The Lawyers’ Newspaper quoted Pavel Medyankin in an article titled “Administrative Proceedings in the Review of the Supreme Court, No. 3 of 2019”
Source: Lawyers’ newspaper
FEES FOR THE USE OF MUNICIPAL LAND PLOTS
In paragraph 66 in the third volume of the Review of Judicial Practice for 2019, the Supreme Court explained that the arbitrary establishment of rental rates for the use of state or municipally owned land plots is unacceptable.
A company that leases a land plot for the purpose of constructing a shopping mall applied to the court with an administrative claim to invalidate certain provisions of the Procedure for Calculation of Rent for the land plots a city owned and leased without auctions. According to the documents filed, the lease agreement provided for the construction of unfinished structures, aside from apartment buildings, on a given land plot, and the amount of annual rent for the land plot was five times the normal annual rent, unless a legislative act made some other provision.
The plaintiff believed that the above legal regulation was contrary to paragraph 1, Article 397, of the Land Code and the principle of economic feasibility enshrined in the Government Decree of 16 July 2009, No. 582, “On the basic principles for determining the rent for leasing state or municipal property and the rules for determining the amount of rent, as well as the procedure, terms, and conditions of the rental payment for land in the ownership of the Russian Federation.”
The court of first instance satisfied the claim and recognized the disputed provisions as invalid as of the date of the court decision.
The Judicial Collegium on Administrative Cases of the Supreme Court decided that Decree No. 582 specifies that one of the principles for determining the rental fee is that of economic feasibility, according to which the rental fee is to be a rate corresponding to the profitability of a land plot, taking into account the land plot’s category of land, permitted use, and state regulations of tariffs for goods (as well as of works or services) of the organizations engaged in economic activity on the land plot.
The Supreme Court noted that the basis of rental rates, coefficients, and their values should be an economically reasonable fee for land leases that corresponds to a certain level of commercial attractiveness, consumer demand for land, and infrastructure development. The fee should ensure that the maximum amount of rental payments flows into the budget while maintaining an economically fair balance between the interests of the lessor and lessees of land plots. In this regard, when adopting a normative legal act (NAP), it is necessary to analyze and address the economic factors affecting the level of return, in addition to assessing the location and urban value of certain plots of land.
In the opinion of the highest authority, the state or municipality should prove its compliance with the principle of economic feasibility by submitting the relevant calculations that show the profitability of land plots and the documentation containing a multifactorial analysis of the characteristics of the land plots.
The Supreme Court pointed out that, while considering of the case, it found there was no economic justification for the establishment of a five-fold increase in the amount of annual rent for granting a lease for a land plot to complete the construction of unfinished structures located on it. At the same time, the use of a land plot to complete the construction of facilities located on it cannot serve as a basis for increasing the rent.
The Supreme Court upheld the decision of the court of first instance and concluded that, “in this regard, the court of first instance came to the correct conclusion that the establishment of a five-fold increase in the amount of rent is arbitrary and unrelated to the multifactorial analysis of the profitability of the land plot, which is contrary to the basic principles of determining the rent for leasing land plots the state or municipality owns.”
Pavel Medyankin, a real estate and construction lawyer at ART DE LEX, believes that the explanation of the Supreme Court confirms the validity of existing practice. He pointed out that the Supreme Court, along with various lower courts, has repeatedly expressed the position that the principle of economic feasibility (e.g., the determination of the Supreme Court of the Russian Federation of 21 March 2019, No. 10-APA19-2; and of 6 December 2018, No. 13-APG18-13, inter alia), is to determine the fee for leasing state or municipal land plots.
Medyankin noted that a multifactorial analysis of the estimated characteristics of the land plot, including a determination of its profitability, should prove the authorized body’s compliance with the principle of economic feasibility. The authority then should submit to the court the resulting analysis of the relevant calculations and other documents that confirm the economic feasibility of the rate (coefficient). He stressed that “the absence of economic calculations is consistent only with the competent authority’s arbitrary establishment of rental rates, not with the provisions of the Law of the Russian Federation and Government Resolution No. 582.”
According to Medyankin, by arbitrarily and unreasonably increasing rental rates, the authorized bodies pursue the goals of filling budget deficits or encouraging developers to comply with construction terms. Now, the Supreme Court has solidified the supremacy of the principle of economic feasibility in setting rental rates, which should have a positive impact on the adoption of relevant decisions in the future.
Medyankin concluded: “Attention to this issue at such a high level can prevent the attempts of the authorities to solve budgetary and ‘administrative’ problems by increasing the cost of rent for the use of public property. For such purposes, there are other legal mechanisms.”
The full version of the article is available at: https://www.advgazeta.ru/novosti/administrativnoe-sudoproizvodstvo-v-obzore-vs-3-za-2019-g/?fbclid=IwAR2192S5f_ALGXnG464jZArExQNL7tRfTIvv4dRKEirL2OPTz_59atTHE_Q