No. 63. Basic Principles and Rules are Approved for Leasing State-owned Land

12.08.2009

Goltsblat BLP advises that Resolution of the Government of the Russian Federation No. 582, dated 16 July 2009 (the “Resolution”), came into effect on 4 August 2009. In accordance with the Russian Land Code, the Resolution approves:

the basic principles for determining the rent for leasing state- or municipally-owned land plots (the “Basic Principles”);

the Rules for determining the rental, the procedure, conditions and time limits for rental payments for land owned by the Russian Federation (the “Rules”).

The Basic Principles are applicable to all land plots owned by the Russian Federation (“RF”) or its constituent entities and land plots that are in undelimited state or municipal ownership.

The key Basic Principles are as follows:

  • The principle of rental calculation determinacy, meaning that regulatory acts of state authorities and local governments determine the rental calculation procedure and identify cases when the rental may be revised unilaterally at the landlord’s demand;
  • The principle of marginal simplicity of rental calculations, meaning that the rent may be determined on the basis of the cadastral value;
  • The principle of no deterioration in the economic situation for land users and land holders who re-formalise their rights to land plots, meaning that the rental established in connection with such re-formalisation should not be more than double the land tax on such land plots.

Regulatory acts of the RF constituent entities and municipalities that are inconsistent with the Basic Principles may be expected to be harmonised with them.

The Rules (unlike the Basic Principles) apply only to federally-owned land plots. According to the Rules, when such land plots are leased out, the rental is to be established by the Federal Agency for State Property Management using one of the following four methods:

1. On the basis of the cadastral value of the land.

For instance, the general rule is that the rent is 2% of the cadastral value of a land plot if:

  • the land plot is leased out for construction, subject to prior government consent to the location of the facilities to be constructed;
  • the right to lease the land plot has been re-formalised in accordance with the land legislation of the Russian Federation;
  • the land plot is leased out to a subsoil user for mineral resource operations.

As for agricultural land, the general rule is that rent for agricultural land plots amounts to 0.3% of their cadastral value (unless the lease agreements are made by tender).

2. On the basis of bidding (tender and auction) results.

3. In accordance with the rent rates or methodological guidelines for rent calculation, which should be approved within a year by the Economic Development Ministry of the Russian Federation (for land plots occupied by motor roads and railways, power supply and telecommunications lines, including linear and cable facilities, power and water mains, oil and gas pipelines, and other similar pipelines, power stations, airfields, airports, sea and river ports, etc.)

4. In other cases, the rent should be established on the basis of the market value of the land, to be determined in accordance with the Russian appraisal legislation and calculated by the following formula:

R = V x R, where:

  • R – rent;
  • V – market value of the land plot based on an appraisal performed within the last 6 months before the land lease agreement is signed;
  • R – current refinancing rate of the Central Bank of Russia.

When a lease agreement is signed for a federally-owned plot of land, it provides for cases and frequency of rental changes. If the landlord so demands, the rent may be adjusted unilaterally by a deflating factor, which is approved annually by the Economic Development Ministry of the Russian Federation. The deflating factor is applied annually as of the beginning of each subsequent year, starting from that following the year in which the decision to lease out the land plot is taken. Provision is also made for changing the rent in connection with changes in the cadastral or market value of the land plot. Under a land lease agreement, the rent should be remitted at least once every six months by bank transfer to the accounts of the territorial bodies of the Federal Treasury.

Thus, the Resolution, and especially the Rules, attempt for the first time ever to regulate matters pertaining to rental payments for federally-owned land plots in a systemic way.

For additional information, please contact:

Vitaly Mozharowski, Partner,
Commercial Real Estate & Construction,
Goltsblat BLP;
T: +7 495 287-4444
E: info@gblplaw.com

Elena Barinova, Partner,
Real Estate Investment & Finance,
Goltsblat BLP;
T: +7 495 287-4444
E: info@gblplaw.com

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