Russia: Important draft laws on real estate
Mandatory notarisation for all real estate transactions
The Russian parliament is considering a draft law establishing mandatory notarisation for all transactions concerning rights to assets which are subject to state registration. The new law would primarily cover transactions in real estate, including sale and purchase, lease, mortgage and servitude agreements.
If the new laws are enacted, the cost of executing real estate transactions will increase significantly.
Currently, Russian law provides for mandatory notarisation only for transactions regarding the transfer of ownership of a share in joint property (including simultaneous transfer of ownership by all owners of such shares), annuity agreements, transactions with real estate belonging to minors and pledge of shares in the share capital of legal entities.
The introduction of mandatory notarisation of real estate transactions or some types thereof (e.g. transactions involving residential real estate) had already been discussed in recent years by the Russian parliament. However, until now this idea has not been implemented.
Significant changes to Civil Code provisions on real estate
The Russian government has prepared a draft law to amend the Civil Code, which will introduce the following important changes regarding real estate:
- New definition of real estate: all buildings will be considered real estate, whereas properties which are generally not intended for residence or long-term housing for people (known as structures) will be considered real estate only if they are inextricably connected with the plot of land on which they are located; furthermore, the Russian government will issue a list of structures which may not be considered real estate;
- New definition of a real estate complex: a real estate complex comprises land and infrastructure objects or only infrastructure objects. It may comprise only land and objects owned by one person. The draft law also provides detailed regulations on the creation, change and termination of a real estate complex;
- Improvements to real estate: the draft law extends the differentiation between removable and irremovable improvements made for lease agreements to all transactions regarding real estate. The effects of a transaction to a real estate item (e.g. the transfer of ownership under a sale and purchase agreement) also encompass its irremovable improvements, while removable improvements are only encompassed if provided for in the respective agreement;
- New real estate may be created by court decision. In particular, if a creditor wishes to carry out enforcement against the debtor’s share in a real estate object (e.g. a building or premises) which is subject to shared or joint ownership, it may request that a court separate the debtor’s share from the real estate object for the purpose of enforcement. If the share cannot be separated from the real estate object in natura or if the other holders of shares in the real estate object refuse the separation, the creditor may request that the debtor sell its share to the other holders of shares for a price which complies with the market value of the share. The new provision is important for banks which have provided loans secured by a mortgage.
News laws on buildings in breach of urban planning laws (unauthorised construction)
In November 2017, the Russian government submitted a new draft law to the Russian parliament concerning buildings which were created in breach of the urban planning laws (including construction without or in breach of a construction permit). Many of these new provisions are designed to regulate situations similar to the case of demolition of many small shops by the Moscow government in 2016.
Under the new draft laws, a property may not be considered an unauthorised building if its owner was not aware and could not have been aware of the provisions in breach of which the building was constructed. The most probable reason for this new provision is a recent court case in which a person built a house on land which was located in the pro-tection zone of a gas pipeline, of which the owner of the house was not and could not have been aware (recent ruling of the Supreme Court No. 9-KG17-11 dated 26 September 2017 case no. 33-6311/2016).
It is also planned to allow local authorities to demand not only demolition, but also reconstruction (i.e. changing the property to bring it in line with the urban planning laws) of an unauthorised construction without prior referral to a court. Such a demand is permitted in particular if an unauthorised construction is located on land intended for public usage (e.g. parks). The draft law also provides for special timelines for demolition (from 3 to 12 months) and for reconstruction (from 6 months to 3 years).
Furthermore, a person who has purchased an unauthorised building, the rights to which were previously registered in the Unified State Real Estate Register, may claim compensation from the Russian Federation if, due to an order of the competent authorities or a decision of a court, such building must be demolished or reconstructed. This new provision protects investors who purchased real estate against breaches of urban planning laws conducted during the construction of the real estate object.