"Real Estate and Investments. Legal Regulation", the journal

Issue 1, 1999

Legal Aspects of the Real Estate Market in Moscow

Ivanov G.V., Director general of the Open JSC "Banso-1", Rakhmanina M.Y., head of the Legal Department of the Legal Company "Banso"

The new economic and legal stage began in our country with adoption of the new Civil code of Russian Federation because the real property got the defined legal status, and a turn-over of the real estate began to be realized more actively,being provided by the concrete legal standards. The protection of the rights of the participants of a turn-over of the real estate is on a new level especially after adoption the 21-th of July, 1997 of the Federal act N 122- "About state registration of the rights on the real property and bargains".

Let's consider a problem of use of the real estate for business, by the sight of one of its possible final users - the economic society with the private form of the property requiring for management of the activity an uninhabited premise.

The first question, which arises and also demands a solution, is the question of readiness to pay "at once for all" and to become the full owner, that means to have the right to possess, to use and to dispose of the bought asset, or about readiness to deposit the defined payments for use of the immovable propriety on the basis of rent (subrent) agreement, having possibilities, limited by such agreement.

It is necessary to note, that Russian (and especially Moscow) commercial practice activity of last decade gave burth to other (except for the lease (sublease)) forms of the contract registration of the relations on use of uninhabited premises (for example, joint cooperation), but in a view of the fact that such forms were rarely correct from the legal and accounting point of view, we wont analyze them.

So, property... How can the managing subject realize the desire to purchase the real estate? Lets go to the market! To the market of Moscow!

As well as on any market, on the Moscow market of uninhabited real estate the order and the mess come together. If you do not want to have troubles take care of the market research, before making the acquiring. Amending the mistake is always more difficult and more expensive, than to avert it. You can follow two ways to find out more and to be sure in reliance of "cleanliness":

The first way - to go directly to "Moscow" as vendor of the real estate with the purpose to acquire the property "from the first hands" (other said- to privatizate). In this case we mean the privatization of the urban objects, the properties offered to sale by the state Municipal department of the asset of city of Moscow.

The sale of vacant, unused(free) objects, including the objects intended for reconstruction, is realized extremely on tenders held by the specialized state unitary enterprise of sale of the state and municipal asset (Established Department of state Municipal asset). It is also realized by means of:

  • Commercial competitions;
  • Investment competitions;
  • Commercial competitions with investment conditions.

The initial prices of such sales meet the floors of the contract prices on uninhabited premises established by the governmental order dated 2 December, 1997 N847 "About the order of sale and definition of the prices of the objects of uninhabited fund on territories of city of Moscow" (item 2) in dependence of territorial zone of Moscow (in US dollars for 1 sq.m.): within the limits of Sadovoye Koltzo - 1500; from Sadovoye Koltzo up to (Moscow railway) -1000; outside - 600.

With allowance for realities of economic life after the August crisis of 1998 the Government of Moscow adopted the order dated January 26, 1999.Its the order N 46 "About results of work of economic policy Complex considering relations of the land real estate and engaging of resources for financing of the urban programs in the second half of the year 1998".

This order established the correction factor 0,8 to above mentioned contract prices floors of the uninhabited real estate. It is obvious, that the real estate becomes cheaper...

At consideration of variant of acquiring in Property of the real estate is direct "at The cities" are necessary are to noted by(with) the following: if at You already are present rent relations on To use any of a building (structure) Or premise, a possibility of privatization Such object essentially (much) becomes simpler, and in Some cases is essentially made cheaper.

As about price reduction, the order N85, and also the adopted governmental order for its execution dated December 2, 1997 N847 "About the order of sales and definition of the price of objects of uninhabited fund on territory of Moscow" stipulats that the price of sale of objects of uninhabited fund to the leasers having the right on the redemption of object according to the plan of privatization or received the right of the lease with the subsequent redemption, is defined by special formula, which we wont consider in the present article because of its telative complexity, but the final pay according to this formula results in much lower figure in comparison with the minimum contract price (indicated above) depending on a territorial zone. In the basis of the formula is the objective (reconfirmed by the documents) characteristic of an object of the real estate (in particular the quality of building materials, wear of a building according to the data of , height of ceilings, availability of central heating, special-purpose designation of the object by the form of activity etc), which give the basis for the final pay of the selling (privatization) price by application of appropriate factors to the base figure of cost (established by normative acts of the city).

The redemption of the leased objects, which lease contracts dont stipulate the right of redemption, can be carried out at the prices, which concrete values are established by a commission of sale of the objects of uninhabited fund with bottom border on the level of the minimum contract prices, mentioned above.

The second way you will choose, if you decide to buy the real estate on the named "secondary" market (private owners -legal or physical persons).

With allowance for what youve learned from this article, it is possible to look independently through the advertising articles and calling to the vendor of the real estate to look the object of the real estate "without intermediators", and decide whether its worth buying. You may also address to a realtors company. In a case when you act yourself, you will save probably some money (because you wont pay the assistance of the intermediators - realtors), but you bear the risk to become the owner of "disputable" asset. What risks can you have buying the real estate? You can have problems with the documents, the contentss and correctness are to be carefully verified. And in this case it would be better trust the professionals. Its not by chance that in all civilized world, where the people used to save money exists and develops the institute of realtors. You see, the realtors activity can be realized only at availability of the appropriate license, and the basic purpose of licensing is to admit to the kind of activity only qualified e experts, and the demands to the licensees are high enough. The opinion that the realtors are the simple intermediators is not right, the realtors companies render a complex of services, they usually ensure the "legal cleanliness" of the bargains and their complete attending, and also the insurance liability for negative consequences of the bargain (if something is wrong). According to the Provision about the licensing of realtors activity in Moscow the compulsory insurance of the responsibility of realtors is one of the conditions of issue of the appropriate license.

Let's analyse the most important legal features of the uninhabited premises bargains.

The article 131 of the Civil code of Russian Federation introcuces for the first time the concept of state registration, which is the juridical act of confession and confirmation by the state of rise,limitations (encumbrances), transition or ceases of the rights on the real property. In Moscow the registration functions are realized by specially created establishment of justice the Moscow urban committee of registration of rights on the real property and bargains (). The buyer of immovable asset ought to remember, that the two basic documents, which reconfirm the availability of the property right are certificate of state registration of the right and the document proving this right - as a rule its the agreement (of sale and purchase, of exchange etc.) The agreement contains the essential conditions of receiving of asset in the property, and the certificate is the document, reconfirming the accomplishment of state registration and the fact of rise of the property right according to item 2 of the close 223 of the Civil code of Russian Federation. Thus it is necessary to study attentively the contentss of the agreement, because it can contain some special conditions (for example, terms limitation on possibilities of change of use purposes or disposal of the given premise inherent to the bargains of privatization etc).

Some other documents should be prepared to the forthcoming bargain. The documents issued by and allowing to identify the alienable uninhabited premises: abstract from the passport , several stages plan and explication to it, and also the special information (form 11), which is valid only during 30 days, the information concerning the absence of any encumbrances (Deposit, arrest, any asset dispute etc) according to the data of . It is evident, that at availability of any encumbrance the acquiring of the object becomes disputable. Is in this case you the additional information about an encumbrance and, probably, a legal examination are necessary.

Except for the already named documents its also necessary to possess documents reconfirming the availability of the appropriate authorities at the persons, who will sign the agreement about asset disposal. Such documents can be the decision of general session of the economic society about election of the director, granted by the authorities are, notarially certified letter of attorney to the person signing an agreement given by the chief of the society, other documents, not keeping of doubts on the question. There are casis in arbitral practice when the agreements were declared invalid, because they were signed by the unauthorized persons.

With adoption of the federal acts "About Joint-stock companies" dated 26.12.95 N208- and "About the societies of limited responsibility" dated 08.02.98 N14- the new legal aspect has appeared at preparation and committing of the real estate bargains. According to the indicated laws the questions of conclusion of the "large" bargains (i.d. connected with the buy or disposal of asset,which cost make more than 25 percents of the book value of assets of society on date of adoption of the decision about the conclusion of such bargain) refer to competencies of general session or council (supervisory council), where all the questions are decided jointly. Thus the Charter of the limited societies can stipulate, that the collegiate decisions arent required for committing the large bargains, and the charter of the joint-stock company can not contain such points, because the appropriate law refers the decision of such questions to exclusive competency of the general Assemblies or of Supervisory council depending on the cost of asset.

Practically it means the following. In a view of unconditional "expensiveness" of any object of the real estate at preparation for the bargain the purchaser has to require from the partner, disposing the asset, the information concerning the accounts founded on the data of of book-keeping for the last before making deal accounting period about the book values of assets of the society. Further, it is necessary to compare the price stipulated by the contract of the real property with the figure of granted information. If price of asset is more than 25% from the indicated figure, all listed above documents arent enough for conclusion of the contract. Here in a complete set of the documents should appear the decision of general session of the society about committing of the bargain, or appropriate decision of supervisory council in dependence on the contents of the Charter, which also should be presented at the conclusion of the bargains with the Certificate of registration of the legal person and articles of incorporation (If it exists). The bargain, actually being "large", but accomplished with the infringement of the set forth above demands, subsequently can be declared invalid.

Speaking about legal features of the uninhabited premises bargains, it is necessary to pay attention to changes connected to the form of the agreements of disposal of the immovable asset which has occurred in connection with adoption of the federal act "About state registration of the rights on the real property and the bargains". Now with creation of specialized establishments of justice the notarial certification of the bargains of the real estate can be stipulated by the parties in a text of the agreement, but it is not obligatory, and the check of the legal force of the state registration documents is realized directly by .

The general rule is that the state registration of the joint contracts is realized at addressing to the appropriate establishment of the justice of the both co-signatorys, and at the multipartite bargain of all the the parties. At the same time the law "About State registration..." stipulates the possibility of the addressing only by one of the parties, when the agreement is notarially certificated. In the the case of evasion after committing the bargain of one of the parties from reference in registering body for accomplishment of the registration other party has a possibility to to take it to court. The sense of the positive decree in similar cases is, that it provides the responsibility of establishment of the justice to effect the state registration. At the same time the party, wich dont want the registration to be done,can be forced to reimburse the agent losses, owing to the delay in registration committing.

The state registration of the real property rights and bargains can be realized on the compensative basis, thus rate of an admission fee is established in minimum month wages (from 5 up to 50) depending on metric area of premise.

So, you are almost ready to have problems buying the real estate. We shall repeated, that the list of all the above problems isnt complete, it will probably help you to avoid some troubles, it would be better to accept the competent expert assistance in each concrete case.