Real estate and development: new developments over the next few months

20.09.2012

Investors and owners should note new laws that alter regulations on construction, property maintenance and land privatization.

Early 2012 saw several federal laws come into force that had a significant effect on the real estate market. The first change to note is the end of “discount” land privatization rates for owners of buildings and facilities located on public land plots.

Setting the price of land privatisation

Since 2001, the Russian regions have had the right to set the price for privatisation of land on their territories. Moreover, the federal law set only an upper limit to the price: in Moscow and St Petersburg, for instance, it could not exceed 30 times the land tax rate.

Then, in 2007, reduced privatization rates were introduced for owners of real estate with a “public” history, though these reduced rates were set to end in 2010.

Finally, after several extensions, a system was formed to determine the privatisation price of public land plots for owners of real estate located on them, which was in force until just recently. The principle was simple: the public owner of the land plot determines its price. For land plots, title to which has not been defined among the three levels of state/ municipal power, the regions set the price.

The only federal limit is that the price of a land plot should not exceed its cadastral price. Until the designated authority organ determines the price of a land plot, its price is set as equal to the cadastral price.

The federal authorities have yet to determine the privatisation price for their land plots, so these plots are sold at the cadastral price, just as in the City of Moscow. The Moscow Region, on the other hand, preserved the rate that was in effect before 1 July: as a rule, this is ten-fold the land tax rate, or 15 per cent of the cadastral price.

Expansion of Moscow and rights of first refusal to purchase

The expansion of Moscow officially occurred on 1 July 2012, since when all land on the territory of “New Moscow” is categorised as the urban land.

Furthermore, the City of Moscow has the right of first refusal to purchase until 1 January 2025 whenever any private land plots categorised as farmland before the change to Moscow's borders are sold. Among other things, the expansion gave Moscow a reason to put off the deadline for approving land use and development rules until 31 December 2014 (instead of 31 December 2012).

In addition to all this, real estate owners should already start preparing for a whole package of new federal laws that will come into force in January 2013.

No construction without land use and development rules

Starting January 2013, close attention to preparation of area planning documents and municipal land use and development rules will be vital: if they are not in place by 2013, no construction permission can be granted and, with rare exceptions, land plots will not be provided for construction from territories owned by the government or a municipality.

Moreover, the current simplified process for extending the borders of towns and villages to include land plots of various categories will not longer be available.

Safe operation of buildings

By 1 January 2013, owners should make provisions for drawing up rules for safe operation of buildings and facilities if project documents indicating safe operation requirements are lacking.

In addition, starting 1 January 2013, a new chapter of the Russian Town Planning Code will come into effect. The chapter entitled “Operation of buildings and facilities” will regulate, in particular, compensation for harm caused as a result of destruction of or damage to permanent facilities, as well as violation of safety requirements during construction and the requirements for safe operation of buildings and facilities.

Rights of perpetual use

Legal entities that hold land plots on the basis of perpetual use right should convert this right into a tenancy right or acquire ownership of the land. (This does not, of course, extend to government or municipal organs and state-run enterprises that are entitled to hold land on this title). From 1 January 2013, article 7.34 will be added to the Code of Administrative Offences, defining liability for failure to comply with deadlines and violations of the method for converting rights of perpetual use to land plots: the fine will range from 20,000 to 100,000 roubles ($620 to $3,100).

Construction or reconstruction of utility lines

31 December 2012 sees the end of the interim rule under which town-planning lay-outs for land plots can be provided for construction or reconstruction of transport, communications and utility lines. From 2013 onwards, a territory development plan and draft boundary survey will be needed.

Roadside infrastructure and buildings

The owners of utility lines, roadside service facilities and advertising structures located on highway dedications and shoulders are obliged to obtain an easement for the relevant land plots by 1 January 2013. Moreover, owners of utility lines are required, by the same time, to sign the requisite agreements or obtain permission from the highway owner including the necessary technical requirements and conditions. From 1 January 2013, use of utility lines without such agreements or permission will carry administrative liability, the fines ranging from 50,000 to 80,000 roubles ($1,600 to $2,500).

Contact details

For all issues related to publications, news and press releases, please contact:

Ksenia Soboleva

Head of PR and Communications

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