Information review of real estate and construction practice (Issue 1, September-October 2017)

Blockchain technology will check out the Uniform State Register of Real Estate (USRRE)

Russian Ministry of Economic Development is intended to test USRRE using blockchain technology in accordance with the Russian Government Decision, which should be enacted in the near future. Individuals and legal entities may take part in the experiment on a voluntary basis.
As is well known, Registrar often makes information mistakes in USRRE data, “doubled” and “dublicated” registration records occur. Blockchain technology allows correlate real legal information from user title to land with USRRE data.
This experiment should show effectiveness and profit of blockchain technology for roster management. Apparently, after the blockchain practice trial period, Russian legislation will be changed, especially, some changes will touch an information law, real estate and cadastral registration procedures.
In case of success, experiment with blockchain technology will apply through the whole government. It may not only simplify the work of official departments, but enhance credibility to Russian real estate market.

Project financing as a new era of housing construction in Russia

The Russian Government was instructed by Vladimir Putin to set up a plan of replacing the participatory (shared) construction by the new project finance model. The presidential decision has caused by high level of commercial fraud of real estate developers over individuals, which are financing the construction.
Project financing or banking financing provides the active role of banks instead of individuals. Credit organizations will grant the interest loans for real estate developers, meanwhile, developers will sell ready-built houses.
The chosen way has already become the one of the most discussable event in the professional community. Thorny issue is the real estate price, which must be raised, because repayment of loans and interest may add extra costs or expenses for real estate developing business. Therefore, those circumstances may cause raising prices on houses soon.
No less interesting is another side of the current discussion relating to the rate of interest on bank loans. If the rate of interest is not regulated, it probably leads to decreasing amount of the vast majority of real estate developers, because their business becomes shrinking and losing money.

A new definition for the term “Private Housing Construction” (PHC)

The Russian Government has supposed a definition for PHC to prevent abusing of real estate developers. As is well known, unscrupulous developers, financing by individuals, had often been building apartment houses on land plots, which are intended for private non-commercial construction. The problem is that local authorities do not verify legitimacy of that inappropriate building and, therefore, citizens do not acquire a legal title on new apartments.
PHC should be a separated construction on the ground with no more than 3 floors and no higher than 20 metres.
In order to ensure additional control under building of houses (or flats) at 2018 Governors of Russian regions will be obliged to personally sign an opinion of compliance built constructions with technical requirements and project documentation.

New small and medium-sized business opportunities to use state property

In order to support small and medium-sized businesses (SMB) Russian Ministry of Economic Development have proposed new ways of use of state property.
Inter alia, the proposed bill provides:
• Introduction of perpetual right to purchase state and municipal property, that have leased by SMB before;
• Granting to SMB a pre-emption right to purchase real estate, which are under federal ownership (by analogy, existing pre-emption right to purchase real estate, which are under regional and municipal ownership);
• Establishing the possibility to auction a right to conclude lease contracts of land plots, listed only for SMB;
• Settling reasons to transfer land plots to SMB without public tenders. Those land plots are listed as assets, which are intended for leasing by SMB under the state and municipal preferences and federal and regional programs;
• Prohibition of subleasing land plots, listed only for SMB;
• Fixing a limited term (from 5 to 10 yeast) for lease contracts of land plots, which are under federal or municipal ownership;
• Introduction of the requirement, in accordance with that, an information about subsidies of rent should be included in the notification of an upcoming auction;
• Granting to regions a right to establish a maximum size of area of land plots, which are intended for agricultural purposes, in order to include it in the list and lease it to SMB.

A new way of real estate constitution and new understanding of unified real estate complex

Proposed bill provides an additional chapter to Russian Civil Code, it is called “Ownership and other rights in rem on buildings and constructions”. That annex defines a procedure and conditions for real estate constitution, which are not land plots, entitlement ownership rights; encumbrances on constituting and changed real estate in buildings, constructions; procedure of constitution, alteration and liquidation of unified real estate complex; content of agreements on constitution of real estate.
Inter alia, the bill establishes that constitution of premises, “car places” and reconstruction of buildings are exercised in accordance with the agreement between proprietors – parties of that agreement. If constitution of real estates is supposed from the common ownership, that should comply with decision of general meeting of the owners.
The bill provides the new article about improvements of a real estate asset. Each improvement of the land plot is an integral part of that land plot. Therefore, results of reconstruction or construction on the land plot may be the improvement of that land plot. If any building and construction are not registered or not entitled properly, those immovable property are integral parts of the land plot,
Proposed rules also touch unified real estate complex (REC) in Civil Code. Authors of the bill explain the meaning of that institute of Russian law. REC is a clear set of real estates, which belong to any person. Owner may create REC by yourself, choosing among objects under his ownership. Meanwhile, REC is not “complex” in terms of jurisprudence. It means real estate assets under REC do not provide common transaction legal consequences or purposes, since de facto exist separately.
Cadastre and registration of “car-places”
Official explanations about procedure of cadastre and registration of car-places, which are situated in underground car parks of commercial buildings, were given by Ministry of Economic Development. In view of Ministry, cadastre and registration should be kept at the same time and relating to all car-places.
In addition, official decision of Registrar (USRRE) may suspend keeping cadastre and registration of any car-places, including cases, when in accordance with USRRE borders of car-places are partly or fully coincide with borders of another premises or car-places.
Two or more constituted real estate assets as a result of separation of one real property, should be registered at the same time relating all new objects. Removing from cadastre and registration of termination of rights should be kept in parallel with cadastre and registration of all newly constituted real estate assets.

Potential preferences for mortgagees of agricultural land plots

The Russian Government proposed measures on promoting of the creditor interest to use land plots with agricultural purposes as a subject of mortgage. In view of officials, agricultural land plots are irrelevant as a mortgage subject. In such a manner the branch of agriculture cannot receive a sufficient and effective financing to increase production.
An offered bill provides legislative changes, which seek to ensure interests of creditors, potential mortgagees.
The bill proposes the following preferences:
• There is an opportunity to satisfy demands of mortgagees within out-of-court procedure, if mortgage object is an agricultural land plot, on which any building or construction are absent.
• Excluding provisions, which do not allow enforcement of mortgaged agricultural land plots before termination of farming periods on condition that a debtor has a right to sell goods, which were produced or processed on that land plots.
• Excluding ability of courts to suspend the enforcement of mortgaged agricultural land plots on period until 1 year.

An additional chance to rescue unauthorized constructions

The Russian Government has approved the bill that decreases possibilities for out-of-court demolition of unauthorized constructions. Especially, if citizens bring their constructions into line with the urban planning requirements, they may avoid demolition of those constructions.
In accordance with the article 222 of the Civil Code unauthorized constructions are buildings or constructions, which are (were) built without permission documentation on it and in breach of urban planning and building regulation, or which are (were) built on the land plot, which have not submitted in due course, or allowing the use of that land plot does not provide any sort of construction, or construction.
Proposed following provisions:
• If owners do not know and should not know (good faith principle) about imposed restrictions or limitations, their constructions, which were built in breach of such restrictions and limitations, are not considered as unauthorized.
• If owners have already registered property rights on authorized construction at USRRE or they built it before 2001, there is a general prohibition of out-of-court demolition.

By Denis Mukhametgaliyev