Real Estate. Major Russian Legislation Changes For 2015

Reform of civil legislation

Federal Law No. 42-FZ on Amendments to Part One of the Russian Federation Civil Code of March 8, 2015

The Law entered into force on June 1, 2015 and made sweeping changes to the general part of the law of obligations, enabling the use of new flexible approaches to structuring transactions, including real estate transactions. The Law has enshrined both mechanisms that were already customary for business but had previously been recognized only by court practice, and new institutions borrowed (either entirely or partially) mainly from English law and whose adoption at the legislative level was timely and long-awaited.

In particular, new types of contracts (the framework agreement, the agreement for the option to conclude an agreement, the option agreement, the subscription (service) agreement) have been introduced; new provisions concerning so-called legal interest (interest on a monetary obligation) have been introduced; the provisions on securing obligations have been changed (in particular, the concept of the independent guarantee has been introduced, and the security deposit has been enshrined as a separate way of securing the performance of obligations); the concept of representations has been introduced and a party to a contract can now be held liable for making false representations to the other party; there is now liability for bad-faith negotiating, etc.

In order to clarify a number provisions of the Law and statutes previously adopted as part of the civil law reform, the Plenum of the RF Supreme Court issued Resolution No. 25 on the Application by the Courts of Certain Provisions of Section I of Part One of the Russian Federation Civil Code of June 23, 2015 and Resolution No. 43 on Certain Issues Related to the Application of Rules of the Russian Federation Civil Code Concerning the Limitation Period of September 29, 2015.

The amendments made to the RF Civil Code are primarily intended to make Russian law more attractive as the governing law for major investment transactions, and the new developments are worthy of a positive assessment because they are aimed at increasing the liability of parties (in particular, pre-contractual liability), bringing Russian contract law closer to international standards and further developing the principles of good faith and freedom of contract. At the same time, given the current absence of court practice of applying these norms, some of which have already raised questions in interpreting them (one vivid example is the concept of legal interest), the use of new mechanisms of the RF Civil Code does not always make it possible to reduce the parties' risks.

Combination of the Unified State Register of Rights (EGRP) and the State Real Estate Cadaster (GKN) into the Unified State Register of Immovable Property

Federal Law No. 218-FZ on the State Registration of Immovable Property of July 13, 2015

The Law creates a unified system of inventory and registration, combining cadastral registration of immovable property and state registration of rights to immovable property, and provides for combining the EGRP and the GKN into the Unified State Register of Immovable Property (EGRN).

The Law sets forth cases where properties can undergo cadastral registration and the state registration of rights simultaneously and separately, procedural rules for performing cadastral registration and state registration of rights to immovable property, clarifies the timeframe for cadastral registration (five business days), the timeframe for simultaneous cadastral registration and state registration of rights (10 business days), the timeframe for state registration of rights (seven business days), and abolishes the issuance of the certificate of state registration of title (according to the new rules, cadastral registration and state registration of rights will be confirmed only by an extract from the EGRN). At the same time, the Law also expands the list of grounds for suspending cadastral registration and state registration, and also sets forth rules for entering information in the EGRN through interagency information exchange, i.e., without the title holder's participation.

The law has enshrined the stance of Rosreestr (the Federal Service for State Registration, Cadastre and Cartography) on the pressing practical issue of registering lease agreements for a part of a thing and has said that it is impossible to register a lease absent cadastral registration of the leased part of a thing. We note that this approach is at odds with the case law developed by the RF Supreme Commercial (Arbitrazh) Court. Based on the new rules, the state cadastral registration of a part of premises will occur simultaneously with the registration of the lease of part of the premises.

The Law enters into force on January 1, 2017, with the exception of certain provisions.

Innovations in regulation of the status of unauthorized construction

Federal Law No. 258-FZ on Amendments to Article 222 of Part One of the Russian Federation Civil Code and the Federal Law on the Enactment of Part One of the Russian Federation Civil Code of July 13, 2015

The Law has made considerable changes to Article 222 of the RF Civil Code regulating the status of unauthorized construction.

The following major changes are worthy of note:

The Law has eliminated the criterion of materiality of violations of town-planning rules and regulations that previously had to be met in order to declare construction unauthorized. Construction is considered unauthorized if it meets the following criteria: it is erected (i) on a land plot not granted according to the established procedure; or (ii) on a land plot whose permitted use does not allow the construction of that property on the land plot (this ground was not previously stipulated in the RF Civil Code); or (iii) without getting the necessary permits; or (iv) in violation of town-planning and construction rules and regulations. The limiting conditions in which a court may recognize that the holder of title to the land plot on which the unauthorized construction has been erected holds title to the unauthorized construction have been expanded to include: (i) the person who performed the construction or has rights to the land plot allowing for construction of that property on the land plot, (ii) the construction corresponds to the parameters set forth in the site planning documentation, land use and development rules and other mandatory requirements to the parameters of the structure. Together with those conditions, a previously existing parameter continues in effect: that preserving the structure does not infringe the rights and legitimate interests of other parties...

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