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. Last Updated: 07/27/2016

Letter Clarifies Law on Registration of Leases

ST. PETERSBURG — The Presidium of the Supreme Arbitration Court on Feb. 16 issued Information Letter No. 59, in which it provides a review of the court practice concerning the application of the federal law on the state registration of rights to and transactions with real estate.

The letter provides clarification of a variety of issues regarding the registration of different rights to real estate and of transactions with real estate, including certain clarifications regarding the registration of real estate lease agreements, which should be of interest to virtually every company -currently doing business in Russia.

The Civil Code provides, as a general rule, that there is a legal obligation for all real estate lease agreements to be state registered, unless otherwise provided by law (Article 609).

The Civil Code itself provides for an exception to this general rule, stating in Article 651, with respect to lease of buildings and structures, that only if such lease agreements are for a term of one year or more must they be state registered and that they will only enter into force after such state registration.

The recent court practice also extends this exception to the mandatory registration of lease agreements for nonresidential premises.

In the information letter, the Supreme Arbitration Court has now provided the following three important clarifications of the above rules of the Civil Code:

oFirst, if the parties to a building lease agreement provide that the conditions of their lease agreement are applicable to the lease relationships between the parties, which existed during a specified period of time before the conclusion of the lease agreement, then such period of time will not be considered when the parties calculate the term of the lease agreement for the purpose of determining whether or not it requires state registration.

oSecond, in the event that the parties to a building or structure lease agreement, which was entered into for a term of less then one year, agree to prolong the lease agreement for the identical term after the expiration of the initial term or if it is automatically prolonged due to the appropriate provision of the lease agreement, the relationships between the parties are considered to be governed by a new lease agreement, which is not required to be state registered.

oFinally, if a building or structure lease agreement is prolonged for an indefinite term, then such a lease agreement also does not have to be state registered, since, under Article 651 of the Civil Code, only those building and structure lease agreements must be state registered that were entered into for a term of not less than one year and an indefinite prolongation is not considered to be one year or more.

Please note, however, that these clarifications from the Supreme Arbitration Court are based on actual cases that were considered by various arbitration courts, and it may well be that in another similar case, the courts will not necessarily apply the same rules indicated above, unless the case is exactly the same as the one on which the above clarifications were based.

Therefore, the possibility of the application of the above clarifications to each particular new situation should be carefully examined.

James T. Hitch is managing partner and Maxim Kalinin and Alexey Trusov are associates at Baker & McKenzie law firm's St. Petersburg office.