicable it becomes necessary to carry out preservation works on the property (except in cases where the need to perform such works is due to extraordinary/unlawful acts of third parties).

Notably, if a tenant uses a cultural heritage property for socially-significant purposes, then in addition to the rent discount it will also be eligible for other benefits in accordance with the Law of St. Petersburg on the Provision of Benefits with Respect to Lease Payments for Non-residential Properties Let by St. Petersburg.

St. Petersburg Law No. 92-20 of March 13, 2013 on Amendments to the St. Petersburg Law on the Land Tax in St. Petersburg

From January 1 to December 31, 2013, inclusive, certain land plots will be taxed at a reduced rate of 1.25% of the cadastral value based on the permitted use. This rate will apply to land plots intended as the site of industrial facilities for food production, chemicals and metallurgical production, car and equipment manufacturing, cellulose and timber processing, and production of wood products. This list is not exhaustive and the reduced rate will also apply to other industrial facilities in accordance with St. Petersburg Law No. 29-10 on the Rules of Land Use and Development in St. Petersburg of February 4, 2009 (for example, for the site of treatment facilities, waste processing facilities, etc.).

This tax reduction could encourage investor activity this year and have a beneficial effect on industrial development in the city.

St. Petersburg Land Resource and Development Committee Order No. 6 of January 15, 2013 on Approval of the Results of Determining the Cadastral Value of Immovable Property (Except Land Plots) on the Territory of St. Petersburg

As of the publication of the St. Petersburg Land Resources and Development Committee Order, challenging cadastral values has become a hot issue in the city. Acceptance of applications to challenge cadastral values began on March 15, 2013. Applications must be submitted to the Committee for Consideration of Disputes Concerning the Results of Cadastral Valuations at the St. Petersburg Department of Rosreestr within six months (by September 16, 2013).

St. Petersburg and Leningradskaya Oblast Arbitration Court Decision of February 15, 2013 in case No. А56-71381/2012

This February, the St. Petersburg and Leningradskaya Oblast Arbitration Court ruled in a case brought by the St. Petersburg Department of the Federal Antimonopoly Service (UFAS) that certain provisions of St. Petersburg Law No. 282-43 of June 17, 2004 on the Procedure for Allocation of Immovable Properties Owned by St. Petersburg for Construction and Renovation are contrary to antimonopoly law.

First, the disputed provisions of the Law established that investors could be allocated (without conducting tenders) buildings, structures, and unfinished buildings by special designation on grounds not provided in federal law: depending on purpose (for example, a dormitory), technical condition (hazardous), and area of investment (culture, healthcare, etc.).

The commercial court agreed with UFAS that the rule on the allocation of immovable properties by special designation to strategic investors was contrary to federal law. The court held that in fact this situation would lead to unhealthy competition and enable individual economic actors to carry out their business on more favorable conditions than others.

The interested parties (St. Petersburg Legislative Assembly, Governor and Prosecutor), did not agree with the court decision and have submitted a cassation appeal to the Northwest District Federal Arbitration Court. The cassation appeal has been accepted for consideration and the enforcement of the Decision of the first instance has been suspended upon petition of the Governor.