No. 64. A preliminary real estate lease agreement is valid even if the landlord-to-be does not own the property upon its signing
Goltsblat BLP advises that Resolution No. 402/09 of the Presidium of the Supreme Arbitration Court of the Russian Federation of 14 July 2009 (the Resolution) has been adopted, expressing the following key position:
a preliminary real estate lease agreement cannot be deemed invalid on the sole grounds that the landlord-to-be does not own the property at the time the preliminary lease is signed.
The Resolution emphasises that:
the subject of a preliminary lease consists in obligations of the parties to enter into a lease in the future, rather than obligations relating to the real estate itself (which is why preliminary real estate leases are not subject to state registration);
the purpose of a preliminary lease is to legally bind the parties before the contractor obtains title to the property for which the principal lease is to be concluded;
failure to conclude the principle lease because it is impossible to do so (no title is granted) or bad faith is demonstrated (evasion of concluding the lease) does not generally constitute grounds for invalidation of the preliminary lease, since these circumstances may occur only during performance of the preliminary lease rather than at the time of its conclusion. A possible remedy the contractor might use here is to seek, in a court of law, damages for harm caused by non-conclusion of the principal lease or enforced conclusion of the principal lease.
As a rule, resolutions adopted by the Presidium of the Supreme Arbitration Court of the Russian Federation largely predefine subsequent court practice on relevant disputes.
For additional information, please contact:
Vitaly Mozharowski, Partner,
Commercial/Industrial Real Estate and Construction,
T: +7 495 287-4444
Elena Barinova, Partner,
Real Estate Investment and Finance,
T: +7 495 287-4444
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