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. Last Updated: 07/27/2016

Jury Is Out on Moscow Land Law

The federal Land Code of October 2001 raised expectations for a more developed real estate market and, in particular, for increased land ownership. Commentators were, however, at the time keen to point out that the real impact of the Land Code could only be judged once the new laws and regulations were implemented.

An important part of that follow-up is the Moscow city law on land use and construction in the city of Moscow, which came into force on June 26. In essence it sets out the way in which the Land Code will be implemented in Moscow while at the same time seeks to provide a clear legislative basis for many of the city government's existing policies with regard to land and its use. This article looks at some of the key points in the new law.

As the Land Code allows a number of categories of land users to apply for land ownership or land lease rights, it is important to note the clear statement of policy contained in this new law. Clearly reluctant to lose a key source of income from land lease rents and premium payments for land lease rights, City Hall has declared that the use of leases will continue to be the principal way in which land rights are to be allocated. It seems that only where the Land Code gives City Hall no choice will ownership rights be transferred. This will clearly disappoint those who were looking for increased access to ownership rights as a basis for real estate development. It has yet to be seen whether there is any real comfort to be had from the newly introduced possibility for ownership rights to be granted at the end of the construction of nonresidential buildings developed under an investment contract. This will depend upon how often the city government decides to grant such rights.

Although the new law places the emphasis on lease rights as the basis for new development, it does envisage a number of potentially wide exclusions to the situations in which the auctions and tenders provided by the Land Code have to be used. This may therefore preserve the city's practice of granting land rights for specific projects without an auction or tender.

Land lease terms for plots on which capital constructions are located are confirmed as being 25 to 49 years with the possibility of a 99-years for projects of special significance to City Hall. Only time will tell how this latter provision will be used in practice.

Developers may, however, be assisted by the newly envisaged deeds of authorized use. These will record the requirements and restrictions applicable to the use of a land plot and may prove to be of assistance to those seeking to raise finance at land lease signature before detailed planning consents have been issued.

Finally of note is the new emphasis placed on the control of land use with fines specified for unauthorized use and for missing construction deadlines set out in land lease agreements. Keen to ensure the completion of permitted construction in the central and historic heart of Moscow, the so-called Kamer-Kollezhsky Val, the relevant fines imposed in this will be double those levied elsewhere.

Andrei Soukhomlinov and Adrian Moore are real estate partners at Baker & McKenzie.