Innovations in Land Law on Acquisition of Rights to State and Municipal Land

UnknownInga Shakhnazarova
On Oct. 30, 2007, the new Federal Law No. 212-FZ came into force amending the Federal Law on the Introduction of the Land Code of the Russian Federation, or Introduction Law, and the RF Land Code in regard of the procedure for acquiring rights to state and municipal land.

According to the amended Introduction Law, commercial organizations can, in certain circumstances, obtain the right to acquire state or municipal land underlying buildings they own at a discounted price. The law is a success for Russian business, which practically since the introduction of the RF Land Code, has been lobbying for reasonable purchasing terms for land underlying privatized enterprises.

The amended Introduction Law divides commercial organizations entitled to purchase state and municipal land into two groups:

• Commercial organizations that are owners of buildings on land, including those built in the place of derelict, demolished or reconstructed buildings, if those buildings were alienated from state or municipal ownership; and

• Other commercial organizations that own buildings on such land.

The definition of commercial organizations in the first group is not very successful and gives rise to the question of whether they include commercial organizations that bought the buildings from the state or municipal owner themselves, or which have acquired buildings privatized by previous owners.

When a commercial organization in the first group buys state or municipal land, the price is set by the regional authorities to a maximum of:

• 20 percent of the cadastral value of the land parcel in cities with a population of over 3 million, in Russia, only Moscow and St. Petersburg fall under this criteria;

• 2.5 percent of cadastral value in other areas.

In order to limit commercial use of the most expensive land in Russia purchased from the state at a relatively low price, the amended Introduction Law introduced the following restrictions on the rights of land owners in cities with a population of over 3 million: in these cities, upon a commercial organization in the first group acquiring state and municipal land, the state authorities may ban construction or reconstruction of buildings on the land parcel. The ban on construction and reconstruction is to be lifted upon application of the landowner to the state executive authorities within one month of the landowner paying to lift the ban. The payment for the lifting of the ban shall not exceed 80 percent of the cadastral value of the land parcel.

For the second group of commercial organizations, the purchase price for state or municipal land is unchanged and continues to be set by Russian Federation regions, depending on urban populations, three to 30 times the rate of land tax per area unit of land.

These prices for the purchase of state and municipal land by commercial organizations in the first and second groups will apply only until Jan. 1, 2010. After this date, state and municipal land underlying privately owned buildings will be sold at a price close to the cadastral value of the land.

The term for commercial organizations to convert perpetual usage land rights to leases or an ownership title has been extended from Jan. 1, 2008, to Jan. 1, 2010. A longer period has been allowed for converting rights to land plots underlying infrastructure, including power lines, pipelines, roads, etc. -- until Jan. 1, 2013.

If perpetual usage rights are converted to a title for land underlying infrastructure, the above prices established for the purchase of state and municipal land underlying privately-owned buildings will apply. However, the amended Introduction Law does not refer to the prices the users of other land parcels will need to pay to convert their perpetual usage rights into an ownership title, merely referring to article 36 of the RF Land Code as the general rule governing the acquisition of state and municipal land by the owners of buildings standing on such parcels. In this case, the conversion of the perpetual usage rights should take place at a price close to the cadastral value of the land. This is a shortfall in the amended Introduction Law and this significant difference in the purchase price between conversion of perpetual usage rights into an ownership title and acquisition of underlying state and municipal land should not exist.

In the event that the perpetual usage rights are converted to lease rights, the amended Introduction Law sets the maximum rent per year as 2 percent of the cadastral value of the land parcel.

Amendments were made to the RF Code on Administrative Offenses, coming into force as of Jan. 1, 2011, establishing administrative penalties for failure to comply with the deadlines and a procedure for converting perpetual usage rights, in the form of a fine from 20,000 to 100,000 rubles.