Supreme Commercial Court Explanations Re Leases Signed On 2 And 3 March 2013 And Not Registered In The Realty Register

31.01.2014

Legal Update No. 451, 31 January 2014

On 25 December 2013, the Plenum of the Russian Supreme Commercial Court adopted Resolution No. 98 (“Resolution No. 98”) “On Additions to Resolution No. 73 of the Plenum of the Russian Supreme Commercial Court dated 17 November 2011 “On Certain Aspects of Applying Russian Civil Code Rules on Leases”” (“Resolution No. 73”).

Resolution No. 98 covers real estate leases concluded on 2 and 3 May 2013 for at least one year but not registered by the Realty Register.

As you might recall, on 1 March 2013, amendments to the Russian Civil Code (Federal Law No. 302-FZ of 30 December 2012) came into effect abolishing article 651 of the Russian Civil Code regarding registration of lease agreements for buildings effective for one year and longer. On 4 March 2013, these amendments were cancelled and the previous provisions reinstated (Federal Law No. 21-FZ of 4 March 2013), therefore, lease agreements in respect of buildings concluded on 2 and 3 March 2013 and effective for one year and longer did not have to be registered with the Realty Register.

The Resolution explains that leases concluded on these dates are subject to Clause 14 of Resolution No. 73 relating to cases when the parties have agreed all the material terms and conditions of a long-term lease but have not registered it with the Realty Register. Specifically, when a property has been accepted for use without any comments, the rent and other terms and conditions having been agreed, it should be used and paid for as agreed, including any penalties. Meantime, rights granted to a person using a property under a lease agreement that has not been registered by the Realty Register may not be cited in response to third party claims. In particular:

  • such a person has no pre-emptive right to enter into the lease for a new term.
  • the provision does not apply under which transfer of title (right of economic management and operational management, lifelong hereditary ownership) to a leased property to another person does not constitute grounds for amending or terminating the lease.

Although relatively few real estate leases were actually signed on 2 and 3 March 2013 for at least one year (2 and 3 March were not working days), the courts have already considered some cases relating to legal consequences of such leases. The court practice pertaining thereto has been contradictory, pointing to both the need to have such lease agreements registered by the Realty Register (Ruling of the Sakhalin Region Arbitration Court of 10 September 2013 on case No. А59-3025/2013) and for them to be recognised as concluded even in the absence of registration (Ruling of the Chelyabinsk Region Arbitration Court of 5 August 2013 on case No. А76-12378/2013, Resolution of the Fourth Arbitration Appeals Court of 13 December 2013 on case No. А19-6982/2013). The clarifications provided in Resolution No. 98 are, therefore, of considerable significance for law enforcement practice.

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