The Civil Code Subject To New Regulation

Laws on leasehold provide new forms of ownership title but proposals to automatically transfer leases to the new kind of title could be a headache as much as a benefit.

Natalia Stenina

The main change going on in Russia is the new civil code and this has huge implications, inter alia, for construction and development. Generally the legal system is developing, the government is trying to make the regulations more efficient, transparent and honest.

A number of new types of "limited" property rights to the land have been adopted from the European codes and practice, for example the right of permanent enjoyment of the land plot known as emphyteusis (mostly used for agricultural lands) on condition that the right holder takes care of the estate and pays rent; the right of enjoyment, enabling a holder to derive profit or benefit from property that either is owned by another person or which is held in common ownership, as long as the property is not damaged or destroyed (usufruct)., etc.

It is probably the case that now that there are two or three other titles comparable to ownership title, the most remarkable new title is superficies (the right to possess and use a land plot owned by a third party to develop a building which such tenant will then own). It provides a right to construct, meaning that if you are constructing the building on the land you have certain limited rights to the land. However in 50 or 100 years you have to give the building and the land to the landowner

It needs to be noted that the draft civil code is not yet approved; it's being widely discussed in conferences, in the duma, and of course among lawyers.

There is also a proposal to make all developers transfer their lease into this new kind of title. If they don't transfer it to the new "right to construct" (superficies) then it would be automatically transferred to such a right, granted for 50 years.

Such significant chang- es hardly correspond to one of the principles of the legal system, which is stability.

Such significant changes hardly correspond to one of the principles of the legal system, which is stability, but investors do realise that Russia is still an emerging market. With the world crisis developing in the background, it remains one of the markets with potential for investment.

Foreign tenants andlandlords are used tobeing able toapprove more or less any term ina contract unless it violates general legal principles.

TheRussian Supreme Commercial Court issued alegal opinion clarifying thelegal framework oflandlord-tenant relations on March 21, 2013.

Inits attempts totailor its approach tothe developing practice onthe Russian market, thecourt is trying tomeet theneeds ofboth tenants andlandlords.

Theopinion covers both specific andgeneral issues, themost notable ofwhich are:

Alease agreement may be entered intofor future real estate, meaning that thelease agreement may apply topremises or abuilding that does not physically exist when thelease agreement is made (e.g. buildings under construction). Thesame applies tobuildings that have already become operational but whose ownership title has yet tobe registered. Importantly, thecourt ruled that thetenant may recover damages if thelandlord fails tohand over thepremises because thebuilding has not been constructed (Resolution No.13 ofthe Plenum ofthe Russian Supreme Commercial Court dated 25.01.2013 OnAmending Resolution No. 73 ofthe Plenum ofthe Russian Supreme Commercial Court dated 17 November 2011 OnSeveral Issues inApplying theRules ofCivil Code Related toLease Agreements).

Nevertheless, no lease agreement may be entered intofor future real estate (and any lease that is concluded will be void) should it be proved that thepremises/the building are, infact, anunauthorized construction (According toRussian legislation, this term denotes structures erected ona land plot that was allocated forother purposes, as well as facilities constructed without therequisite permits being received or inmaterial breach oftown planning andconstruction rules andregulations: such structures should be demolished (article 222 ofthe Russian Civil Code).