More legal opportunities for withdrawing from land leases and investment contracts in Moscow and St. Petersburg.

29.12.2011

Legal Update No. 309

Goltsblat BLP advises that Federal Law No. 427-FZ “On Amendments to Articles 2 and 3 of the Federal Law ‘On Enactment of the Russian Land Code’ and certain other Legislative Acts of the Russian Federation” (the Law) was adopted on 12 December 2012.

A new provision is added to the Federal Law of 25 February 1999 “On Investing in the Russian Federation in the Form of Capital Investments”, extending the list of legal early termination methods for agreements on construction and reconstruction of real property involving non-government funding and subsequent distribution of the area of the resulting property between the parties to the agreement (investment contracts).

If the land plot in question is located within Moscow or St. Petersburg and the relevant contract was concluded before 1 January 2011, it may be unilaterally terminated, before expiry, by a government authority, state or municipal body or a unitary enterprise in the event of material breach of the contract terms and conditions and/or a substantial change to the circumstances from which the contracting parties proceeded in making the contract.

Among other things, the following may be considered a material breach of the contract for the purposes of such unilateral termination:

  • default on obligations to construct/reconstruct the real property by the time prescribed in the contract or the lease for the underlying land plot,
  • or, where the agreements stipulate no such deadline, by expiry of the relevant construction/reconstruction permit if, on the last effective date of the permit, less than 40% of the total scope of the construction/ reconstruction work involving the real property is complete.

The termination is to be effected extra-judicially, on expiry of one month from the relevant contract termination notice from the government authority, state or municipal body or unitary enterprise. It should be noted that termination is at the discretion of the government authority or state (municipal) body.

The law also specifies that no losses, including lost profit, are to be reimbursed in the above instances of termination. The other contractual party is thus only compensated for documented direct costs incurred in discharging its obligations under the contract, subject to interest accrued as prescribed by article 395 of the Russian Civil Code.

The Law adds similar provisions to the Federal Law “On Enactment of the Land Code of the Russian Federation” applicable to leases of land in Moscow and St. Petersburg for property construction or reconstruction. In particular, termination of an investment contract as described above entails termination of the land plot lease concluded pursuant thereto.

The changes to the Federal Law of 25 February 1999 “On Investing in the Russian Federation in the Form of Capital Investments” come into effect on 1 February 2012 and to the Federal Law “On Enactment of the Land Code of the Russian Federation” on 1 April 2012.

The Law gives retrospective effect to these provisions – they regulate contracts made before the Law’s effective date and relations between parties still in place by this date.

For additional information, please contact:

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

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

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