Market Know-how: Unyielding Land

Bring order to that sphere is expected to become the top priority for all central departments of Moscow city hall and all territorial organization in charge of land-use regulations (known by their Russian acronym TORZ). As part of that ambitious project the government will claim the right to reserve and seize plots of land from individuals and corporate entities for government needs. But property owners are not ready to give up their properties without a fight. Even more so as the law is on their side.

Properly speaking, improving the system implies that authorities at all levels are to decide which agencies are responsible for which procedures in the context of registration of titles to land and transactions involving land, as well as delimitation of property rights and seizure of plots. A transition to civilized practice calls for creation of a single register of plots of land in the city. Civil servants dream of inventing some sort of a smart IT system available to all government departments and comprising data on each and every parcel of land in the city.

In short, time has come to introduce order both in the city and in the departments of the Moscow city government. That was why, the latest session attended by the city hall’s land-use and property departments, city lawmakers and federal officials focused on three main issues. Firstly, officials discussed functional uses of municipal lands and laws governing them. Secondly, they pondered on ways of creating an effective system of management and use of land. Finally, they discussed how they could help lower-tier authorities to deal with land-use issues.

Total Reconstruction

Thousands of hectares of land in the capital are misused, i.e. occupied by loss-making enterprises or old warehouses, or leased out on long-term basis and occupied by makeshift structures, kitchen gardens or garages. It would be quite reasonable for the city to reclaim part of those lands. The expropriation of plots of land from individuals and companies for the purposes of raising facilities deemed as more appropriate in certain locations is viewed by government officials as the seizure for state needs. In most cases, plots are seized for the purposes of housing construction and very rarely for public amenities and infrastructure.

Before a plot is seized the government usually issues a decree or a resolution ordering a new development on the site. That was what happened in South Butovo (Yuzhnoye Butovo) district. Before construction works were launched in the area the government issued Decree No 837-RP ordering seizure of plots of land to vacate future building sites.

Vitaly Mozharovsky, partner with Pepeliaev, Goltsblat & Partners, says that neither homes nor commercial properties fall into the category of properties the construction of which is a government necessity, although initially residential projects had been included in the list only to be removed later on. The list of government purposes is quite restricted.

"Surprisingly, though, the city authority believes that - as a market participant - it has the right to decide on appropriateness of construction of real properties across the city. The government cannot act as a market operator or a market analyst, who elaborate concepts of development projects," Mozharovsky insists.

The laws governing the seizure of plots of land are the municipal law on land-use and development in the city of Moscow and the law on fundamentals of urban development. Then, there is a mayor's decree on rules and procedures of seizure of plots of land and compensation of losses to their owners.

Mid-February 2007 saw adoption of a new decree, on interaction of government bodies of the city of Moscow in addressing issues arising in connection with the seizure of land plots. The draft of that document had been penned by the city land-use department. But lawyers believe, that document must not infringe upon the rights of proprietors, being procedural by nature and governing relations between various government bodies. Land owners, who are concerned about their rights, are advised to refer to the federal law.

The mayoral decree on rules and procedures of seizure of plots of land and compensation of losses to their owners reads: "The plots held by physical persons and legal entities in life tenure and inheritance, permanent or fixed-term use, lease or sublease, may be seized from them should government or municipal needs arise… The seizure of plots of land from their owners is carried out through acquisition or by a ruling of the court of law."

But the municipal government is said to be elaborating a full-fledged program aimed at seizing municipally-owned lands from their users. In near future the plan is to be examined at the Moscow Committee for Architecture, Viktor Damurchiyev, head of the municipal department for land resources, has reported. Preparations are to be finalized before mid-2007. Orders on seizures will contain information on previous and new owners, basic terms and conditions of seizure and new tenure, including the procedure of compensating losses to previous owners. In other words, all legal requirements will be observed.

According to Damurchiyev, all those measures are supposed to make things easier for bona fide users and punish the dishonest (e.g. those who have occupied their plots without permission from the authorities or lawful owners). The aforementioned decree on the rules and procedures of interaction between government bodies as regards the seizure of plots of land lays down the rules of reserving lands for municipal needs, including territories occupied unlawfully.

In line with the provisions of Russia's Civil Code, the owner of a real property situated on the site, that is to be seized by the government, as well as the land owner or leaseholder, are to be informed of the decision to the effect 12 months in advance. The acquisition of a privately-owned plot is possible only with the owner's consent. The owner has the right to dispose of the plot - sell or develop it - since the moment the decision on its seizure is taken and before the seizure takes place. But this is only possible in ideal circumstances where the land is privately-owned, which is rare in Moscow, says Mozharovsky.

In other cases, as is state in all laws, the city government compensates land users for damages suffered in connection with the loss of properties (i.e. installations built on the site before the seizure was ordered). But almost all lawyers doubt that the aggrieved receive compensation in full and at market rates. To calculate an adequate amount of compensation services of an independent appraiser are required, Moscow mayor Yuri Luzhkov told a government session recently, adding that the plots of land should be evaluated by a state-owned organization independent from the city administration. The lawyers, however, have strong doubts about impartiality of a government-appointed appraiser.

Vitaly Mozharovsky adds that land and property portfolios still have not been formed in the city. Those are the sites occupied by facilities owned by more than one person (e.g. covered car parks). Hence, it might seem that there is no one to be compensated for the losses by the city government. Head of ready-made businesses department at Kniazev and Partners, Alexei Kurganov, points out that in most cases plots seized by the government are appraised subjectively. If a title-holder opposes the seizure or is not happy with the sum of compensation he may file an action in court. However, Vitaly Mozharovsky admits he cannot recall cases where plaintiffs challenged seizure. More often, the dispute is about the size of compensation.

Disturbances at Local Level

Addressing the recent economic session, Viktor Damurchiyev assured the audience that in 2007, the department, with support from its territorial units, would register the city government's title to 8,000 plots of land. Thus, the size of territories officially owned by municipal authorities will increase. Damurchiyev also pledged to defend the city's property rights in courts more vigorously. It appears that municipal officials suffer from protection private owners are entitled to by federal law, which fails to take into account the interests of territorial authorities. TORZ officials believe that many plots across the capital are leased out to or temporarily occupied by individuals and companies unlawfully. This is the case, for example, where makeshift structures occupy an area exceeding their size by many times.

Officials are especially distressed about lands held by Moscow residents in life tenure or rented and used as kitchen gardens. Small businesses, too, are causing concerns the government's concerns about numerous makeshift installations raised by entrepreneurs across the city, housing small shops, caf?s and offices.

But there are federal laws in force, protecting owners of kitchen gardens, garage and makeshift structures. One of those is the federal law FZ No. 93 of June 30, 2006 "On introduction of changes to several legal acts of the Russian Federation governing simplified procedures of registration of citizens' titles to certain real properties".

The adoption of that act resulted in amendments to the law FZ No. 122 of July 21, 1997 "On state registration of titles to and transactions in real properties", which was supplemented with Article 25.3, comprising special procedure of registration of rights to certain types of real properties.

That article protects the rights of citizens who own countryside plots and kitchen gardens, garages, etc. In many cases their owners do not require any permission for construction works on their plots.

TORZ officials are not happy with FZ No. 93. Andrei Sinitsyn, head of the territorial land-use organization of North Administrative Okrug of Moscow, says that in the area within his jurisdiction the first land owners have already emerged, in Yurovo and Kurkino.

Residents are unlikely to give up their countryside plots, although those plots are often larger than what they are entitled to by law.

Land-use officials in eastern Moscow report problems with owners of multilevel garage complexes. In the South, TORZ complains about difficulties that arise during their attempts to vacate sites held in temporary use, especially those that are occupied by temporary structures. Andrei Yefimov, head of the territorial land-use department in South Administrative Okrug, calls for adoption of new regulations governing makeshift properties that would prevent their owners from registering long-term leases to the plots where they are built. Yefimov is especially vexed about makeshift gambling establishments. One of such properties was operating on a 300sqm plot, and before its owner was asked to free the territory he had secured a long-term lease to it. The local authority filed an action in court. But the court sided with the owner, ignoring the plaintiffs' claim that the building was too small for such a large plot. The city, officials insist, needs a law that would classify makeshift installations as movable assets.

From Practice

One of the highest-profile socially significant projects that had required seizure of lands for municipal needs, was the construction of Third Ring Road, market participants report. Lands were also seized for construction of the residential district Kurkino. Some of the seized plots were reclassified and transferred into state ownership during construction of motorways and access roads to Sheremetievo and Vnukovo airports, and widening of Yaroslavskoye Shosse [motorway] on the stretch between Rizhskaya Square and Pushkino in the Moscow countryside. The largest seizure to date for the purposes of commercial construction took place when Moscow city hall took over the territory allocated for development of the Moscow international business center Moskva City.