Land Wars

09.02.2015

Commercial Real Estate # 3 (247)

On April 1 of 2015 the recently adopted federal law on the seizure of land lots for government and municipal needs will officially take effect. Experts tried to sort out all pros and cons of the new legal norm.

On New Year Eve the State Duma passed the new federal law #499-FZ as of Dec. 31, 2014 “On entering amendments to the Land Code of the Russian Federation and some legislative acts of the Russian Federation”, setting a new procedure of seizing land for state and municipal needs. On the one hand, this may allow the government to solve the tasks of infrastructure development and to carry out various investment programs more efficiently. But on the other hand, availability of this instrument will entail certain risks both for potential investors and for other participants of the commercial real estate market.

As was noted by Andrei Kirsanov, deputy general director of MR Group, the law allows for the seizure of land lots only in exceptional cases, if the construction of projects of federal, regional and local importance, having special significance and needed, among other things, for territorial development, is otherwise impossible. “Among such objects are motorways, power, gas and heat supply systems, objects of centralized hot and cold water supply and drainage systems, objects of federal transport and commonly used railway transport infrastructure,” lists the expert.

Ekaterina Lapidus, partner of the real estate and construction practice at Brandi Partners, said that until recently the issues of land seizure for public needs were regulated by just several articles of the Civil and Land Codes of Russia. “As for compensation in view of land seizure, the amount of land redemption price was fixed only for landowners, while no compensation was stipulated for lessees or other title holders.”

In addition, the procedural issues of land seizure for public needs were regulated too generally and contained a number of mute points.

“To remove the said flaws, the federal law under consideration was adopted: it introduced a number of new legal developments and amendments to the Land and Civil Codes of Russia, as well as a number of other legal acts regarding the seizure of lands for state and municipal needs,” illumined the expert.

One of the key points in the said legal developments was establishing a detailed procedure of decision-making by government authorities regarding the seizure of land lots, the procedure of preparing and concluding seizure agreements as well as the specifics of fixing the amount of compensation in view of the land seizure.

“Earlier such norms had been targeted for every major infrastructural project, but now the procedure is getting more civilized and market-oriented, which to a certain extent must increase the guarantees of the real estate market participants,” opined Tatiana Tikova, vice president for strategy and asset management at PSN Group.

Extremely important for the commercial real estate market participants is the fact that the given legal developments specify the procedure of paying compensation in view of the land seizure not only to landowners, but also to land users and lessees of land lots, including the coverage of benefits foregone. In the opinion of Tatiana Tikova, in practice it is the definition of the benefits foregone (lost profits) as well as the definition of the equitable market value that can become the main points at issue in the process of land seizure.

Experts do not rule out situations, whereby the title holder may not be fully recompensed for the seized land. “The law stipulates that the market value of the land lot should be determined; however, in fixing the indemnification amount, real estate assets (structures) located on the seized land are not liable to being accounted; neither are inseparable improvements of the given objects, made contrary to the permitted use or contrary to the terms of leasing the state-owned or city-owned land,” comments Maxim Popov, head of the Real Estate and Construction practice at Goltsblat BLP.

Among the other downsides, it should be noted that with the enactment of the new law the procedure of coercive seizure of land will be shorter than in the existing one, which won’t play into the hand of land owners and lessees. Thus in case the title holder of the land refuses to sign the seizure agreement, the authorities may demand the seizure at court in 90 days after the owner receives a draft agreement.

We should remind that at present coercive redemption is possible only in a year after the land seizure decision is made.

In addition, the law specifies the bodies that can make the seizure decision, as well as a rather wide circle of officials authorized to take initiative at land seizure. Thus the right to take initiative at land seizure is granted, among other entities, to state-owned unitary enterprises and companies, for their fulfilling a target investment program.

Taking into account the main contents of the law, it is quite obvious that the new provisions are upsides for some and downsides for others. They benefit the government authorities and legal entities, in favor of which the land is seized. The title holders of these land lots, on the contrary, will become more vulnerable.

“The new law to some extent lowers the degree of stability in property ownership. Commercial real estate owners should be prepared to face the fact that if the authorities need their land for some reason, they will be able to withdraw it faster and easier than before. Large shopping centers and logistics complexes adjacent to federal and regional motorways are in the risk zone, in the first place,” noted Mr. Popov.

Author: Asiya Salahetdinova

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