On 4 April, 2008 RF Government Resolution No. 234 on Enabling Housing and other construction on Land in Federal Ownership, of 3 April, 2008 (Resolution No. 234) entered into force. This law establishes a number of prohibitions on the disposal of federal property.

The Resolution was passed following President Dmitry Medvedev’s proposal that federal land not being used effectively should be seized for housing construction. In order to prevent officials and state enterprises disposing of federal property too hastily, Resolution No. 234 was drafted in short order. This means it will require some further adjustments, which have reportedly already been commenced by the Regional Development Ministry.

The Resolution bars federal executive authorities from “approving transactions involving the disposal of federally-owned land”. Two conditions are set that federal land must meet in order for Resolution No. 234 to apply. These are firstly, that land must have been allocated to federal state institutions, federal state unitary enterprises, the Russian Academy of Sciences, sectorial academies of sciences, or organisations created by such academies, or land (empty plots) which has not already been allocated to individuals or legal entities. Secondly, the land must be within the boundaries of towns and villages, or within a distance specified in Resolution No. 234 of town boundaries.

The Regional Development Ministry wishes to extend the ban to federal land plots allocated to treasury enterprises.

Interpretation problems and exceptions to the ban

An important drafting ambiguity in the Resolution is that it does not clarify what is meant by “approving transactions involving disposal of federal land”, thereby creating grounds for court action around the interpretation of that term. If a literal interpretation of Russian law was made, this phrase would mean that the Federal Agency for State Property Management (Rosimushchestvo) must provide written consent to transactions involving land allocated to the entities listed above. However, it is not clear what lawmakers mean when they refer to the approval of transactions involving disposal of vacant land plots. It seems that in this case they mean a prohibition on federal executive authorities disposing of federal land. According to reports, the Regional Development Ministry has been proposing amendments to Resolution No. 234 to establish this as an additional ban.

The Resolution also establishes a ban on approval of transactions involving the disposal of real property (note: the Resolution does not define this term) in federal ownership.This property should be on the said land plots and “should be allocated to federal state unitary enterprises under economic management rights”. According to RF law, this term means obtaining the written consent of the respective federal executive authority that owns the property of the federal state unitary enterprise for the transaction involving federal state property.

Resolution No. 234 establishes a ban on auctions to attract investment, with regard to the said land plots and real estate standing on them.

The Resolution also states that all these prohibitions are temporary and will expire on 1 January, 2009. In the interim, it provides a list of valid exceptions to the prohibition on approval of transactions involving land in federal ownership.

In particular, the ban does not apply to land plots allocated after the entry into force of the Resolution as the result of an auction of federally-owned land held before the entry into force of the Resolution, or to the sale of the right to conclude a lease agreement to such land. The ban also does not apply to the provision of land plots on the basis of auctions for the right to conclude an investment agreement for land in federal ownership or property standing on it, that took place before the entry into force of Resolution No. 234.

The Resolution also allows for the provision of land plots on the basis of separate decisions of the RF Government and permits transactions related to disposal of land plots, underlying buildings and structures owned by citizens and legal entities (note: The Resolution permits all transactions related to the disposal of land plots underlying buildings and structures owned by citizens and legal entities).

The Regional Development Ministry wants to extend the list of exceptions to include forest land and conversion of use rights into lease rights pursuant to Federal Law No. 137-FZ on the Introduction of the Land Code of the Russian Federation, of 25 October, 2001.

Other aspects of regulating housing construction on federal land: the support fund

The Resolution adopts several documents to form the further regulatory framework for housing construction on federal land.

One such document is RF Presidential Decree No. 715 on Measures to Develop Housing Construction, of 7 May, 2008 (Decree No. 715). According to Resolution No. 234 and Decree No. 715, land covered by the ban in Resolution No. 234 for housing construction shall be used in accordance with a new federal law determining the status of the Federal Support Fund for Housing Construction.

The draft of this federal law has been produced and was submitted to the State Duma of the RF Federal Assembly (State Duma) in June 2008. According to the draft, the principal tasks of the Federal Support Fund for Housing Construction (Fund), founded by the Russian Federation, will be supporting the market for land plots for housing construction, and supporting utilities infrastructure construction.

In order for the Fund to perform these tasks, the draft law provides that the Fund be assigned the title to land in federal ownership and any federal property standing on it. The draft law provides a detailed procedure for the federally-owned land plots and properties to be assigned to the Fund. This includes a decision from the federal executive authority that the land and property in question are not required for federal needs.

This decision is to be taken on the basis of a list of land plots the regional authorities send to the Fund. The federal executive authority will also indicate, subject to an opinion from the Fund, that the Fund will use the property for housing construction or infrastructure purposes. The draft law provides that the decision that the property is not required for federal needs will be grounds for termination of rights in rem and in personam to such properties on the grounds provided in the RF Civil Code and RF Land Code.

At the same time, applicable RF law does not contain a clear definition of the purposes for which federal land may be used. Therefore, amendments to various laws will be required, in particular, land law, in order to implement the said draft law. Decree No. 715 provides that a draft federal law providing for use of federal land solely for the purposes of exercising powers under federal law, and an expansion of the grounds for termination of rights to federal land plots by September 1, 2008. According to reports, amendments are to be made to land law concerning extrajudicial compulsory termination of rights to federal land not being used in the exercise of federal powers, and amendments to procedure for seizing land plots for state and municipal needs.

As the owner of the land plots assigned to the Fund, the Fund will, according to the draft law, also hold auctions for the right to let such land plots for housing developments, auctions to sell such land plots for construction purposes, and pledge land plots.

Federal disposal powers assigned to regional authorities

The draft law also provides for assignment of federal powers to administer and dispose of federal land plots and the federally owned properties in them to regional authorities, and provides a transfer procedure.

The exercise of these powers by regional authorities will depend on them meeting certain conditions, in particular, having territorial planning documents (general plan, territorial planning schemes) and town planning zoning of the territory (land use and development rules) where the federal land plots are located.The draft law sets a term of two years during which a regional authority shall be entitled to use and dispose of land plots for which the required documents have not been produced in a specified manner (e.g., these land plots may not be pledged). During this period, the regional authorities must produce the documents required to assume the federal powers to manage and dispose of federal property in full. If the required documents are not all produced on time, or if the regional authority succeeds in disposing of the federal property appropriately, the federal powers to manage and dispose of federal property of the regional authority are terminated.

It is difficult to reach a clear conclusion on what the results of Resolution No. 234 and subsequent laws intended to form a regulatory framework for housing construction on federal land will be.The state’s efforts to provide citizens with affordable housing should bear fruit with time. It seems that drafting and adopting the new laws required for this policy will take some time as well. At present, the Resolution is already reported to have had a negative on the functioning of the land market.

There have also been reports of sublease agreements concluded by federal state unitary enterprises before the entry into force of Resolution No. 234 being reviewed even though it should not apply to transactions to dispose of federal land plots that have already taken place because civil legislation is not retroactive.

Other press reports highlight the particular adverse affect of Resolution No. 234 on the Moscow Region land market, to the effect that it reduces the chances of acquiring title to land in Moscow to null. It has also blocked the program for moving industrial enterprises outside the Moscow city boundaries.

If a federal law is passed allowing extrajudicial termination of rights to federal land not being used for federal needs, it may also have an adverse impact on the business climate in the country as a whole, since it may affect agreements and contracts already signed by federal institutions and enterprises.

Olga Osadchaya is a lawyer at law firmSalans.