The dynamics of privatizing the lands of residential areas during the period between 1994 and 2001 varied significantly from region to region78. In some local authorities did not allow or introduced significant impediments for buying out land, and at the same time regional authorities adopted respective legal acts to prohibit the land to be turned into private property. These regions shall be the following:
Moscow City, Chuvashia Republic, Mordovia Republic, Kalmykia Republic, Bashkortostan Republic, Dagestan Republic, Kabardino Balkarskaya Republic, Tyva Republic, Sakha (Yakutia) Republic, Penza Oblast, Kaliningrad Oblast, Kostroma Oblast, Kamchatka Oblast, Krasnodar Krai and some others.
In other regions the process of buying out land was either not active enough (Nizhny Novgorod Oblast and Samara Oblast), or got suspended after an active start (Astrakan, Volgograd, Orenburg and Leningrad Oblasts).
There was a third group of regions where the process of buying out land was rather intense. Nevertheless, the amount of land turned into private property of business entities even in St. Petersburg – the leading region in this sphere – made only 0.5% of the overall city area in 1996 2000.
Here and further on the data used for assessing the situation in this sphere before early 2000 s is taken from an analytical report of Urban economics Institute “Analysis and evaluation of Land Rela tions Reform in the Cities”, see: www.urbaneconomics.ru/texts.php.
Section Institutional Problems More than 10 years of privatization of land plots occupied by business entities resulted only in 5% of lands being turned into private property of such entities79.
The major bulk of business entities owners still do not own the land occupied by these entities. From microeconomics point of view such situation constitutes a bar rier for owners to exercise their rights and creates for them a real threat of losing their assets in case of disagreement with the principal owner – the government on terms and conditions of land use. From macroeconomics point of view it impedes economic growth, investment into economy.
During the period when the majority of business entities do not have titles for the land they occupy, legal relationship between the state and businesses are regulated by the institute of permanent unlimited (free) use of lands, stipulated by the Land Code of RSFSR of 1991. Business entities were granted such a right based on the decisions of state/municipal authorities which together with the law defined the limitations for using the land law. They could be defined in various ways, however, all actions aimed at assuring disposal of land were either made im possible (e. g., divestment of land), or could be performed only under condition of agreeing them with the state (e. g., leasing land or converting it to free unlimited use (Article 268–270 of the RF Civil Code), cancelled by the RF Law No.201 FZ of December 4, 2006).
The land Code adopted in 2001 has legally fixed the exclusive right of busi ness entities for either privatization of state owned or municipality owned land or for leasing it (Article 36). Besides, the new Code stipulated for abolition of unlimited free use of land starting from January 1, 2004. Prior to that moment owners of business entities had either to privatize the occupied land plots or to execute a lease agreement. Now from the day of enactment of the Code – i. e., from October 29, 2001 – privatization of buildings, structures and facilities (including buildings, structures and facilities of industrial use) without simultaneous privatization of land plots occupied by them is not allowed with the exception of cases when such plots are withdrawn from turnover or limited in turnover (RF Law No.137 FZ of October 25, 2001, “On Enactment of Land Code of the RF”).
Resolution of the issue about privatization of land plots was challenged by a series of problems related with defining the group of land plots not allowed for pri vatization, borders of land plots, their status of federal or municipal property, lack of titles, terms and procedure of land value assessment. Impossibility to resolve those problems led to adoption f amendments to the RF Law “On Enactment of Land Code of the RF” in December 2003. These amendments allowed for extension of the mandatory conversion of user rights for land lots under business entities into ownership/lease rights starting from January 1, 2004, until January 1, 2006.
In the end of 2005 the deadline for converting the land related rights was again extended until January 1, 2008 (RF Law No.192 FZ of December 27, 2005, Presentation by the State Duma Committee for Property Chairman V. Pleskachevsky on I Congress on Land Property Relations in Russia / M. Vdovin, Uniform Tax and Cadastre Value of Land Plots:
Reform News, October 17, 2006, see: www.domex.ru.
RUSSIAN ECONOMY IN trends and outlooks “On Introducing Amendments into Article 3 the RF Law “On Enactment of Land Code of the RF””).
Let us review here the key problems of transferring the land plots to the prop erty of business entities, and analyze to which extent the ways to resolve them se lected by government are justified and feasible.
1) Excluding certain land plots from those qualified for privatization.
The common norm is that turning down of requests to buy out land or to lease it is not allowed with the exception of cases stipulated by the law. Cases when land plots are not qualified for privatization are listed in item 8 of Article 28 of RF Law No.178 FZ of December 21, 2001, “On Privatization of State and Municipal Prop erty in the RF”. Most of the listed cases seem to be justified, however, the fact of including “lands which Master Plans of respective territories development allocate for use in state or public interests”, destroys the illusion of fairness.
The Land Code contains similar norm stipulating that “reserving land plots for state and municipal needs may be the grounds for turning down the privatization requests” (item 4 of Article 28). It is especially important to note that the procedure of reserving land plots for such special needs is regulated neither by the Land Code nor by City Planning Code.
The arbitration courts practice includes hundreds of claims from the compa nies challenging the legitimacy of turning down the request for privatization of land plots based on the need to reserve this particular land plot for state/municipal pur poses. Normally courts dismiss such claims because local authorities refer to vari ous normative acts confirming the need to use the disputable land plots for public or government purposes. As of today, Master Plans for territorial development in some regions are adopted for very lengthy periods, which allows to include a large number of land plots required for the development purposes into such plans, thus removing them from privatization. For example, Moscow City adopted Master Plan for the period until 2020, Tyumen City – until 2040. Often the market players are absolutely unaware, which lands are included into such plans. As a rule, the fact of including land plots into Master Plans becomes public only on case by case basis when individual requests for privatization are filed and are turned down based on the Master Plans.
Draft law on the order of reserving land plots80 is currently under review in State Duma and has been enacted in first reading. It provides for the possibility to reserve any land plot by way of administration decision for undefined state/municipal needs for the period of 3 years. Such reserving excludes the pos sibility for buying out the respective land plots. The proposed mechanism stipulates the possibility of removing practically any piece of real estate (including privately owned ones) from the market turnover under the excuse of “creating the conditions required for implementing territorial development plans, in particular – for develop Draft RF Law No.321847 4 “On Introducing Amendments to Certain Legal Acts of the Russian Federation with Regards to Establishing the Procedure for Reserving Land Plots for State/Municipal Needs”. Version enacted by the State Duma of the Federal Assembly in first reading on October 11, 2006.
Section Institutional Problems ing engineering, transportation and social infrastructure and establishing special environment protection zones”81.
The decision about reserving land plots may be made both at the federal and at the regional level by respective authorities, as well as by municipal governments.
Special attention needs to be paid to the fact that the same authority that made the decision on reserving land may cancel it.
The draft law currently under review is aimed at limiting the rights of use, pos session and disposal of land, thus contradicting with item 3 of Article 55 of the Con stitution, allowing limitation of citizens rights “only to the extent it is required to pro tect the constitutional system, morals and health, rights and legitimate interests of other parties, assuring national defense and security of the state”. Besides, item of article 36 of the Constitution is being violated, which sets unconstrained right to possess, use and dispose land provided it does not damage the environment and does not violate rights and legitimate interests of citizens.
Effective legislation stipulates the possibility to withdraw a land plot only under several conditions, specifically: consensus with the owner of the land plot on terms and conditions of such withdrawal, on the buy out price (Article 282 of the RF Civil Code), and in case the owner disagrees the adequate court judgment is required, as well as compensation of equal value for the land plot cost (item 2 of Article 55 of the RF Land Code).
The institute of reserving the land in the format it has been proposed in the draft law allows for limiting the rights of owners, proprietors and tenants without any formalities associated with registration/protection of their rights and legitimate interests. Such model of legal regulation creates the favorable pre requisites for re distributing land ownership in such regions where it exists, and for using admin istrative methods to distribute land in such regions where there is no private prop erty for land (e. g., Moscow).
It is necessary to use this institute only for reserving land plots for state/municipal purposes so that the list of lands not qualified for privatization is fixed. The rights of tenants and other legitimate owners should be taken into ac count, and the grounds for reserving need to comply with effective legal norms.
Besides, the group of real estate owners entitled for buying out land plots was narrowed by the way the buy out right was interpreted in clarifications issued by the Supreme Arbitration Court Plenum, which pointed to the fact that in case the real estate owner executes the Land Lease Agreement after October 29, 2001(the date the Land Code was enacted), this owner forfeits the buy out right due to the fact he/she had already exercised their right (Para. 3 of item 7 of the RF Supreme Arbi tration Court Plenum Resolution No.11 of March 24, 2005, “On Some Issues Re lated to Application of Land Law”).
The arbitration practice already includes court judgments based on exactly this interpretation of Article 36 of the Land Code stipulating acquisition of rights for state owned or municipality owned land plots (e. g., Resolution of 10th Arbitration Appellation Court of July 5, 2006, on case No. А41 K1 3420/06).
Proposed version of item 43.1 of the Land Code, Draft RF Law No.321847 4.
RUSSIAN ECONOMY IN trends and outlooks Taking into account the number of Lease Agreements executed during years (from November 2001 to November 2006) in the territory of Russia, the num ber of applicants for buying out land will decrease significantly. Thus, administra tion of Nizhnevartovsk raion of Khanty Mansy District (Yugra), for example, exe cuted 233 Land Lease Agreements in 200582.
Besides, State Duma is currently reviewing the draft law introduced by the RF Ministry for Economic Development and Trade, related to terms and procedures of acquiring rights for state owned and municipality owned land plots83. This draft law stipulates that the price for land shall be defined by the regional laws; at the same time, this price shall not exceed 20% of cadastre value. However, the right for buy ing out land will be granted to only those owners, whose right of private ownership with regards to this real property (or the analogous right of the preceding owners) “emerged due to divestment of this real estate from state or municipal property”.
“Other individuals and legal entities being the owners of buildings, structures and facilities occupying state owned or municipality owned land, may acquire land plots (only) at cadastre (market) value.
In case such law is adopted private businesses emerged not as result of priva tization will be to a significant extent put aside from the process of buying out land.
For many of them the price barrier will be absolutely overwhelming.
2) General payment for converting land lots into private property of business entities.
Requests for free conversion of land lots into private property have been filed for a pretty significant period of time. The advocates of this idea believe the land price was incorporated into the value of business entities when they were being pri vatized, so it would be illegal to ask to pay for one and the same thing twice.
Justification of such statements about the illegitimacy of selling land depends mainly on terms and conditions under which business entities were privatized, in particular:
- whether the land plot was incorporated into the divested/privatized asset;
- whether the cost of land plot was incorporated into the overall price paid for the business entity.
The RF Law No.1531 1 of July 3, 1991 “On Privatization of State and Municipal Enterprises” in Article 1 states the list of entities, acquisition of which by individuals or JSCs (partnerships) should be qualified as privatization, points out enterprises, shops, production facilities, shop areas, equipment, buildings, structures and some other sites. Land plots are not listed.
The second privatization law No.123 FZ of July 21, 1997 directly specified that it may not be applied to land privatization (Article 3).
“Land and Its Use”. see: nvraion.ru/part=stuff8&sub=zeml.
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