Newsletter of the Real Estate and Construction Practice (Issue 4, 2018)

Events

The approval of Moscow’s targeted investment program

Moscow City Government forms an annual list of investment projects funded within the city budget. The targeted investment program for 2018-2021 provides for the construction of 21 subway stations, 33 polyclinics, more than 60 schools, and other real estate sites. The main direction of the investment policy is the development of the capital city’s transport infrastructure: the laying of more than 50 kilometers of subway tracks, resurfacing more than 200 kilometers of roads, and developing the chord system of connecting highways to reduce congestion on Moscow’s main transport rings.

(For the text of the targeted investment program, see http://docs.cntd.ru/document/551456787.)

Moscow Real Estate Forum

At the end of October, a forum of leaders in the field of real estate took place that regularly attracts representatives of the construction industry, consultants, and executives from business, and leaders in government. One of the main topics of #MREF2018 was development of built-up areas. In particular, there were questions about the current state of projects under development and those that are ongoing. One topic of discussion was the preservation of industrial production in Moscow, in other words: “Should Moscow industrialize?”

(For more details, see https://events.vedomosti.ru/events/mref18.)

The public discussion of Moscow’s cadastral assessment is complete

As noted in the previous newsletter, Moscow conducted another state cadastral assessment. Public discussions preceded the assessment’s approval. All materials were available on the website of the Center for Property Payments and Housing Insurance, which is organization in the the State Budgetary Institution that had undertaken the cadastral assessment. The period of review and comment concluded on 16 November.

(See draft report: http://cadastre.gcgs.ru/state/.)

Sberbank acquired a business center in the heart of Moscow

The largest Russian bank, Sberbank, acquired Suvorov Plaza from International Center JSC. The business complex has an area of more than 300 thousand square meters. Sberbank is concentrating its administrative resources in the area of the Moscow City International Business Center, and experts assume the bank will sell its property on Vavilova Street that currently houses the bank’s main offices.

(For more details, see https://realty.rbc.ru/news/5be550499a7947b63ce36230.)

Capital Group will invest more than 1.5 billion RUB in the Central Telegraph building

One of the largest developers in Moscow is interested in acquiring and subsequently redeveloping an office building that a subsidiary of the Russian Post currently owns. Although it is one of the most recognizable buildings on Tverskaya Street, its average rental rate is half of the average rate for the district. The cost of the building is about 1.8 billion RUB, approximately the same amount experts estimate is necessary to renovate the building.

(For more details, see https://www.vsrf.ru/documents/all/27306/.)

Moscow mayor’s office can complete the construction of SkyHouse using budgetary funds

The construction of the VkuNourdeveda residential complex, in progress since 2009 and known as an “elite long-term construction” project, is nearly ready for commissioning as an apartment building. Since 2015, the developer has had disagreements with the city over the investment contract. In addition, there were court proceedings involving the general contractor, until a court decision finally terminated the firm’s contract.

(For more details, see https://www.kommersant.ru/doc/3787010.)

The bidding results for demolishing the Khovrinskaya hospital

For more than 20 years, the Khovrinskaya hospital was an abandoned, unfinished building in Moscow. Several attempts to complete the medical facility failed. As a result, there was a decision to demolish the unfinished structure and to erect a housing estate in its place. The successful bidder, StroyEcoResource LLC, had one month to complete the project, and the site is nearly clear.

(See https://stroi.mos.ru/news/podviedieny-itoghi-konkursa-na-snos-khovrinskoi-bol-nitsy.)

The conflict between the developer PIK and citizens

Residents in the Kuntsevo District who hope to protect their homes recently lost a case in the Supreme Court of the Russian Federation. The PIK development company, which is to build a new residential area, argued that it will provide affected residents alternate homes. The residents, however, claimed that the results of public hearings on the project were fraudulent. Several thousand Muscovites in the old residential areas of Kuntsevo continue their struggle against the new houses.

(See https://www.bbc.com/russian/features-46273968.)

Judicial practice

1. The third “Judicial Review” for 2018, a publication of the Supreme Court of the Russian Federation, contains a number of legal positions on disputes in the field of real estate and construction. The court agreed that a co-leaseholder of public land can acquire ownership of part of the land, assuming there are no obstacles to the division of the plot. The court excluded the possibility of creating legal uncertainty in disputes about unauthorized construction, a situation that arises when the courts refuse both the claim for the demolition of unauthorized construction and the claim for recognizing the developer’s property right. In such cases, the courts must exhaust all possible procedural methods, including additional and repeated examinations, to resolve the dispute (https://vsrf.ru/documents/practice/27317/).
2. The Supreme Court of the Russian Federation has published a review of court practice related to changes in the types of permitted uses of land plots. Many of the positions it outlined in the review are well established, for example, paragraph 2 (on the impossibility of changing the VRI, or permitted use category, of a land plot leased out through auction) or paragraph 5 (on the impossibility of replacing the main VRI with an auxiliary one). Regarding paragraph 4, the court also prohibited making any decision, either positive or negative, on the establishment of a conditional permitted use category, without holding public hearings (https://www.vsrf.ru/documents/all/27306/).
3. The Judicial Collegium for Economic Disputes of the Supreme Court of the Russian Federation pointed out that it is possible to recover losses, based on a difference between the former tenant’s contractual rental price and the price in a new contract, according to paragraph 1 of Article 393.1 of the Civil Code of the Russian Federation. Thus, a former lessor has the right to recover losses from the former lessee if the lessee unilaterally terminated the lessor’s contract, which is a breech of contract, if the amount of the lease payments under the replacement contract is lower than the original contract. It also noted that a debtor’s appeal to the creditor to change a price cannot eliminate the creditor’s liability, under Article 393.1 of the Civil Code of the Russian Federation. In short, the proposal itself does not entail legal consequences. See the ruling of the Supreme Court of the Russian Federation of 4 October 2018, No. 309-ES18-8924.
4. The Supreme Court of the Russian Federation concluded that a seller is obliged to provide the buyer with all available information about the encumbrances on a land plot and restrictions on its use, regardless of whether these restrictions appear in the public register. The Judicial Collegium for Civil Cases of the Supreme Court of the Russian Federation noted that this also applies to information about the use of neighboring land plots and about the location of the land plot on a military camp. If the seller decides to keep silent about encumbrances on the land plot and restrictions on its use, the buyer has the right to demand a reduction in the purchase price or the termination of the contract of sale for the land plot and compensation for any resulting damages. See the determination of the Supreme Court of the Russian Federation of 2 October 2018, No. 127-KG18-20.
5. The Supreme Court of the Russian Federation explained that the mere presence of a part of a land plot in a water protection zone does not constitute grounds for refusing to conclude an agreement on the redistribution of land plots. The Judicial Collegium on Administrative Cases of the Supreme Court of the Russian Federation explained that the courts should assess the legally significant circumstances for the resolution of the dispute, such as the presence or absence of additional restrictions on economic and other activities within the boundaries of the water protection zone as well as the conformity of the proposed use of the land plot with regulations on permissible use. In addition, before concluding the agreement for the redistribution of a land plot, it is necessary to list the specific disadvantages of the newly formed land plot that hinder rational use or that exist to protect the land (for example, building height restrictions or the inability to construct on the property). See the cassation determination of the Supreme Court of the Russian Federation of 10 October 2018, No. 83-KG18-14.
6. According to the Supreme Court of the Russian Federation, changing the coordinates of corners and turning points of a land plot is possible only at the request of or in agreement with the legal holder. Therefore, the implementation of cadastral accounting for one land plot cannot be the reason to change the information contained in the cadastre of another land plot. In addition, a change in the system of coordinates, in order to maintain the real estate cadastre, may not be the basis for changing the location of the land plot’s boundaries or its area. See the determination of the Supreme Court of the Russian Federation of 2 October 2018, No. 308-KG18-6724.
7. The Supreme Court of the Russian Federation pointed out that the absence of a surety agreement with a bank or a contract of civil liability insurance of the developer is not grounds for refusing to register the contract of participation in shared construction after the completion of a construction project. These documents merely create additional mechanisms to protect the interests of participants in shared construction. There is no need to duplicate records of obligations fulfilled after a capital construction site is in operation or after a transfer of a residential premises to the participant of shared construction, assuming there are no claims against the developer. See the determination of the Supreme Court of the Russian Federation of 9 October 2918, No. 303-KG18-7703.

Draft regulatory legal acts

Three draft laws would change the procedure for privatizing state property

In the State Duma of the Russian Federation, there are three draft laws aimed at improving the regulation for privatizing state property. One of the goals is to expand the list of property with the potential of privatization and to reduce related procedural costs. These draft laws include the following amendments:

1. Auctions for the sale of state and municipal property will take place exclusively through electronic means (562258-7).
2. Gas distribution networks that are the main production assets of a unitary enterprise serving the residents of a settlement may be privatized (562234-7).
3. For cultural heritage sites, developing project documentation (the preliminary restoration design stage) may take place at expense of an investor if a constituent entity of the Russian Federation or localities do not develop such documentation within three years from the registration date of a cultural heritage site that is in poor condition and as a condition for the site’s subsequent privatization (562217-7).

According to the explanatory notes, this legislation will solve a number of problems, from reducing the burden on the federal budget to ensuring transparency and openness in the sale of state and municipal property.

The government of the Russian Federation responded negatively to the draft law banning the placement of hostels in residential buildings

In the spring of 2018, the legislature introduced draft law No. 421833-7 that would ban the placement of hostels in apartment buildings. In the opinion of the deputies, it is impossible to provide an adequate level of hotel services as well as ensure the peace of mind of neighboring residents when a hostel is in an apartment building. Moreover, the lack of any regulation on this matter robs neighboring residents of the opportunity to prevent a hostel opening in their building. The government of Russia prepared a negative response to this bill. According to the cabinet of ministers, there is no need for a complete ban on the placement of hostels in residential premises. It only is necessary to establish procedures for approving this type of business activity.

(For the text of the revocation and the draft law, see http://sozd.parliament.gov.ru/bill/421833-7.)

The government has approved a plan to 2020 for the development of land legislation

According to the proposals to improve the legal regulation of land relations, the federal legislature may adopt several laws, by the end of 2020, to establish a single regulatory framework for agricultural land. In particular, departmental information resources may combine for the purpose of monitoring agricultural land. In addition, there may be amendments to the Federal Law “On mortgages,” which regulates mortgages on these lands.

(The text of the Action Plan is at http://static.government.ru/media/files/p11GJ5E7ssMBuy1uVBW23XS7Yjlznt08.pdf.)

Differentiation of land plots in 18 territorial zones

According a bill that the Ministry of Economic Development is sponsoring, there may be a shift from the concept of “a land category” to the notion of “a territorial zone.” Judging by a list of the proposed territorial zones, the new zones will be a cross between the existing categories of land, types of permitted use for land plots, and zones with special conditions for territorial use. These territorial zones would include residential, forest, nature conservation, and space-support zones. At the same time, several territorial zones may pertain to a single land plot, requiring the establishment of a list of types of permitted uses within certain zones.

(For the text of the draft law, see https://regulation.gov.ru/projects#npa=85531.)