The main trends in the Russian corporate real estate market in the last 12 months.

25.11.2010

Prepared by Vitaly Mozharowski for Practical Law Company. Corporate Real Estate Handbook 2010/11.

THE CORPORATE REAL ESTATE MARKET

1. What have been the main trends in the real estate market in your jurisdiction over the last 12 months? What have been the most significant deals?

The main trends in the real estate market in the last 12 months have included:

  • A relatively low level of developers becoming insolvent, with bankers:
    • taking over development projects, to offset debt, rather than entering into lengthy insolvency procedures;
    • possibly becoming the largest holders of property and development projects.
  • Institutional investors being unable to agree a fair market price with developers. Developers are not prepared to sell at the bottom of the market, because of their expectations of an imminent market recovery. Consequently, institutional investors are terminating deals entered into before September 2008.
  • Large local corporations acquiring discounted properties as the end users.
  • The beginning of reform of the construction industry licensing system. Self-regulated associations of construction companies, designers and surveyors are replacing state agencies responsible for licensing.

REAL ESTATE INVESTMENT

2. Please briefly outline the opportunities for investing in real estate in your jurisdiction. In particular, consider:

  • The structures commonly used (for example, property companies and partnerships).
  • Are real estate investment trusts (REITs) available? If so, are they commonly used?
  • Institutional investors.
  • Private investors.

Structures

The most commonly used structures for real estate investment are equity acquisitions and direct investment in development projects.

The concept of a shared construction, which was introduced six years ago, has not become common practice. This concept provides investors with a high level of statutory security, and is most commonly used in Moscow. This concept is a modification of a commonly used co-investment agreement. However, it differs from the co-investment agreement because it:

  • Is heavily regulated.
  • Is subject to registration with the Realty Registry.
  • Requires considerably more formal requirements and reporting to supervising authorities.

REITs

REITs are available on the market, but are not commonly used. Real estate derivatives are not used at all. This is mainly due to outdated currency exchange regulations.

Institutional and private investors

During the last 18 months, investment in real estate has transformed from global institutional investors to local investors and end users (see Question 1).

Institutional and private investors share the corporate real estate market with a ratio of 3:7.

Private investors are generally more active than institutional investors in the following real estate markets:

  • Residential.
  • Leisure (hotels).
  • Industrial.

 

REAL ESTATE LEGISLATION

3. Please briefly set out the main real estate legislation that applies in your jurisdiction.

Real estate legislation is formed from a system of standardised laws which regulate different subject areas (civil, land, and town planning), including the following federal laws:

  • Constitution of 1993.
  • Civil Code 1994, as later amended.
  • Land Code 2001, as later amended.
  • Town Planning Code 2004.
  • Federal Law On State Registration of Real Estate Rights and Transactions of 21 July 1997.
  • Federal Law of 24 July 2007 (No. 221-FZ) On State Cadastre of Immovable property.

This chapter does not cover specific regional laws and focuses on federal regulation. In addition, land law and privatisation law belong to the joint jurisdiction of Russia and the regions. Therefore, regional land legislation must also be carefully taken in consideration when dealing with regional projects.

TITLE

4. Please briefly state what constitutes real estate in your jurisdiction. Is land and any buildings on it (owned by the same entity) registered together in the same title, or do they have separate titles set out in different registers?

The following constitutes real estate:

  • Land parcels or plots.
  • Buildings.
  • Facilities on the land, for example:
    • pipelines;
    • electricity and communication cables;
    • railroads and motor roads.
  • Developments under construction (in certain circumstances).
  • Subsoil sectors.
  • Sea vessels.
  • Aircraft.
  • Space vessels.

Title to buildings and land (even when owned together) is always registered separately in the Realty Registry (see box, Real estate organisations).

5. How is title to real estate evidenced, for example by registration in a public register of title? Which authorities manage the public title register?

The Federal Registration Service manages the Realty Register, which to a certain extent, is publicly available (see Question 7).
The registry issues certificates of title which evidence title to real estate. The Realty Register contains legal information on titles and other real estate rights.

The Realty Register was only established in 1998 and does not contain exhaustive information on all Russian real estate. Titles to real estate that appeared before 1998 are valid and enforceable without registration in the Realty Register. However, title must be registered before entering into a transaction concerning the real estate.

6. Please briefly set out the information and documents registered in the public register of title, for example a description of the real estate, the owner, matters affecting the title and any relevant documents.

Information in the Realty Register includes:

  • A brief description of the real estate.
  • Details of titleholders.
  • Existing and terminated titles.
  • Transactions specified by the law as being subject to mandatory registration.
  • Property encumbrances and limitations, such as:
    • leases;
    • mortgages;
    • easements;
    • withdrawal for state needs.
  • Disputes and claims.
  • Contracts.
  • Acts and resolutions issued by authorities.
  • Court rulings.
  • Other information, such as:
    • public reservations;
    • withdrawal of the property for state or municipal needs;
    • unauthorised re-constructions.

The Real Property Cadastre is a separate registry that contains technical information on land and real estate. The Real Property Cadastre is expected to be finalised by 2012.

7. Can confidential information or documents be protected from disclosure in the public register of title?

Only limited information concerning the following is publicly available:

  • The property.
  • Encumbrances.
  • The name of the registered owner.

Other information can only be disclosed to the:

  • Current owner.
  • Tax authorities.
  • Courts.
  • Law enforcement and regulatory agencies.

8. Is there a state guarantee of title? Is title insurance available? If so, is it commonly used?

State registration of title is the only evidence of registered rights. Registered real estate rights can only be challenged through legal proceedings.

However, an entry in the Realty Register is not always a sufficient guarantee of title. The State Supreme Arbitration Court recently declared that relying solely on the Realty Registry records does not create the status of a bona fide purchaser. Careful legal due diligence concerning real estate is highly recommended before acquisition.

Title insurance exists but is more common in the residential real estate market.

9. How can real estate be held (that is, what types of tenure exist)?

Real estate can either be:

  • Publicly owned by the
    • state;
    • regions;
    • municipalities.

Public ownership of land plots can also be non-delimited, which means that there is no specified owner of the land.
Municipalities can generally dispose of non-delimited lands.

  • Privately owned by individuals and companies. Private property can also belong to two or more persons or companies
    (common ownership).

Rights that exist in addition to title ownership include:

  • Rights under:
    • leases;
    • easements;
    • mortgages.
  • The right of inheritable possession of a land plot for life (for individuals only) over publicly owned lands. Land plots with these titles are historical possessions and are not currently granted by the state.
  • The right of continuous (indefinite) use of land plots over publicly owned lands. Land plots with these titles are
    historical possessions and are currently granted only to a limited group of public enterprises and state agencies.
  • The right of economic jurisdiction over property held by state-owned enterprises and organisations. (Generally, the
    state is the property owner.)
  • The right of operational management held by state-owned enterprises and organisations. (Generally, the state is the
    property owner.)

SALE AND PURCHASE OF REAL ESTATE

10. What are the main stages and documents in the sale and purchase of real estate? In particular:

  • How is real estate marketed, when does commercial negotiation occur and what pre-contractual arrangements are used?
  • When is the sale contract negotiated and executed?
  • When are the parties legally bound?
  • When is the change of title registered?
  • When does title transfer and what are the formal legal requirements to transfer real estate (for example, in writing
    and signed by the parties)? Is notarisation required?

Marketing

Corporate real estate is usually marketed by:

  • Owners.
  • Professional real estate brokers.

Commercial negotiation

Commercial negotiations take place between the parties to a potential transaction, which usually involves lawyers and brokers.

Pre-contractual arrangements

A letter of intent or memorandum of understanding is generally executed to begin with. For a development under construction, a preliminary sale and purchase agreement, lease or other agreement is signed. On fulfilment of the conditions precedent stipulated in these documents, a master contract is executed.

Sale contract

The parties or their representatives execute the sale contract in simple written form as one document. Notarisation of a sale contract is not compulsory and only takes place if both parties agree.

The notary’s fee is negotiable and varies between 0.5% and 1.5% of the transaction price. The parties agree who pays the notary fee.

Notarisation of corporate real estate sale contracts is not common.

When legally binding

A sale contract generally becomes legally binding on execution by the parties. However, the following documents must be registered in the Realty Register to become legally binding:

  • Long-term leases.
  • Mortgages.
  • Easements.

Registration

Transfers of ownership through a sale contract must be registered in the Realty Registry to be enforceable.

When title transfers
Title transfers when the relevant entry is made in the Realty Register. This generally takes up to 30 days.

11. Does a seller have any statutory or other liability to the buyer in a disposal of real estate, for example to disclose real estate information, or in relation to title?

Seller’s obligations

The seller should disclose to a buyer everything he knows about the property’s:

  • Drawbacks.
  • Defects.
  • Encumbrances.
  • Limitations, such as:
    • power or underground infrastructure lines protections zones;
    • sanitary protection zones of neighbouring facilities;
    • water protection zones;
    • development limitations imposed by, for example:
      • airfields;
      • motor roads;
      • historical heritage protected buildings or places.

Buyer’s options

The buyer accepts the property “as is”, unless the seller fails to disclose issues that he had actual knowledge of. In this case, the buyer can:

  • Claim a proportionate purchase price reduction.
  • Demand that the property is replaced.
  • Claim the remedy of the defects in the property within a reasonable time at the seller’s cost.
  • Claim compensation for the buyer’s expenditure arising from work to remove the defects.
  • Withdraw from the sale agreement.
  • Terminate the sale deal, followed by mutual restitution. This involves putting the parties back in the situation they would have been in if the transaction had not been entered into.

If the property seriously violates real estate quality requirements, the buyer can refuse to fulfil the sale and purchase contract and demand the return of the purchase price. Serious violations include the discovery of:

  • Irreparable defects.
  • Defects that cannot be corrected without reasonable expenditure of time and/or money.
  • Defects that appear repeatedly or reappear after correction.
  • Other serious defects.

The buyer can require the seller to be joined to court proceedings, if a third party sues the buyer for transfer of the property, on grounds that arose before the sale contract was concluded. The failure by the buyer to involve the seller in litigation releases the seller from liability to the buyer, if the seller can prove that if it had taken part in the case, it could have prevented the property being transferred from the buyer to the third party.

Seller’s options

If the seller give full disclosure and the buyer fails or refuses to accept the property, the seller can:

  • Demand that the buyer accepts the property.
  • Withdraw from the agreement.

12. Please briefly outline the real estate due diligence that is typically carried out before an acquisition (including title investigation and searches of public authorities).

Due diligence usually takes place after signing a letter of intent. Real estate due diligence usually involves examination of:

  • The title of the seller and its validity.
  • Encumbrances and limitations.
  • Infrastructure and the supply of utilities.
  • The legal risks.

In addition to a review of the Realty Register, it is also advisable to check the status of real estate with the:

  • Real Property Cadastre, which contains technical data and a description of the real property. This Cadastre is currently in the process of absorbing the Land Cadastre and the Technical Inventory Bureau. As a result, the Land Cadastre and the Technical Inventory Bureau will be dissolved in the next few years.
  • Land Cadastre, which contains technical data and information on the land plots such as information relating to:
    • permitted use or zoning;
    • a boundaries description;
    • site dimensions;
    • infrastructure that crosses or affects the land plot;
    • limitation zones.
  • The Land Cadastre is currently in the process of merging with the Real Property Cadastre (see above).
  • Technical Inventory Bureau, which contains technical data and information on the buildings and facilities such as their:
    • dimensions;
    • footage;
    • height;
    • location on the site;
    • infrastructure.
  • The Bureau is currently in the process of merging into the Real Property Cadastre (see above).
  • City or town development plan (if any) (see Question 39).

13. What real estate warranties are typically given by a seller to a buyer in the sale of corporate real estate and what areas do they cover?

The seller typically guarantees to the buyer that:

  • The real estate is free of third party rights that the buyer does not know about.
  • The real estate has not been seized or pledged as security.
  • There are no limitations, encumbrances, disputes, or in-court claims relating to usage rights.
  • All corporate approvals and procedures are observed.
  • All obligations of the previous property owners have been properly fulfilled and the requirements of anti-trust legislation(if applicable) have been adhered to.
  • Public utility contracts have been entered into and are in effect, which enable the use of the property for the designated purpose.

14. Can an owner or occupier inherit liability for matters relating to the real estate even if they occurred before it bought or occupied it? For example, environmental liability, or liability under a lease.

An owner or occupier is not generally liable for pre-ownership or preoccupation matters (for example, environmental matters), provided he can prove that liability occurred before his ownership or occupation.

An occupier is not generally liable under a lease if liability occurred before he occupied the property. The party breaching the contract generally remains liable for the breach, even if an owner or occupier changes later on, unless a contract states otherwise.

15. Does a seller or occupier retain any liabilities relating to the real estate after it has disposed of it? For example, environmental liability, defects in the real estate, and contractual liability to the buyer.

The seller has liabilities in relation to the information it discloses to the buyer before sale (see Question 11).

Those rules also apply to environmental liability, provided the new owner can prove that contamination took place before property was transferred to the new owner.

16. What costs are usually paid by the buyer? What costs are usually paid by the seller?

The Realty Register charges a state registration fee of about RUR15,000 (as at 1 September 2010, US$1 was about RUR30.8) to register a title conveyance of every item of real estate. The buyer generally pays this fee (though the parties can decide otherwise).

Buyer’s costs

The buyer’s costs include the fees of his:

  • Broker.
  • Surveyor.
  • Legal adviser.
  • Seller’s costs

The seller’s costs include the fees of his:

  • Broker.
  • Surveyor.
  • Legal adviser.

REAL ESTATE TAX

17. Is value added tax (VAT) (or equivalent) payable on the sale or purchase of real estate? Who pays? What are the rates? Are there any exemptions?

Transactions involving the sale of corporate real estate are generally subject to VAT at the rate of 18%. VAT and the purchase price are payable by the buyer to the seller, who transfers the VAT to the state.

The sale of land plots is exempt from VAT.

18. Is stamp duty/transfer tax (or equivalent) payable on the sale or purchase? Who pays? What are the rates? Are there any exemptions?

No stamp duty or transfer tax is payable on the sale and purchase of real estate. The Realty Registry fee does not depend on deal value and is about RUB15,000 for each item of real estate.

Notarisation of sale contracts is not compulsory (see Question 10, Sale contract).

19. Are any methods commonly used to mitigate real estate tax liability on acquisitions of large real estate portfolios?

A corporate acquisition is commonly used to mitigate tax liability. The sale of the shares of a special purpose vehicle (SPV) that owns real estate is VAT exempt.

However, the courts often apply the doctrine of business purpose, which in certain cases minimises the possibility of mitigating real estate tax liability using corporate acquisition.

HOLDING BUSINESS PREMISES

20. Are there targets to reduce greenhouse gas emissions from buildings in your jurisdiction? Is there legislation requiring buildings to meet certain minimum energy efficiency criteria? If yes, please give brief details.

The Energy Saving Law was recently adopted. However, there are no specific:

  • Figures or targets to reduce greenhouse gas emissions from buildings.
  • Minimum energy efficiency criteria for buildings.

21. Is it common for companies to manage their real estate portfolios and their accommodation needs by using third parties, for example through outsourcing transactions? If yes, please give brief details.

Owners of office premises, warehouse facilities and hotels generally employ professional companies or use outsourcing arrangements for property management. However, industrial properties are generally managed by owners themselves.

For real estate disposals, outsourcing consultants are usually involved, such as:

  • Brokers.
  • Auditors.
  • Lawyers.
  • Civil engineers.
  • Environmental experts.
  • Independent appraisers.

22. Are there restrictions on foreign ownership or occupation of real estate, or on foreign guarantees or security for ownership or occupation?

Generally, foreign persons have the same rights, guarantees and security as local companies and individuals. The following federal law restrictions apply to foreign persons:

  • They do not have the right to own land plots alongside national borders.
  • They cannot own agricultural land plots. This restriction also applies to Russian companies in which over 50% of the authorised capital belongs to foreign persons.
  • They cannot conclude transactions establishing control over businesses of strategic importance for national defence and security, for example:
    • military and nuclear businesses;
    • telecoms.

23. Does change of control of a company affect its holdings of real estate?

Changes in the ownership of a company generally do not affect the holdings of real estate, unless foreign ownership is involved (see Question 22). Change of control of a company is often used to acquire effective control over real estate. However, the buyer is buying not only the company’s assets but also its liabilities.

24. In what circumstances can local or state authorities purchase business premises compulsorily? Is the purchase price market value?

Legislation provides an exhaustive list of cases where ownership rights can be terminated without the owner’s consent. For example, a land plot with real estate on it can be seized for:

  • State or municipal needs.
  • The allocation of facilities of federal or regional:
    • transport;
    • railways;
    • information and communication.
  • Fulfilment of international treaties.

Property can be seized from the owner based on a court resolution for state or municipal needs, under specific procedural requirements.

In these cases, the purchase price is the market price estimated by an independent appraiser.

25. Are municipal taxes paid on the occupation of business premises, for example business rates? Are there any exemptions?

Legislation does not impose any specific municipal tax on the occupation of business premises.

A regional property tax (that does not apply to land plots) is fixed by regions. It cannot exceed 2.2% of the property’s book value.

Land plots are subject to land tax established by the municipal authorities.

The tax rate cannot exceed 1.5% of the land plot’s cadastral value. The regional authorities establish the land’s cadastral value.

REAL ESTATE FINANCE

26. How are acquisitions of large real estate portfolios or companies holding real estate generally financed?

Acquisition of large real estate portfolios or companies holding real estate is generally financed by:

  • Syndicated lending.
  • Initial public offerings (IPOs).
  • Secondary public offerings (SPOs).

27. How is real estate commonly used to raise finance?

Secured lending

Secured lending is commonly used to finance a business and is used by bankers and institutional investors.

Sale and leasebacks

Sale and leasebacks are comparatively uncommon and are mainly used for warehouses and retail property. The tax authorities have created negative case law concerning the tax consequences of using these structures, which has made them unpopular. This particularly applies where there appears to be no evident “business purpose” for the deal.

28. What are the most common forms of security granted over real estate to raise finance? How are they created and perfected (that is, made valid and enforceable)?

The most common forms of security granted over real estate to raise finance are a:

  • Property mortgage (subject to recording with the Realty Registry).
  • Pledge of shares of a property holding company.
  • Corporate guarantee.
  • Individual guarantee.
  • Bank guarantee.
  • Pledge over bank accounts.
  • Pledge over receivables.

29. Is real estate securitisation common in your jurisdiction? If yes, please give brief details.

Mortgage-backed securitisations are recognised by law. However, they are not commonly used due to the undeveloped local securities market.

REAL ESTATE LEASES

30. Are contractual lease provisions regulated or freely negotiable?

The lease provisions of privately owned corporate real estate are generally freely negotiable.

However, specific rules and limitations apply to publicly owned (state and municipal) property (see Question 32).

31. How are rent levels usually reviewed and are there restrictions on this? Is VAT (or equivalent) payable on rent?
Rent

Rent payments are generally divided into the following three components:

  • Base rent price, that is, the landlord’s remuneration.
  • Operating expenses (OPEX), such as:
    • management;
    • lift maintenance;
    • cleaning of public areas;
    • visitor reception services.
  • Payment for utilities consumed by the tenant including:
    • electricity;
    • water;
    • gas.

There are no restrictions on corporate real estate property rent levels. Rent review frequency is fixed in the lease but cannot be more often than once a year.

Base rent rates and OPEX are usually established in US dollars per square metre per annum and are payable quarterly, in Russian roubles.

The use of public utility services is measured from readings taken from meters installed on the premises. Utility charges are calculated using current tariffs established by regulatory legal acts and in contracts between landlords and public utility providers (open books concept). If the established tariffs change, the amount paid by the tenant under the utilities fee changes accordingly.

VAT

Rent payments under leases are subject to VAT at 18%. Under specific conditions, rentals for office premises leased by epresentative offices of foreign companies may be VAT exempt.

32. Is there a typical length of lease term and are there restrictions on it? Do tenants of business premises have security of occupation or rights to renew the lease at the end of the contractual lease term? If yes, please give details.

The length of the lease term for private commercial real estate is not limited, and generally varies from five to 15 years. There is a statutory maximum lease term of 49 years for farm land and for all publicly owned real estate.

If contractually agreed, on expiry of the lease term (and having properly fulfilled its obligations), the tenant has the pre-emptive right over others to conclude a lease for a new term. The tenant must provide the landlord with written notice of its intention to sign a new lease within the period indicated in the lease, or if no period is indicated, within a reasonable time before the lease’s expiry.

However, if at the end of the lease term, the property owner decides to no longer lease out the property, the pre-emptive right of the tenant does not apply. If the landlord refuses to sign a lease for a new term with the tenant on these grounds, but within one year of expiry of the lease, signs a lease with another tenant, the original tenant can claim in court either:

  • Assignment of the executed lease agreement to itself.
  • Compensation for the damage incurred.

33. What provisions or restrictions typically apply to the disposal of the lease by the tenant (for example, can the tenant assign or sublet the lease with the landlord’s consent)?

With the landlord’s prior consent, the tenant can generally:

  • Sublet the property to a subtenant (liability to the landlord under the lease remains with the tenant). The duration of a sublease may not exceed the duration of the master lease.
  • Assign the lease to a new tenant (liability to the landlord under the lease passes over to a new tenant).
  • Pledge lease rights as collateral, and contribute them to a company’s authorised capital.

The property owner is free to sell or mortgage the leased property without the tenant’s consent. The sale or mortgage of the leased property does not negatively affect the tenant, that is, the lease remains unchanged.

34. Can tenants usually share their business premises with companies in the same corporate group? If yes, on what terms?

Sharing premises is common and is generally arranged through a sublease, that is, a tenant subleases part of the leased remises to other companies in the same corporate group. A sublease requires the landlord’s prior consent unless the consent to sublease to the companies in the same corporate group has been granted in the lease. Because these inter-company subleases are generally a formality, premises are subleased on the same terms and conditions of the master lease. Although the terms are negotiable, to avoid potential negative tax implications, the rent payable under the sublease is generally not less than the master lease rent.

35. Who is usually responsible for keeping the leased premises in good repair?

The owner or landlord generally carries out extensive or major repairs to the leased property at its own expense, unless agreed otherwise. The landlord must:

  • Maintain the property in working order.
  • Carry out ongoing repairs at its own expense.
  • Cover expenses related to the upkeep of the property, unless agreed otherwise.

The tenant is responsible for minor refurbishments and the fitting-out of the premises.

36. Who is usually responsible for insuring the leased premises?

Insurance is not mandatory for a leased premises. However, at its own expense and in its own interests, the landlord or owner insures the property against damage or destruction. At its own expense, the tenant can insure his personal property at the leased real estate. In addition, the landlord often insists that the tenant takes out third-party civil liability insurance in connection with the use of the leased property.

37. On what grounds can the landlord usually terminate the lease? Please briefly outline any restrictions or procedure that applies. Can the tenant terminate the lease in certain circumstances?

A court can prematurely terminate the lease on the landlord’s demand when the tenant:

  • Uses the property in serious violation or commits repeated violations of:
    • the lease;
    • the intended use of the premises.
  • Causes serious deterioration of the property’s condition.
  • Fails, more than twice in consecutive months, to pay rent within the time stated in the lease.

A court can prematurely terminate a lease on the tenant’s demand when:

  • The landlord:
    • fails to place the property at the tenant’s disposal;
    • creates obstacles to the use of the property under the terms of the lease or the intended use of the property.
  • The leased property has inherent defects that both:
    • impede the use of the property and were not revealed to the tenant by the landlord at the time of signing of the lease;
    • were previously unknown to the tenant and were unable to be uncovered at the time of inspection of the premises and verification of its good working order.
  • The landlord fails to carry out extensive repairs to the rented property in the time established by the lease, or if there is no contractually agreed time frame, within a reasonable time.
  • Due to circumstances beyond the control of the tenant, the property turns out to be in a condition unfit for use.

The parties can contractually agree other conditions under which the lease can be terminated prematurely. This includes a tenant’s right to early unilateral termination of a lease without grounds, by giving written notice to the landlord. Early termination of the lease can take place both in court and out of court (by written notification).

38. What is the effect of the tenant’s insolvency (under general contract terms and insolvency legislation)?

There are no special rules in the legislation about the consequences of the tenant’s insolvency (except liquidation). Liquidation of a tenant is a statutory ground for early termination of the lease.

A tenant’s insolvency can be grounds for early termination of the lease. The landlord’s interests are partially protected by:

  • The security deposit retained by the landlord.
  • A contractually agreed right to prematurely terminate the lease without a court order, for delayed payment of rent due to the tenant’s insolvency.

PLANNING LAW/ZONING

39. What authorities regulate planning control and which legislation applies?

Various government authorities are responsible for the enforcement of town planning regulations, including the:

  • Federal Supervisory Service for Nature Protection.
  • Federal Supervisory Service for Consumer Protection and Human Welfare.
  • Federal Ministry for Regional Development.

The Federal Town Planning Code specifies the following elements of a planning or zoning activity:

  • Territorial planning. This defines the function of territories on territorial planning charts.
  • Zoning for urban development, that is, the zoning of territories of municipalities to determine territorial zones and create town planning regulations.
  • The layout of territories (that is, separating elements of the planned structure, such as blocks, micro-districts and other elements) to establish the boundaries of land plots, on which extensive construction projects and linear infrastructure
    are intended to be built.
  • The design, construction and reconstruction of real estate, from engineering surveys to the commissioning or operation permit.

40. What planning consents (for example, planning permission or building permits) are required and for which types of development?

Before starting construction works, a building permit must generally be obtained from the municipal authorities.

The operation of a building requires an operation permit, which is generally issued by a municipality. An operation permit is required, among other things, to record title to the constructed building in the Realty Register.

41. In relation to planning consents:

  • Which body grants initial planning consents?
  • Do third parties have the right to object? If yes, please give brief details.
  • In what circumstances is there a public inquiry?
  • How long does an initial decision take after receipt of the application?
  • Is there a right of appeal against a planning decision? If yes, please give brief details.

Initial consents

To begin development, a developer must obtain an architectural assignment for the development of project documentation (this is different from the construction permit or construction licence). The assignment is subject to approval from local architecture and urban development authorities.

Third party rights

Third parties that are negatively affected can:

  • Object to the state and municipal supervisory authorities.
  • Begin court proceedings.

Public inquiries

Public hearings take place in the early stages of town planning, during urban development zoning and the laying out of territories. Public hearings are not required for the design process.

Initial decision

It generally takes about two to six months to:

  • Conduct engineering surveys.
  • Establish the technical conditions necessary to connect to public utilities and infrastructure.
  • Finish the architectural assignment.

The design is produced based on these surveys, technical conditions and the architectural assignment. The construction permit is issued shortly after the design successfully passes the state examination (that is, appraisal and assessment).

Appeals

An act (or failure to act) by a state or municipal authority that violates a developer’s rights can be appealed through court proceedings.

REFORM

42. Please summarise any proposals for reform and state whether they are likely to come into force and, if so, when.

The current general development permit system is outdated and requires reform to make the system more reasonable and effective and more aligned to European practice. Reform of development regulation began with the replacement of the construction licensing system. Before 1 January 2010, state agencies issued construction licences. From January 2010, they were issued by non-governmental self-regulated associations of construction companies, designers and surveyors.

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