Land Plot Privatisation: Risk Minimisation.

19.10.2011

Legal Update No. 279.

Goltsblat BLP advises of adoption of Resolution No. 4275/11 dated 6 September 2011 of the Presidium of the Supreme Arbitration Court of the Russian Federation (the "Resolution") summarising a number of principal legal points that are quite significant for land privatisation purposes.

The Presidium of the Supreme Arbitration Court of the Russian Federation studies a case where, in accordance with article 36 of the Land Code of the Russian Federation, a joint stock company privatises a land plot occupied by a number of buildings owned thereby. Among other things, the land plot accommodates a building owned by an individual entrepreneur not participating in the privatisation process. Believing that the land plot sale and purchase contract concluded between the JSC and a local administration deprived him of his lawful right to privatise or take on lease the land plot accommodating his warehouse facility, the entrepreneur filed a claim with an arbitration court seeking invalidation of the agreement for the land plot as a whole.

Even though courts of three instances satisfied the entrepreneur's claims, the Supreme Arbitration Court of the Russian Federation ordered that the case be re-considered, stressing specifically that:

  • If the land plot is divisible but the property owner whose rights to privatise the land plot were disregarded is not prepared to exercise his right to privatise the land plot, he is entitled to claim invalidation of the transaction but only with respect to the part of the land plot occupied by his property and required for use thereof.
  • Article 36 of the Land Code of the Russian Federation may not be interpreted as prohibiting owners of properties located on the same divisible land plot not, however, divided thereby, from acquiring it as their joint property. Yet, unless all owners of properties located on the same land plot agree to purchase this land plot, either indivisible or not divided thereby, they may only claim that it be leased thereto.
  • The claim lodged by the entrepreneur whose privatisation rights were ignored seeking to invalidate the transaction as a whole may be satisfied by the arbitration court if the claim is acknowledged by the buyer under the transaction or subject to compliance with the following two conditions: the land plot is indivisible; the claimant is not prepared (not willing) to exercise its buy-out option.
  • A public establishment may not cite this as grounds for challenging the land plot privatisation transaction concluded thereby, since Article 36 of the Land Code of the Russian Federation is aimed at protecting private entities' interests.  This public establishment is involved in the case as a defendant.
  • Any property owner may choose to exercise its right to own the land plot or to hold it on lease for an indefinite term, so each property owner's right to choose may not be cancelled as a result of a violation committed by either a third party or the owner of another property located on the same land plot.

The Supreme Arbitration Court of the Russian Federation believes that this approach secures a balance of the interests of all stakeholders, since it allows persons whose rights are impaired to have their rights reinstated without causing disproportionate harm to the rights and lawful interests of other owners of properties on the same land plot. Moreover, this approach helps stabilise civil transactions and complies with the legislative trend of combining owners of properties and owners of land plots required for their use.

For additional information, please contact:

Vitaly Mozharowski
Partner, Real Estate and Construction, Goltsblat BLP
T: +7 (495) 287 44 44,
E: info@gblplaw.com

Yuri Chernobrivtsev
Partner, Real Estate and Construction, Goltsblat BLP
T: +7 (495) 287 44 44,
E: info@gblplaw.com

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