Regulating Multiple-Owned Buildings: At Last a More Definitive Approach?

Andrei Soukhomlinov
Partner and co-head of the Russian Real Estate Practice

Until recently, no law or regulatory guidelines existed for the legal regime of common-use areas in a commercial nonresidential building where different premises are owned by different owners. Regulations were only established for residential premises and for buildings developed under Law No. 214-FZ of Dec. 30, 2004.

Moreover, courts had no uniform approach to disputes between owners of separate premises in a single building over coordination issues, such as maintenance and repairs of common structures, utilities, plant and machinery, and common internal and external usage or redevelopment.

In Resolution No. 64 of July 23, 2009, the Supreme Arbitration Court indicated that premises owners in commercial buildings should rely on the Civil Code, Housing Code and other laws regulating similar relationships between residential premises owners. Applying such a legal analogy means that a premises owner in a commercial building has a share in the common ownership of common areas in the building, including any premises designated for servicing more than a single unit of premises, landings, stairs, halls, lifts, corridors, technical floors and mechanical, electrical and other machinery.

The right to a common property share occurs when a premises in a building belonging to a single owner is transferred to another entity, giving rise to two or more separate premises owners in the same building. The size of each owner’s share in common property should be determined pro rata to the area of the owner’s premises in the building and cannot be changed even by owner consent. This raises concerns as to whether existing agreements that allocate shares in common property between owners differently now need to be revised following these newly established guidelines.

Furthermore, Resolution 64 does not directly mention land plots as part of common property. This creates further uncertainty over how individual premises owners’ rights relate to accompanying land plots. The Land Code (or indeed any law) does not specifically define the rights of individual premises owners in a commercial building to the accompanying land plot. Only a general provision exists that, if the title to a building is transferred to several co-owners, the land plot should either be used considering their shares in common ownership or by continuing to follow the pre-existing system. Additionally, under the Land Code, the owner of a building located on a land plot owned by another person has the pre-emptive right to purchase or lease that land plot. However, Russian law does not always clearly distinguish between a “building” and “premises” (a part thereof), and it is therefore unclear if all separate premises owners in a multiple-owned building can rely on this provision.

Further questions arise should one of the owners decide to sell their premises in a multiple-owned building to a third party. The new owner will not be bound by any agreements or internal rules agreed between the previous owner and other owners unless the new owner becomes a party to all these agreements. Moreover, it will be difficult, if not impossible, to impose any restrictions on the new owner’s use of the acquired premises, even though this may prove crucial if the building is operated, for example, as a shopping center where avoiding unnecessary competition between retailers is desirable.

In conclusion, the adoption of Resolution 64 was a markedly positive step toward creating definitive regulation of multiple-owned commercial buildings in Russia, although there are still a number of issues requiring clarification. It is envisaged that premises owners in multiple-owned buildings will now have a clearer understanding of their rights over common-use premises.