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News & Events / Publications / The article by Andrey Zelenin and Artem Karpov in "Russia/Eurasia Executive Guide"15 January 2008 Land plot privatization in Russia Privatization of the land plots under privatized buildings is still attractive but becomes more expensive and new restrictions are being introduced. An attractive opportunity for both foreign investors and Russian companies owing plants, factories buildings and other real estate acquired in the course of privatization is provided in the Introductory Law Land Code of Russian Federation. These proprietors are entitled to buy out the land beneath it on favourable (below-market conditions) and therefore to cut costs on rental payments and increase the capitalization of their properties. The new amendments to the Law (Federal Law No. 212 FZ from 24.07.2007) have changed the order of acquisition of property rights of state and municipal land plots, including the order of determining the price and rental fee, changed the order of alienation of land plots during the process of privatizing of state and municipal property, and also changed the terms for re-registration of plots. Changes connected with order of acquisition of rights to state and municipal land plots The law decreed that the order of purchasing of state and municipal land plots by the owners of buildings situated on these land plots is realized according to the price determined by the Government of RF, authority bodies of subjects of Federation or local municipal authorities depending on their location. Concerning the land plots, state property to which is not distinguished between Federation and its subjects, the order of determining their price and the order of payments for these plots are defined by subjects of Federation. The buy-out price of such plots cannot exceed their cadastral value. Before the order of price determination is defined by Government of RF, subjects of Federation or local municipal authorities, this price is set to be equal to the cadastral value (sp. "b" "c" p.2 art.2, p.1 art.3). Land Code of RF has determined that in case when the premises in the building situated on an indivisible land plot, belong to several state or municipal enterprises, such land plot is given to one of those enterprises for perpetual use basing on a decision of a landlord, while the rest entities have the right to limited use of the land plot. The law has defined which of those enterprises has the right to perpetual use – it is that entity which owns the biggest premise (sp. “d” p.2 art.2). The law has defined that the list of the documents, which owners of the buildings must enclose to the submitting to receiving the rights to the land plot, must be confirmed by federal executive body which is authorized to regulatory functions in the field of land relations (at the moment Ministry of Economic Development and Trade). However other executive bodies or local municipal authorities may not request the applicants to provide any additional documents, except those stated in the list. Executive body or local municipal authority is obliged to take a decision to endow state or municipal land plots to property or perpetual use or to prepare drafts of sale-purchase or rental contracts, in terms not longer than one month, instead of two weeks, like it used to be previously. Method of acquisition of state and municipal land plots by the owners of the buildings and constructions situated on these plots, set until January 1st 2010. The law has changed the method of defining the buy-out price for the land plots, previously set by the Federal Law “About implementation of Land Code of Russian Federation” for two types of civilians and enterprises. Such civilians and enterprises are set to be: If such persons acquire such land plots before January 1st 2010, than their price is set within 20% of cadastral value of the plot located in cities with population more than 3 millions people, and within 2,5% of cadastral value of the plot located anywhere else. Before the price is determined by the subject of federation, the highest price for such kind of area is used. In order to evade fraudulent actions the law has determined the procedure of withdrawal of speculative profits. However in the cities with population more than 3 millions of people local authorities have the right to prohibit construction and reconstruction of buildings situated privatized land plot (excluding the buildings and constructions which do not comply with town-planning regulations). The prohibition should be canceled by the owners request followed by paying the special fee set within 80% of cadastral value of plot. From the January 1st 2008 the new provision of law comes into force which sets the size of fee for cancelling the prohibition in 100% (art. 1, par. 1 art. 3, art. 7). For entities which do not refer to two stated types, but which also are the owners of buildings and constructions situated on state and municipal land plots, the buy-out price is determined by the subjects of federation in accordance to the Federal Law “About implementation of Land Code of Russian Federation”, which sets that the price is calculated in divisible rate of land tax for the unit of square of land plot taking into consideration the amount of population of the city. This order is in force until January 1st 2010. The provision which sets the obligation to use the adjustment factor, considering the main purpose of usage of buildings and constructions, when the land plot is being sold to the owner of building, have been removed from the Federal law “On implementation of Land Code of Russian Federation”. Re-registration of rights to perpetual use of land plots According to the Land Code of Russian Federation the rights to perpetual use of land plots can be endowed only to state and municipal enterprises, governmental bodies and local authorities. Other entities are obliged to re-register their rights to perpetual use into the rental rights or to acquire these land plots. Religious organizations also have the right to re-register the rights to perpetual use into the rights to voluntary limited use. According to the Federal Law “On implementation of Land Code of RF” such re-registration had to be performed before January 1st 2008. The law has extended this term until January 1st 2010. Concerning the land plots on which are located: electric power lines, telecommunication networks, conduits, roads, railroads and other constructions of such kind – such land plots must be re-registered before January 1st 2013. Since January 1st 2011 the new provision comes into force, which sets the administrative liability for the violation of terms and order of re-registration of rights to perpetual use into the rental rights or terms and order of acquiring of land plots. For the entities and entrepreneurs the stated violation may be punished with administrative fine equaling from twenty thousand rubles to hundred thousand rubles. Andrey Zelenin, Partner Artem Karpov, Associate Lidings Law Firm |