Changes at the federal level

Federal Law No. 217-FZ of 21 July 2014 “On amending the Housing Code of the Russian Federation and certain legal acts of the Russian Federation for the legal regulation of relations for lease of residential housing for social needs”

A new variety of lease agreement for publicly owned land plots has been introduced – an agreement for land development for the construction and operation of a rentable building for social or commercial use. It regulates the procedure for conducting auctions for such plots and the obligations of the tenant regarding use of the constructed properties strictly for their target purpose of a “rentable building”.

In addition, for the first time, state registration of such an encumbrance on the ownership title as the lease of a residential premises has been introduced for lease with a period of more than one year. If such encumbrance is registered for all residential premises in a multi-unit building, the Unified State Register of Rights (EGRP) is to state the building’s purpose of use as a rentable building, regardless of whether the house was built as a result of land development for the construction and operation of a rentable building.

Federal Law No. 225-FZ of 21 July 2014 “On amending the Federal Law ‘On appraisal activity in the Russian Federation’”

The state cadastral assessment is carried out no more than once every three years, and in Moscow and St. Petersburg no more than once every two years. The cadastral value entered in the State Real Estate Cadastre (GKN) as a result of a dispute is effective (including for tax purposes) from January 1 of the year the dispute was submitted.

When disputing a cadastral value calculation, legal entities will now have to first undergo a pre-court procedure with the committee for disputes of cadastral value assessments. It should also be noted that the phrase “a cadastral value assessment may be disputed in a state arbitration court” has been replaced with “a cadastral value assessment may be disputed in court”, which, taking into account the changes to the RF Civil Procedure Code and instructions contained in an explanatory note concerning the draft of the law (“the draft federal law excludes cases examining cadastral value disputes from the competence of the state arbitration courts”), bears witness to the fact that such disputes will be examined by general jurisdiction courts regardless of the subject matter.

Federal Law No. 224-FZ of 21 July 2014 “On amending the Town-Planning Code of the Russian Federation and certain legal acts of the Russian Federation”

A new type of lease agreement for publicly-owned land plots has been introduced – an agreement on the development or integrated development of land for construction of economy- class housing. The procedure for conducting auctions for such plots has been regulated, specifically envisaging requirements regarding setting the maximum price for housing when selling to consumers through an auction.

For residential properties that have not been sold under shared participation in construction agreements, the developer must enter into sale-purchase agreements with all individuals entitled to economy-class housing and desiring to acquire it from the developer for a period of 6 months after the building’s commissioning, after which the developer is entitled to freely sell the rest of the residential premises, with no restrictions on price or category of citizen.

Federal Law No. 265 of 21 July 2014 “On amending the Federal Law ‘On concession agreements’ and certain legal acts of the Russian Federation”

The main changes introduce, as of 1 February 2015, a new list of subjects of agreements, including, inter alia, public social services facilities, the possibility of entering into concession agreements at the investor’s initiative, the possibility of the investor buying out a property that is the subject of an agreement if it has fulfilled the terms of the agreement in good faith, and the possibility of extending the term of the agreement and changing other material conditions if it is impossible to implement the agreement on time and this was not the fault of the concessionaire. In addition, the grantor may now enter into “direct contracts” and agreements with multiple entities.

On the whole, these changes are aimed at liberalizing the conditions of and procedure for entering into and performing concession agreements as an instrument used in public- private partnership projects.

Decree of the RF Government No. 822 of 18 August 2014 “On the creation of an industrial production special economic zone of in the city of Vladivostok”

This decree envisages the creation of an industrial production SEZ on the land plots defined in the agreement on creation of an industrial production special  economic zone. With funding from the federal budget and the budget of Primorskiy Krai, the construction of innovative engineering, transportation, social, and other infrastructure is intended to attract investors to the SEZ. The regional funds will make up no less than 300,000,000 rubles, while federal funds will assign up to 5,365,000,000 rubles.

Order of the Ministry of Economic Development of Russia No. 540 of 1 September 2014 “On approving the classifier for types of permitted use for land plots”

The Ministry of Economic Development of Russia has approved a classifier for the types of permitted use of land plots. As of 23 December 2014, types of permitted use are determined exclusively in accordance with this classifier; however, land plots may be used in accordance with the types of permitted use established earlier until it is required to change them.

This classifier, among other things, resolves the problem of delimiting the concepts of shop (magazin), retail center (torgoviy tsentr), self-service general store (universam), and general store (univermag). However, there are a number of existing facilities (apartment hotels, rentable buildings, etc.) that it does not cover.

Changes at the St. Petersburg and Leningrad Oblast level

St. Petersburg Law No. 381-73 of 2 July 2014 “On amending St. Petersburg Law ‘On the procedure for granting real estate properties owned by St. Petersburg for construction and reconstruction’, St. Petersburg Law ‘On measures to protect the rights of participants in shared participation in construction of multi-unit apartment buildings in St. Petersburg’, and St. Petersburg Law ‘Social Code of St. Petersburg’”

The changes regulate provision of land plots for the purpose of residential construction (the obligation to provide apartments may be a condition of investment) and the provision of apartments to individuals requiring protection in connection with unfulfilled developer obligations under agreements for shared participation in construction to which they are party. The provision of such apartments to individuals in need is grounds for a decrease in the “infrastructure payment” made when entering into investment agreements.

St. Petersburg Law No. 421-83 of 2 July 2014 “On the list of plots of territory where an integrated ecological study is required”

This law establishes a list of territories in St. Petersburg, with an approximate definition of their location and area, with respect to which an environmental study will be conducted for the purpose of granting them status as specially protected natural territories of regional significance and establishing the respective restrictions on their use.

The total area of territory to be studied is 15983.1 ha (more than 10% of the area of St. Petersburg).

Leningrad Oblast Law No. 45-oz of 7 July 2014 “On redistributing town-planning powers between Leningrad Oblast state and local authorities”

A law of the Government of Leningrad Oblast undertaking some of the powers of local authorities has been adopted, entering into force as of 1 January 2015. In part, the Government of Leningrad Oblast will now undertake the approval of general plans of urban districts and settlements and of changes thereto, while other executive authorities will now be responsible for approving land use and development rules for urban districts and settlements, approving town- planning plans for land plots, and issuing construction and commissioning permits for facilities whose design documentation requires an expert review.

Note that prior to this law’s entrance into force the above powers were exercised by local authorities of the respective municipal units, and acts in the sphere of town-planning activity adopted by local authorities prior to January 1, 2015 will retain their force until amended or revoked in the established procedure or until their expiration.

Judicial practice

Ruling of the Supreme State Arbitration Court of the RF No. VAS-2395/14 in of 20 June 2014 case No. A65-6880/2013

Pursuant to this ruling, the legal position of the Presidium of the Supreme Court of the RF, expressed in the Review of Judicial Practice in Cases Connected with Unsanctioned Construction approved by the Presidium of the RF Supreme Court of 19 March 2014, applies to legal relations in which a legal entity is a participant, since civil legislation is based on the recognition of the equality of participants in the relations which it regulates (article 1 of the RF Civil Code). In part, the following provisions are applicable to unsanctioned construction performed by a legal entity:

  • Title to an unsanctioned structure built without the necessary permits on a land plot that has been provided under a lease agreement for construction of the respective real property may be recognized if:
    • The structure has been built without significant violations of town-planning and construction rules and regulations;
    • Permitting the structure to remain does not violate the rights and legally protected interests of other entities;
    • The structure is not a threat to the life or health of individuals.
  • In resolving this category of disputes, in addition to the requirements established in clause 3 article 222 of the RF Civil Code, the terms and conditions of the lease agreement must also be taken into consideration. If the plot has been provided in lease for the erection of temporary or easily-erected structures, there are no grounds for recognition of title to a permanent structure that has been constructed instead. When entering into a lease agreement that grants a land plot for construction, the owner must very clearly express its will regarding which type of structure it is granting the land plot for.

RF Constitutional Court Ruling No. 1555-O of 3 July 2014 “On refusal to examine the petition of LLC Proizvodstvennaya Kompaniya Vozrozhdenie regarding violation of its constitutional rights and freedoms by clause 1 article 391 of the Russian Federation Tax Code”

The Constitutional Court acknowledged that a discrepancy between cadastral value and market value and inaccuracy of information about a real property are different grounds for disputing cadastral value, and thus the court’s decision to make cadastral value the same as market value does not mean that  information  previously found  in the GKN was inaccurate. This decision is aimed at stopping attempts to recalculate land tax for the period prior to court proceedings.

Note  that,  as  mentioned  above,  as  of  21  July  2014, information on the cadastral value of a real property that was entered into GKN upon a decision by the committee for disputes of cadastral value assessments or by a court is used for the purposes set forth in legislation (including for tax purposes) from 1 January of the year the dispute was submitted, which somewhat resolves the problem examined by the Constitutional Court in this case. However, recalculation of tax for the period prior to the year of submission of the dispute remains impossible from a practice standpoint.

Decree of the Presidium of the RF Supreme Arbitration Court No. VAS-15636/2013 of  15 July 2014

The RF Supreme State Arbitration Court (VAS) put forth an explanation that townhouses cannot be considered multi-unit apartment buildings (despite the fact that some townhouses in the case in question were comprised of more than 10 units, and in other words could not be categorized as a terraced residential building). In light of the peculiarities of their construction, the rules for single-unit residential houses shall apply to each separate section of a townhouse.

It should also be noted that this interpretation is given with respect to Federal Law No. 127-FZ of 26 October 2002 “On insolvency (bankruptcy)”, and this position of the RF VAS is not relevant to disputes regarding the application of Federal Law No. 214-FZ of 30 December 2004 “On shared participation in construction of multi-unit apartment buildings and other real properties, and on amending certain legal acts of the Russian Federation”, since this law, as opposed to the Bankruptcy Law, defines the subject of construction as “multi-unit residential buildings and other real properties” and not just “multi-unit residential buildings”.

Decree of the Presidium of the RF VAS No. VAS-5467/2014 of 15 July 2014

The RF VAS has stated that the penalty for improper performance of a stage of work under a construction works agreement for state needs must be calculated on the basis of the cost of the stage, and not the cost of the agreement as a whole. A literal interpretation of the provisions of the Federal Law No. 94-FZ of 21 July 2005 “On placing orders for the supply of goods, performance of works, and rendering of services for state and municipal needs”, similar rules found in Federal Law No. 44-FZ of 5 April 2013 “On the contractual system for the procurement of goods, works, and services for state and municipal needs”, and the model state contract have previously led courts to conclude that a penalty is always calculated based on the full cost of the contract, regardless of the volume of  obligations not performed on time.

The RF VAS ruled that such calculation of a penalty contradicted the compensational purpose of the penalty and the principle of legal equality, and prescribed the calculation of punitive sanctions from the price of the delayed stage of the contract.