Real Estate & Construction Practice Newsletter (Issue 2, 2014)
major new projects in the Moscow Region
Cascade begins a power project in the Tomsk SEZ
Cascade-Energo, which is part of the Cascade (GC Tashir) holding conglomerate, has announced the start of work on the construction of power projects in the Tomsk Special Economic Zone. The company has already done the preparatory work to close the thermal circuit transformer of the substation building.
This project will provide an opportunity to integrate facilities in the Tomsk SEZ, which in turn will significantly increase the volume of innovative industrial production not only in Tomsk and the Siberian region, but throughout Russia.
Concession agreement concepts introduced for airfield infrastructure projects
The ANO Directorate of the Moscow transport hub and other agencies have developed the conceptual framework for concession agreements for the construction and reconstruction of airfield infrastructure. The deficit funds for these projects in the Moscow aviation hub will total approximately RUB 34 billion: RUB 15.5 billion for Sheremetyevo; RUB 13 billion Domodedovo; and RUB 5.5 billion for Vnukovo.
Three concession options for transferring the airfields to Rosaviation have been considered. Two of them provide that the concessionaire will reimburse the grantor’s investment in infrastructure. One of the options completely eliminates tariff regulations, and relies on fees from airport business operations to fund the return on the investment. Another two options retain regulated rates, with the return on investment coming from the target infrastructure charge imposed by the state. Operating costs are covered by fees for takeoff and landing services.
The final terms and conditions of the concessions will be announced in late 2014.
REABS introduced in Russia
The Real Estate Agency & Brokerage Standards (REABS), developed by RICS Europe, create internationally-recognized rules for the delivery of agency and brokerage services of high quality and ethical integrity, adapted to the specific conditions of local laws and real estate markets.
Adoption of the REABS regime in Russia is a major step forward in the development of the Russian real estate market by raising the level of trust in communications among all parties in a transaction. Members who violate one of the 12 principles will be subject to large fines.
Today 110 European companies have agreed to observe the REABS principles. In Russia, seven major players adopted these standards last year: Jones Lang LaSalle, GVA Sawyer, Cushman & Wakefield, Solliers International, ILM, Knight Frank, and IntermarkSavills.
To read more about new developments in the Russian real estate market and construction industry, click here.
federal legislation
New regulations proposed for notaries in real estate transactions
The Ministry of Economic Development has submitted a bill that would require notaries independently to obtain information electronically from Unified State Register of Rights to Real Estate and Transaction and from the State Cadastre of Real Estate during the notarization.
The bill clarifies the requirements for legal expertise during the state registration of rights, including during the notarization of real estate transactions.
Amendments proposed to simplify procedures in real estate transactions for the construction and operation of electric grid facilities
The Ministry of Economic Development has proposed to streamline real estate transactions involving the electric grid, reducing the average time from the current level of 379 days to 65 days.
Currently, if the allocation of land plots under power lines is going through surveying and removal of plots or registration of leases, the principal legal instrument is a public or private easement. However, public easements for the construction of electric networks are not, at a practical matter, available; and private owners of the land to be used often refuse to agree to the easement.
Under the proposed legislation, grid companies may be granted public easements without public hearings in a 20-day period. The legislation would also limit the price of the easement agreed with a private owner at no more than the reduction in market value resulting from the easement. In the case of state or municipal property, the cost would be set at 0.1 % of the cadastral value of land per year, not to exceed a total of 5% for the entire period.
The amendments would also clarify and simply procedures in situations such as the inability to locate the owner of the property, the length of time that the easement may be in effect, and advance notification of the land owner.
State Duma adopts new requirements for valuation reports
On 12 March 2014 the State Duma adopted, in the first reading, the draft law “On Amending the Federal Law 'On Valuation Activities in the Russian Federation'.”
The legislation establishes requirements for placing valuation reports on cadastral values in the fund database of the state cadastre. The new rules will also prescribe the information and justification required to support expert opinions on cadastral value.
The legislation increases the period to contest cadastral values, in recognition of the fact that in some cases taxpayers learn about changes in cadastral value only after expiration of period, set by current federal law, in which the changes may be challenged.
The ultimate goals are to provide a uniform practice for challenging the results of cadastral evaluations, as well as to eliminate the “competition” that arises under current law between judicial and non-judicial appeals processes.
To read more about new and pending Federal legislation affecting real estate and construction, click here.
regional legislation
Developers to be allowed to include expenses in cost of road construction
The Moscow city government is considering a bylaw that will make Moscow the first city in Russia to free developers from paying taxes on the construction and reconstruction of roads.
If the document is adopted, the tax breaks could reduce by 5% to 10% the total tax collections from road construction companies.
Moscow region authorities may release investors from part of their tax obligations
A bill on preferential taxation for investors has been prepared in the Moscow region and is under consideration by the Moscow Regional Duma. Under the proposed bill, investors would be exempt from the regional part of the income tax, as well as the property tax, for up to seven years, depending on the amount invested in the project.
If passed, this law, along with measures to ensure access to land and connection to utilities, would attract more investors. To get tax benefits, an investor should build the facility before 2020.
The legislation would also give special preferential treatment to two groups of investors. The best advantages would go to investors in industrial parks, offices, hotels, social facilities, housing facilities, and enterprises for research and innovation. A second preferential group would include manufacturing and energy.
Businesses in Moscow may be allowed to redeem premises without restrictions
The Moscow City Duma has passed the first reading of amendments to the current city law, which would allow small and medium businesses to buy the leased state property without restrictions on the area of the premises. The proposed legislation would expand the possibility for small and medium businesses to purchase rental properties, and it would remove restrictions on the maximum area of leased premises that are planned for privatization.
To read more about new and pending legislation in the regions of the Russian Federation, click here.
in the courts
Privatization of Okhta-Center plots ruled illegal
The St. Petersburg office of the Federal Antimonopoly Service has won a dispute with Gazprom and Smolny in the 13th Arbitrazh Appeals Court.
The antitrust agency successfully proved that the privatization of plots of Okhta Cape, transferred by Smolny to Gazprom for the construction of the 400 square meter Okhta-Center, was illegal. The opponents of the project sought to invalidate the transfer of Okhtinsky Cape properties from the investor and to return to the treasury the RUB 2.5 billion that had been obtained for skyscraper construction.
Supreme Arbitrazh Court remands Krasnoyarsk Aluminum Plant cadastral valuation case
On 11 February 2014, the Presidium of the Supreme Arbitrazh Court set aside a judgment on the dispute over the cadastral value of the land under the Krasnoyarsk Aluminum Plant and sent the case back for retrial. KrAZ belongs to UC Rusal.
The Krasnoyarsk administration challenged the cadastral value of the land. The government of Krasnoyarsk Krai approved an evaluation at RUB 4.5 billion, but the plant did not agree to it. The company hired an independent evaluator who reduced the value to RUB 1.06 billion. The Rosreestr Commission on pretrial disputes confirmed the correctness of the independent evaluation, but the city administration disagreed with it.
In submitting the case to the presidium, a panel of judges of Supreme Arbitrazh Court stated that it is not enough to check formal compliance with procedures. The validity and reliability of the assessment also must be fully analyzed.
Initial cost may be increased upon the sale of mortgaged property
On 4 February 2014, the Constitutional Court issued decision No. 221, in a case about an increase in the initial price of a mortgaged apartment, sold at auction to satisfy the debt on the loan, and the challenge to the results of the auction.
The Constitutional Court referred to decisions by the Supreme Court and the Supreme Arbitrazh Court, under which the initial selling price of the mortgaged property can be reduced by the fall in market prices. At the opposite end of the business cycle, the dynamics of market prices might result in the initial value of the mortgaged property being increased.
It is therefore necessary to ensure conformity of the initial sale price with the actual market value, including situations when the market value substantially increases after the court authorizes forfeiture of the mortgaged property. This would permit a review and revision of the previous court orders and procedures in the case.
To read more about judicial rulings on real estate and construction law in the Russian Federation, click here.