Lease of Parts of Premises

Philip Tsukanov
Pepeliaev Group

Companies operating in various industries may need to lease parts of premises. It goes without saying that primarily these issues affect banks and companies that provide e-payment services through payment terminals. More often than not they need to lease small parts of the premises in busy locations (shopping malls and business centers, airports, railway stations, night clubs, etc.) where they can install ATMs and payment terminals.

For a long time it was unclear whether a part of premises could be recognized as the subject matter of civil law contracts, inter alia, lease agreements. Opponents claimed that it was impossible to recognize a part of the premises as the potential subject matter of a lease agreement, as this part could not be identified, and that it was impossible to determine the part in respect to which the agreement had been concluded, as the leased parts were measured in square meters and located inside larger premises. Meanwhile, if this part of the premises was isolated and separated from the rest of the premises (by walls, partitions, etc.), the lease would apply to separate premises, rather than a part thereof.

At the same time, civil legislation states that other properties not directly stipulated in the Russian Civil Code may also be classified as immovable assets. The federal law on the state registration of real estate property rights and transactions has acknowledged that agreements for the lease of a part of the premises may be registered ever since the issue of the first version of the law. Moreover, most legislators also acknowledged that a part of premises may be classified as the subject matter of civil rights, provided that they are clearly separated.

Accordingly, the classification of parts of premises as the subject matter of lease agreements in general is not the issue, but rather the options and methods available for identifying parts of premises.

Before May 2008 it was common practice to use different colors to show leased premises and/or parts thereof on the floor plan and to specify the total area of the leased parts of the premises in the lease agreement. The courts proceeded from the fact that a floor plan with marked out premises for lease attached to the agreement made it possible to determine the will of the parties in respect to the parts of the premises that had been leased.

Following the adoption of Federal Law No. 221-FZ, dated July 24, 2007, on the state real estate cadastre (hereinafter — the “Law on Cadastre”), the procedure for identifying parts of premises changed. Now the courts proceed from the fact that parts of the premises should be described in the lease agreement with due account of cadastral records. A reference to parts of premises that have been marked up in a specific color on the floor plan of the building for identification purposes without any description of these parts and without the actual registration of these parts by the relevant authority may not be regarded as specification of the subject matter of the lease agreement.

In other words, if parts of premises are leased without the registration of information about such parts in the state real estate cadastre and without an appropriate description of these parts of the premises in the agreement (location, size, area, number of leased parts of the premises and precise description of their location within the premises), courts tend to rule that the subject matter of such agreements has not been agreed upon and that no actual agreements have been concluded.

It is well-known that a cadastral passport of the relevant property should be attached to the agreement on the lease of immovable property. Although the law permits the lease of a part of premises, at present approved forms of cadastral passports do not include a relevant form applicable to a part of premises. Accordingly, this leads to the following legitimate question: What document will be used to confirm that parts of the premises were registered for the purposes of cadastral registration and will include their main characteristics?

As indicated above, parts of premises should be registered in the state real estate cadastre. Based on the results of cadastral registration, the authority responsible for cadastral registration should issue a cadastral statement about the real estate property, containing information on the part of said real estate property subject to limitations (encumbrances) stipulated by property laws (Clause 2, Article 23 of the Law on Cadastre). To date the form of such a statement has not been approved. We assume that in this case the state cadastre authority will issue cadastral passports for all the premises, specifying the parts of the premises that have been registered. Moreover, according to the Law on Cadastre, information on the parts of the premises subject to cadastral registration should also be specified on the technical plan.

It is still not clear whether parts of premises may be identified in a lease agreement in another way if the agreement is short-term and, consequently, is not subject to state registration. We believe that it is advisable to interpret the requirement to obtain a cadastral passport more broadly and to apply it to all agreements on the lease of parts of the premises, as the property acquires characteristics that make it possible to separate it from other real estate properties during cadastral and technical registration.

We may draw a conclusion that it is possible to lease parts of premises. However, in view of existing court practice, it should be borne in mind that, to be able to conclude an agreement on the lease of a part of the premises, that part should be registered in the state cadastre and assigned a number, and corresponding information should be specified in the aforementioned lease agreement. Furthermore, a document issued based on the results of the state cadastral registration of this part of the premises (cadastral statement [passport] and/or technical plan) should be attached to the agreement.