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. Last Updated: 07/27/2016

Draft Law Bolsters Title Rights

One of the most eagerly awaited reforms by investors in real estate in Russia is the passage and implementation of a law on the state registration of rights to immovable property.

Such systems, whether on a state or regional basis, are all but taken for granted in many Western jurisdictions. For example, in the United States, title recording procedures form the basis of a title insurance system. On the strength of systems such as these, investors can be confident of the title to the land and buildings in which they are interested.

Investors in real estate in Russia do not enjoy such certainty. There is, as yet, no comprehensive system of recordation or registration of rights. Establishing legal title to objects of real estate is therefore more problematic. Some areas of the Russian Federation have already taken steps to improve the situation.

For example, in Nizhny Novgorod, a local law on the recording of rights to immovable property is already in force. Some estimates are that, in that city, 200 properties are now being registered each day.

In order, however, to bring about conformity on a nationwide scale, the State Duma has recently given much consideration to a federal draft law "On State Registration of Rights to Immovable Property and Immovable Property Transactions."

The draft law recently passed all three readings in the State Duma, making it through the often-contentious third reading without debate. With a favorable report from the Duma's Legal Committee, the draft will next be considered by the Federation Council prior to submission to the president.

The draft law envisages the creation of a single state register of rights with each object of immovable property being allocated a cadastral number. The process of registration of rights presents a daunting task. The draft law therefore provides that existing rights will remain valid as of the date of the documents which created them, notwithstanding the absence of the prescribed registration. Existing rights may, however, be the subject of voluntary registration.

In addition to a description of the property and the principal rights to it, the planned register will contain information as to servitudes, encumbrances, mortgages, trusts, leases and statements of claim relating to the property.

Access to all this information will be available (for a fee) to any individual or legal entity upon request, thereby creating the concept of an open register.

If approved by both the Federation Council and the president, the draft law will come into effect three months after its publication. Unfortunately, at that stage only a few of the steps necessary to create the system will have been taken. The registration agencies will need to be established, computer software will need to be developed and computer hardware will need to be purchased. In addition, comprehensive mapping and a program of harmonization with existing local registration procedures, will need to be carried out.

The draft law, if passed, will certainly represent a major step forward. It is to be hoped that the funds required to implement it are then made available.

Adrian Moore is the Real Estate Partner at international law firm Baker & McKenzie and has been practicing law in Moscow for 3 1/2 years.