CRE – What is new in 2009? A lawyer’s outlook

03.03.2009

Traditions are positive, as they represent stability. Russia has decided not to break with tradition by releasing a series of legal acts and announcing a number of initiatives involving commercial real estate right on the cusp of the New Year.

If we limit the scope of our discussion to the documents directly affecting real estate, we should probably start with innovations in pledge legislation. First of all, foreclosure proceedings on pledged property have been simplified. Subject to certain exceptions, the new legislation permits agreements to be concluded for foreclosing on pledged assets in out-of-court settlements at any stage of the transaction, including at the time of the signing of the transaction. Previously, the default of the debtor was mandatory before this option could be exercised. Secondly, the timelines for certain registration activities have been reduced significantly – from 30 to 5 days for the registration of residential mortgages, from 30 to 3 days for the termination of a mortgage. Thirdly, the above innovations in legislation provide additional opportunities to transfer pledged assets to the pledge holder and foreclose on pledged property on the basis of an executive endorsement made by a notary.

Furthermore, the federal government passed a resolution extending the moratorium on transactions with federal land established in April 2008 for another year. This could have “buried” a great deal of interesting investment projects if they had not been suspended or closed out for obvious reasons.

The Supreme Arbitration Court has also contributed to tradition by publishing several notable decisions on the privatisation of brownfield sites. One of them, Resolution No. 8985 of 23 December 2008, deprived the owners of unfinished construction projects of the right to privatise land at “preferential” prices, as provided for in Article 36 of the Russian Land Code. Apparently, the above position would have ruined the plans of developers and investors owning facilities that have not been commissioned and seeking to privatise the land by 2010, in other words before the expiry of federal regulations on privatisation at “preferential” prices. Fortunately, a possible solution can still be expected from the legislator. Specifically, the State Duma has received draft amendments proposing an extension in “preferential” prices for the privatisation of brownfield sites to 2013 and deferral of the original deadline for re-registering the right of permanent use to this date. The owners of railways, power transmission lines, pipelines and other linear utilities could see this deadline extended even further – to 2016.

Another resolution of the Supreme Arbitration Court places restrictions on the parties entitled to privatise a development site at “preferential” prices. The restrictions refer to land plots with real estate originally privatised from state property. In the opinion of Russia’s highest judicial authority, “preferential” prices for the privatisation of land will only be available to the original owners of the privatised real estate. All subsequent owners must privatise the land occupied by facilities in accordance with standard prices.

In addition to the above, please note that 1 January 2010 is the deadline for other essential practices involving CRE development and investment. First of all, this date brings to an end the popular practice of applying the simplified procedure to convert agricultural land by including relevant land plots within the boundaries of population centres, which is relatively easy to implement. Secondly, in the absence of land use and development regulations, the authorities will be unable to provide land for new construction. Finally, the authorities lose the right to adopt decisions on reserving, withdrawing or converting land from one category to another if they haven’t first adopted territorial planning regulations.

As the drafting and approval of land use and development regulations and territorial planning documents necessitate substantial time and cognitive resources and only a limited number of regions and municipalities have succeeded or made significant progress in developing such documents, there is a serious risk that new investment and development projects implemented in “lagging” regions (which are as it is very few in number) could come to a dead end.

Something tells me, however, that Russia will this time, towards the end of the year, take one more step in strengthening its traditions and reputation for consistent inconsistency (that it has already successfully demonstrated four times by shifting deadlines for the re-registration of the permanent right to use land) and will defer the deadline for approval of territorial planning documents and land use and development regulations until 2013, naturally, to ensure consistency.

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