Industrial Real Estate Construction: Legislation Update

UnknownGlenn S. Kolleeny
In recent years Russia has witnessed steady investment growth -- especially foreign investment -- in industrial real estate construction. In late 2006 a number of statutes were amended to eliminate administrative barriers in the construction field, some of which have an effect on the legal relationships in industrial construction. These changes do not appear to hinder the aforementioned rise in investment.

Acquiring Title to Land Plots

Although Russia now has a complete basic legal framework in place to govern real estate relations, the state remains reluctant to give up its land rights. For example, leases are still the primary means for conveying land -- even after the enactment of Moscow government decree No. 431-PP dated June 27, 2006. This decree was designed to regulate the procedure for transferring ownership of land plots to the owners of any buildings or structures situated on such plots.

Tax-Deductible Expenses

Federal Law No. 286-FZ dated Dec. 30, 2006 added new Article 246.1 to the Tax Code. Under the new provision, some expenses incurred to acquire land rights may be reported as production/sales costs.

Construction Legislation

There have been important changes to the laws governing industrial construction investment. Federal Law No. 111-FZ dated July 18, 2006, provides that when legal entities are engaged in real estate construction other than under joint participation agreements, their relations are exempt from Federal Law No. 214-FZ dated Dec. 30, 2004. This means that when industrial construction projects are based on investment agreements rather than joint participation agreements, the relations involved are governed by investment laws.

Natalia A. Diatlova
Brownfield Site Development

Law 232-FZ added Articles 46.1 to 46.3 to the Town Planning Code. The new provisions enable integrated development of "brownfield" sites. Article 46.1 provides that built-up sites will be developed within the boundaries of one or several multi-use zones of a town planning subdivision, block or neighborhood, or parts of those zones. The decision to develop a brownfield site rests with the local government, acting on the initiative of a governmental authority at the Russian Federation constituent territory ("Subject") level or a local governmental authority; or at the initiative of one or more individuals or legal entities, if there are currently apartment buildings on the site that are condemned and scheduled for demolition or that are slated for reconstruction. The local government (or organizations contracted by it) are responsible for organizing an auction for the right to enter into an agreement to develop the site.

Documentation Procedures

Federal Law No. 232-FZ dated Dec. 18, 2006, amended the Town Planning Code. The amendments simplify the procedures for state expert evaluation of project documentation. The new law eliminates the 10 types of expert evaluations that were previously required, replacing them with a single consolidated expert evaluation that is to be completed by an executive authority at the federal or Russian Federation subject level. The procedures for state expert evaluations have also changed. The federal authorities have the option to delegate organization and performance of expert evaluations to subject-level authorities, but the federal authorities can reassume these functions if the subject-level authorities fail to execute the tasks properly.

Ksenia V. Bruk
One important aspect here is that the environmental expert evaluation has been eliminated. The statutory time limit for these evaluations was six months, but in reality the process could take up to a year, causing serious delays. The elimination of this time-consuming red tape shows that there are favorable trends in legislative governance of town planning activity.

State Construction Oversight

Another important change was made to Article 48.1 of the Town Planning Code, to more clearly identify high-danger, technically complex and unique sites. Under the Town Planning Code, a favorable finding from the state construction oversight authority is one of the conditions for commissioning a site or facility. If a newly built industrial facility meets even one of the criteria listed in Article 48.1, then the finding must be issued by the Federal Service for Ecological, Technological and Atomic Inspection rather than by a construction oversight authority at the Russian Federation subject level.

Licensing Rule Postponed

The licensing requirement for planning/design, construction and engineering surveying is to be replaced by a voluntary certification system. Federal Law No. 252-FZ dated Dec. 29, 2006, postpones this change to July 1, 2007.

These changes will have a significant impact on the development and implementation of company projects.