Changes in Real Estate legislation in Russia

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Quarter 1 of 2017

Amendments to the federal laws

RF Government Resolution No. 1357 On Approval of the Regulation on the Adoption by a Regional Cultural Heritage Site Protection Authority of a Decision Providing for Setting the Boundaries of the Cultural Heritage Site Protection Zone at a Distance Other Than the Distances Stipulated by clauses 3 and 4 of Article 34.1 of the Federal Law 'On Cultural Heritage Sites...’ , on the Basis of a State Historical and Cultural Expert Review Report Taking into Account the Historical/Town-Planning and Landscape Surroundings of the Cultural Heritage Site and on Amendments to the Regulation on State Historical and Cultural Expert Review of December 14, 2016

We remind readers that since October 3, 2016 provisions have been in effect on the cultural heritage site protection zones that are set around monuments and ensembles that do not have protection zones. The law determines the dimensions of the protection zones; however, there are grounds to set the boundaries of such zones at different distances based on a decision from the regional cultural heritage site protection authority.

The Resolution defines the procedure for adopting the decision. It has been established that it is adopted after considering the plan for the boundaries of the protection zone and the state historical and cultural expert review report within 30 days.

It is clarified that if the deviation from the distances stipulated by law is because the protection zone boundaries cross a capital structure, the capital structure is included in the boundaries in its entirety. In such case the protection zone boundaries go along the perimeter of the structure.

The issue of changing protection zone boundaries also affects St. Petersburg. The website of the Committee on the State Control, Use and Protection of Monuments of History and Culture (KGIOP) shows a list of 116 sites located outside of St. Petersburg's historic center that have protection zones whose boundaries could be adjusted.

RF Government Resolution No. 269 On Approval of the List of Cases in which the Drafting of Site Planning Documentation is not Required for the Construction and/or Reconstruction of a Utility Line of March 7, 2017

On June 1, 2017 a list will enter into force of cases in which the drafting of site planning documentation is not required for the construction or reconstruction of utility lines, including in the construction/reconstruction of:

  • utility lines supporting the connection of capital structures to existing networks;
  • an object that is part of an existing utility line;
  • power grids, telecommunication networks and utility systems that are sited within a single block or micro-neighborhoo.

RF Government Resolution No. 346 On the Exhaustive List of Procedures in the Construction of Nonresidential Capital Structures and on the Rules for Maintaining the Register of Descriptions of Procedures Specified in the Exhaustive List of Procedures in the Construction of Nonresidential Capital Structures of March 28, 2017

The Exhaustive List of Procedures in the Construction of Nonresidential Structures will enter into force on September 30, 2017. The List contains 130 procedures grouped in two areas:

  • federal level procedures;
  • procedures related to specific considerations of engaging in town planning in RF constituent entities and municipalities, and which are covered by regional or local acts. 

It is worth noting separately that the list also refers to the procedure for approving the architectural and town-planning appearance. That procedure already provoked a negative response from the market when it became necessary to seek approval for the appearance of residential structures. Thus, it will become necessary to seek approval for the architectural appearance of nonresidential structures if St. Petersburg laws provide for this.

Russia's Ministry of Construction together with interested federal executive authorities has also been instructed to draft proposals for canceling extra and/or redundant procedures contained in the list within three months (by July 7, 2017).

RF Ministry of Construction Decree No. 560/pr On Approval of the Criteria for Considering Individuals whose Funds have been Raised for the Construction of Apartment Houses and whose Rights have been Violated, as Injured Parties and the Rules for Maintaining the Register of Injured Parties of August 12, 2016 (recorded with the Ministry of Justice on December 30, 2016)

The Ministry of Construction Decree was developed in light of the amendments to the Federal Law On Shared Construction… that became effective on January 1, 2017. The criteria for considering joint construction participants as injured parties have changed. Now only those who had a joint construction agreement with the developer can be considered injured parties.

The criteria for considering joint construction participants as injured parties now include, inter alia, a more than nine-month delay in the developer performing the joint construction agreement, and the property failing to show an "increase in investment in construction in progress" within six months. At the same time, the developer should not have a legal successor, and it becomes impossible to pay insurance or a bank guarantee due to liquidation of the lending or insurance company.

Authority to withdraw land plots

A number of state structures have been granted the authority to withdraw land plots:

RF President's Order No. 131 On Amendment of the Regulation on the Federal Protective Service of the Russian Federation approved by Order No. 1013 of the Russian Federation President dated August 7, 2004, of March 29, 2017

Starting March 29, 2017, to the Federal Protective Service, in order to construct or reconstruct federal properties needed for it to exercise its authority.

RF Government Resolution No. 323 On Amendment of the Regulation on the Ministry of Energy of the Russian Federation of March 22, 2017

Starting April 1, 2017, to Russia's Energy Ministry, for the construction and reconstruction of some energy infrastructure facilities, including federal power, gas and heating supply system facilities; federal transportation facilities (having to do with pipelines); and nuclear power use facilities.

Clarifications from the Federal Notary Chamber

Federal Notary Chamber Letter No. 4797/03-16-3 On the Register of Notices of Pledge of Movable Property of December 22, 2016

Certain provisions of Federal Law No. 391-FZ On Amendments to Certain Legislative Acts of the Russian Federation of December 29, 2015 entered into force on January 1, 2017 ; the amendments are intended to improve the system for recording notices of pledge of movable property.

In light of the amendments which have entered into force, the Federal Notary Chamber issued an information letter about the enactment of those legislative amendments.

We remind you that now electronic notices of pledge of movable property will be sent only to the Federal Notary Chamber, accompanied by payment of the notary's fee. Once the electronic notice is received, the Federal Notary Chamber will, using the shared notary’s information system, send the notice of pledge received in electronic form to the notary who has stated that it is ready to promptly record the notice, in order to enter the information contained in that notice in the register of notices of pledge of movable property.

The notary's fee for recording the notice of pledge of movable property is RUB 600.

Federal Notary Chamber Letter No. 674/01-01-2 On the Operation of the Electronic Service for Verifying Powers of Attorney by their Details of February 20, 2017

Now information about the revocation of a power of attorney made in simple written form is published on the Federal Notary Chamber's website and can be accessed at the address: reestr-dover.ru/revocations

The notary enters information in the system immediately, and the system is updated every 30 minutes.

Amendments to the laws of St. Petersburg and Leningrad Region

St. Petersburg Law No. 115-17 On Amendments to the St. Petersburg Law on the Procedure for Granting Real Estate Properties Owned by St. Petersburg for Construction, Reconstruction and Adaptation for Modern Use of March 9, 2017

Amendments were made on March 20, 2017 to the main legal act governing the granting of real estate properties in St. Petersburg in order to bring it into compliance with applicable laws.

The law is also eliminating one of the criteria for treating an investment project as a large-scale investment project: implementation of the investment project by St. Petersburg participating in a PPP, and the law also authorizes the St. Petersburg Government to reduce the fee for granting a land plot if a land plot development agreement is concluded.

St. Petersburg Law No. 109-18 On Amendments to the St. Petersburg Law on Town-Planning Activity in St. Petersburg and the St. Petersburg Law on State Regulation of Trade Activity in St. Petersburg and on Amendments to Article 10 of the St. Petersburg Law on Organizing Local Government in St. Petersburg of March 10, 2017

A rule went into effect as of March 23, 2017, according to which when the St. Petersburg General Plan is drafted, among other considerations (such as town-planning design standards, results of public hearings), standards for the minimum retail facility to population ratio must be taken into account.

The Legislative Assembly of St. Petersburg has been granted the authority to approve these standards on the recommendation of the Governor of St. Petersburg.

St. Petersburg Law No. 113-21 On Amendments to the St. Petersburg Law on Tax Benefits and the St. Petersburg Law on Corporate Property Tax of March 14, 2017

On April 15, 2017, a "new benefit" was introduced exempting immovable property included in the unified state register of cultural heritage sites (monuments of history and culture) of the peoples of the Russian Federation as a regional or local (municipal) cultural heritage site located in St. Petersburg from corporate property tax.

Organizations that have invested a total of RUB 500 million or more in a cultural heritage site over the course of not more than any three consecutive calendar years starting from January 1, 2016, are entitled to the tax benefit.

How long the benefit is available depends on the total amount of investment: three consecutive tax periods starting from the date the organization became entitled to the benefit, for investments of up to RUB 1 billion, and five tax periods for investments of more than RUB 1 billion.

The provisions of the law extend to legal relationships that arose after January 1, 2016.

The previously available benefit for taxpayers with whom a contract had been concluded in accordance with St. Petersburg Law No. 282-43 On the Procedure for Granting Real Estate Properties… of April 26, 2004 has been canceled.

St. Petersburg Government Resolution No. 1259 On Amendments to St. Petersburg Government Resolution No. 98 on the Creation of the St. Petersburg State Budgetary Institution "Municipal Administration for Cadastral Valuation" dated February 16, 2015, of December 28, 2016

This Resolution was adopted in order to implement Federal Law No. 237-FZ On State Cadastral Valuation of July 3, 2016, which provides for the authorization of special budgetary institutions (created by RF constituent entities) to determine cadastral value.

According to the Resolution, St. Petersburg State Budgetary Institution “Municipal Administration for Cadastral Valuation” will determine cadastral value in St. Petersburg. The Property Committee (KIO) will coordinate the institution's work.

St. Petersburg Government Resolution No. 207 On the Period for Use of Information Stated in the Land Plot Urban-Development Plan (the “LPUDP”) of March 31, 2017

LPUDPs issued before January 1, 2017 now have a period of validity in St. Petersburg, which is three years from January 1, 2017 (until January 1, 2020).

This period of validity is the same as the decisions adopted in Moscow and Moscow Region; however, the validity period for such LDUDPs issued in Leningrad Region is five years.

Issuance of building permits and commissioning permits in St. Petersburg

St. Petersburg State Construction Supervision and Inspection Service Order No. 9-r On Approval of the Administrative Regulation of the St. Petersburg State Construction Supervision and Inspection Service to Provide the Government Service of Issuing Building Permits for Construction and Reconstruction of Capital Structures in the Cases Established by Law (other than Building Permits for Single-Family Homes) and to Perform Work to Create an Artificial Land Plot of December 30, 2016

St. Petersburg State Construction Supervision and Inspection Service Order No. 10-r On Approval of the Administrative Regulation of the St. Petersburg State Construction Supervision and Inspection Service to Provide the Government Service of Issuing Commissioning Permits for Capital Structures and Artificial Land Plots in the Cases Established by Applicable Law of December 30, 2016

Amendments are being made to these Administrative Regulations in order to bring them into compliance with the Russian Federation Town-Planning Code and in order to transition to e-government services.

Now a building permit, its extension or amendment, and a commissioning permit may be issued in hard copy signed by the competent official of the State Construction Supervision and Inspection Service, or in electronic form signed using an enhanced digital signature of the competent official of the State Construction Supervision and Inspection Service.

Information about the result of providing the government service is posted on the State Construction Supervision and Inspection Service's official website in the e-services "Register of Building Permits" and "Register of Commissioning Permits."

Legal precedents

Ruling of Volgo-Vyatka Circuit Commercial (Arbitrazh) Court of January 12, 2017 in case No. А39-1216/2015

The court noted that during the warranty period the customer's right to demand commensurate reduction of the price if workmanship is poor is independent of the contractor's obligation to remedy deficiencies and defects identified during the warranty period in a timely manner. The fact that the contractor has such an obligation does not mean that the customer loses the right to compensation if the contractor has not remedied defects in a timely manner.

Overview of Legal Precedents by the RF Supreme Court No. 1 (2017), approved by the Presidium of the RF Supreme Court on February 16, 2017

The RF Supreme Court approved overview of legal precedents No. 1 in which it noted, among other things, that a mortgage does not cease even if the owner of the mortgaged real estate has changed its parameters. At the same time, it is not necessary to amend the subject matter of the agreement, or to record the changes in order for the mortgage to continue in effect.

Ruling of the RF Supreme Court No. 301-ES16-16279 of February 27, 2017 in case А11-9381/2015

An interpretation was given in this case of Article 334(5) of the RF Civil Code, which provides that the person in whose interests a moratorium on disposal of property has been imposed enjoys the rights and obligations of the pledgeholder of that property. The court practice considered this provision as a ground for pledge by operation of law, and it was often used by banks in bankruptcy cases.

The RF Supreme Court disagreed with that interpretation of this provision, stating that a pledge does not arise, merely the judgment creditor's rights are equated to the rights of the pledgeholder; moreover, those rights arise unless otherwise follows from the essence of the pledge relationship.

The purpose of Article 334(5) of the RF Civil Code is to protect the creditor’s interests when property is seized, as transactions involving such property are valid (clause 2 of Article 174.1 of the RF Civil Code).

Ruling of the RF Constitutional Court No. 10-P on the Case of Verifying the Constitutionality of Clause 4.1 of Article 63 of the Russian Federation Town-Planning Code and Article 23 of the Federal Law on Amendments to the Russian Federation Administrative Offenses Code and Certain Legislative Acts of the Russian Federation and on Repealing Certain Provisions of Legislative Acts of the Russian Federation in Connection with Clarifying the Authority of State Authorities and Municipal Authorities to Exercise State Control (Oversight) and Municipal Control in Connection with the Inquiry by the Legislative Assembly of St. Petersburg of March 28, 2017

The RF Constitutional Court declared the provisions of the RF Town-Planning Code granting authority to approve the land use and development rules in Moscow, St. Petersburg and Sevastopol to the highest executive authorities of those RF constituent entities and not to their representative bodies (for example, to the St. Petersburg Government) constitutional.

News in public-private partnerships (PPP) and other forms of public-private cooperation (PPC)

RF Government Resolution No. 258 On Determining the Federal Executive Authority Competent to Monitor the Conclusion and Implementation of Concluded Concession Agreements and the Federal Executive Authority Competent to Approve the Form for Providing Information for Participating in a Tender for the Right to Conclude a Concession Agreement for Heating, Centralized Hot Water Supply, Cold Water Supply and/or Wastewater Disposal Systems, and Individual Facilities of Such Systems Listed in Article 48(1) of the Federal Law on Concession Agreements, of March 4, 2017

The Ministry of Economic Development of Russia was granted the authority to monitor the conclusion and implementation of concession agreements as of March 17, 2017. This authority includes, among other things, monitoring the observance of obligations to achieve the targets contained in concession agreements, time frames for implementing them, the amount of investment raised and other essential terms and conditions.

RF Government Resolution No. 259 On Approval of the Rules for Monitoring the Conclusion and Implementation of Concluded Concession Agreements, including for Observance by the Parties to the Concession Agreement of their Obligations to Achieve Targets Contained in a Concession Agreement, the Time Frame for Implementing Them, the Amount of Investment Raised and other Essential Terms and Conditions of the Concession Agreement, of March 4, 2017

Rules for doing monitoring were put in place on March 17, 2017 in order for the Ministry of Economic Development of Russia to exercise the abovementioned authority.

Monitoring is done by collecting, analyzing, summarizing, systematizing and tracking information (including information about the amount of investment, the essential terms and conditions of the concession agreement, the targets, etc.) which the Public Partner is required to provide. This information should have to do with both investment projects that are already being implemented and those that are still in the planning stages. The information is updated every six months; however, information about legally significant facts is updated within 10 days of when the information becomes available.

The Ministry of Economic Development of Russia uses the information to create a general report for the past year and prepares a report to the RF Government on its basis.

RF Government Resolution No. 231 On Maintaining the Register of Sole Suppliers of a Product the Manufacturing of which is Being Created or Upgraded and/or Acquired in the Russian Federation, and on Determining the Federal Executive Authority Competent to Maintain the Register of Sole Suppliers of a Product the Manufacturing of which is Being Created or Upgraded and/or Acquired in the Russian Federation of February 27, 2017

March 10, 2017 saw the introduction of a procedure for maintaining the register of sole suppliers of a product the manufacturing of which is being created, upgraded or acquired in Russia, i.e.

  • entities that are the investor party to a Special Investment Contract (SIC) or a person involved by that party creating, upgrading or acquiring the manufacturing of a product in the Russian Federation under the SIC;
  •  the investor party under a public contract providing for reciprocal investment commitments for the creation, upgrading and acquisition of manufacturing in an RF constituent entity to support its needs.

The register is kept electronically by the Federal Treasury and includes information about the amount of investment, the authority that concluded the relevant contract, information about a change in the terms and conditions of agreements, their termination, etc.

RF FAS Decision No. Т-7/17 of January 31, 2017 upon consideration of the complaint of Yuzhnouralskaya Direktsiya Avtodorogi LLC for violation of the tender procedure and rules for concluding contracts

FAS Russia rendered a decision on January 31, 2017 that casts doubt on whether concession projects can be implemented where the private partner’s costs to create and operate the agreement facility are fully reimbursed from the budget (by way of a public partner payment).

FAS Russia declared this approach illegal, having interpreted the provision of Article 3(13) of the Law On Concession Agreements as allowing for only partial co-financing of projects by the public partner and eliminating the possibility of doing the financial structuring of projects using the “availability payment” mechanism that is widely used in international practice (when the private partner does not assume the risk that operation of the agreement facility will be profitable and recoups its costs from periodic payments by the public partner while operating and/or maintaining the agreement facility throughout the agreement term).

Unless it is successfully challenged (the case is pending before the Commercial (Arbitrazh) Court of Moscow), or unless the Law on Concession Agreements is amended (the Ministry of Economic Development of Russia and the Ministry of Transport of Russia have already spoken of the need for such amendments), this decision will jeopardize a number of concession projects that are already being carried out, including the one for the system for collecting tolls from trucks weighing over 12 tons (“Platon”).

We believe that until this issue is resolved potential investors and financing institutions will treat projects with “availability payments” very carefully.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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