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This is the maximum amount of buy out price as per the RF Land Code. For busi nesses qualified as valuable for the city, the price for buying out their land plots is decreased down to 20% of their cadastre value.

The right to establish adjustment coefficients between 0.7 and 1.3 used for selling land plots and approved by the RF government (RF Law No.137 FZ of Octo ber 25, 2001) requires some special attention. Application of this norm in the envi ronment of total corruption may become an additional key source for extra income of bureaucrats.

Currently the State Duma is reviewing the draft law introduced by the RF Min istry for Economic Development and Trade stipulating bringing down the buy out price only for privatized business entities down to 5% of cadastre value for all resi dential areas except for Moscow and St. Petersburg, where the minimal price will constitute 20% of cadastre value94. According to the new law the buy out price for all other business entities shall be equal to cadastre value, i. e., market price. In case such approach is applied, major companies or entities with that or another way of control on behalf of the government or demonstrating their loyalty to the government will have preferential rights for buying out land. Smaller and medium sized businesses in need of privileges are in reality deprived of the possibility to buy out land due to being in capable of overcoming the set price barrier.

Maintaining the current legal framework on the matter or enactment of the above mentioned draft law will inevitably lead to new violations of the owners rights (similar to what happened during privatization in 1990 s) in favor of the so called national interest, such violations being performed (as it has become the practice of the recent years) by formally lawful methods. The real objectives of enacting such laws (distributing state property among a selected circle of people, maximizing budget revenues for regional budgets, as well as for bureaucrats participating in See: www.bpn.ru/service/neus/13711.

See: novgorod.osean.ru/commercia/articles/articl_id=15096@PHPSESSID= 014b3b10caf6ab74de7a 57d2eb172e40.

Moscow City Government Resolution No.532 PP of July 19, 2005.

Draft RF Law No.347961 4 On Amending the RF Legal Acts with Regards to Specifying the Terms and Conditions, and the Procedure of Acquisition of Rights for the Land Plots Owned by State/Municipality. Version adopted by the State Duma after first reading, November 22, 2006.

RUSSIAN ECONOMY IN trends and outlooks decision making on the mater of buying out land plots) shall stay beyond the public discussions, if only they do not result in some social conflicts.

4) The trend to limit the tenants rights and increasing government regulation in land lese areas.

Execution of Lease Agreement proposed by the legislator as an alternative for buying land out has also its disadvantages.

The Land Code of 2001 introduced new terms and conditions for the long term lease agreement (over 5 years) for a land plot being a state/municipal prop erty (Article 22, item 9). In case of executing such an agreement the tenant actually receives the rights to dispose such plot within the period of the agreement validity without the content of the owner (re assign the rights arising from such agreement to a third party, sub lease the plot, pledge the lease rights, introduce these rights as a contribution to a charter capital of a business entity, etc.).

However, the draft law on buying out the land plots (introduced by the RF Min istry for Economic Development and Trade in 2006 and being currently reviewed by the State Duma) stipulates some new limitations of the tenants rights95. First of all, re assignment of the long term leasing rights (over 5 years) shall be prohibited without authorization from a respective government/municipal official (today a mere notification of the respective authority is enough to re assign the rights). It means bureaucrats would be empowered to dictate when executing deals with pri vate businesses and individuals having premises located on the leased land plots.

Secondly, the re assignment of leasing rights for the land plots not carrying build ings, structures and facilities shall be banned completely. This is in obvious im pingement of the rights of buildings and facilities owners, and this norm also has another implication: provides the bureaucrats with the right to arbitrarily cut the borders of the land plot.

The rent rates limits administratively leased plots are set as 2% of the cadas tre value (in case of agricultural lands not exceeding the land tax rate, and for land plots the circulation of which is limited the amount of land tax). However, these limitations shall be effective only until the moment of delineation of state property for land. So based on some artificial reasoning one category of tenants owners of buildings/facilities will pay rent comparable to the land tax, while another category of tenants will be charged based on the arbitrary decision of local author ity. This situation may be explained by the fact that until July 1, 2006 the delineation covered the land plots qualified to be bought out and carrying private buildings and business facilities (based on whom the building/facility belonged to before privati zation). So many of business entities without even being aware of that found them selves occupying land plots owned by the state. According to the new regulation (RF Law No.53 FZ of April 17, 2006) the land plots qualified to be bought out shall not be subject to delineation. 167 hectares of city lands were delineated as of January 1, 2005 (2.3% of total area). With regards to these territories currently making up to 6% of the city lands government officials will have the opportunity to establish arbitrary rates not based on market realities.

See: A. Lazarevsky. Land Coup/ Expert No.38, October 16, 2006.

Section Institutional Problems Besides, for tenants the situation is aggravated by the fact that in some re gions the rent for using a land plot will be calculated based on the performed ca dastre evaluation of land, meaning the rate will grow significantly. Thus, in Moscow, starting from January 1, 2006, for all leases executed after this date the rate is cal culated based on the real cadastre value of the respective land.

Lease rates in Moscow are established in accordance with the approaches to setting the land tax rates96:

- 0.1% for land plots carrying housing and engineering infrastructure;

- 0.3% for land plots carrying social assets funded from extra budgetary sources, as well as dachas (country cottages);

- 1.5% for all other categories of land plots.

What does that mean for land tenants In Moscow the base land lease rate dif ferentiated based on the tenants category and on the type of land use is within the range of RUR 1,800 per hectare and RUR 900, 000 per hectare. Its growth when calculating based on cadastre value will make from 8% to 110% dependent on the location and type of land use97.

Other challenge the tenants have already came across was selling premises owned by the entity of the Federation with the effective lease agreement. In most cases it results in bankruptcy of the tenant due to increase of the lease payments, or in the new tenant turning down the application for prolongation of the effective lease agreement. For example, the St. Petersburg Committee for State Property Management is selling as priority No.1 the premises already refurbished by the tenants98. Most often this problem relates to smaller and medium sized businesses which do not have relevant funding resources for buying out the leased premises.

The situation is aggravated by the fact that KUGI does not prolong the effective lease agreements with the entrepreneurs prior to selling land plots.

5) Arbitrary definition of land plots borders.

The availability of cadastre map (plan) is a mandatory pre requisite for acquir ing the rights for the land plot carrying buildings/facilities of a business entity. This map needs to be attached to the application for acquisition of rights for the land plot which individuals or legal entities need to file with the respective executive agency or local self government body with the purpose of buying out the land plot (item 5 of Article 36 of the RF Land Code).

In case cadastre map is unavailable, the borders and sized of a land plot shall be defined based on the effectively used area of the land plot and in accordance with land and city planning regulatory framework (item 7 of Article 36 of the RF Land Code).

According to the effective land use regulations, definition of the land plot bor ders and of the order of its use is to a great extent dependent of the City Planning Appendix No.11 to Moscow City Government Resolution No.273 PP of April 25, 2006.

Interview by V. Damurchiev, Director of Land Resources Department of Moscow City // Revenue Formula, Vechernyaya Moskva No.12 of January 25, 2006.

St. Petersburg: Business Demands to Stop Auctions /Alliance Media, December 27, 2006. See:


RUSSIAN ECONOMY IN trends and outlooks Regulations (Article 85 of the Land Code) defining the types of allowed land/capital infrastructure use, their normative (minimal and/or maximal) sizes, as well as limita tions for using land/capital infrastructure (Article 30 of the RF Land Code).

The RF entities are empowered to enact their City Planning Regulations, and local governments usually decide on different issues of land use. In the environ ment of total corruption land owners or those who wish to become land owners, as well as tenants find themselves in the position of absolute hostages of bureaucrats at different levels as they are granted practically unlimited rights. In reality privati zation of a land plot is often performed in the size of the foundation of the build ing/facility it carries, that is just the foot of the building is being sold without adja cent territory required for servicing, maintenance and normal operations of the building. And the remaining portion of the land plot is offered at a much higher buy out price.

6) Delineation of state property between different levels of government con stitutes one more barrier for those who want to privatize land.

The RF Law On Delineation of State Owned Land effective since January 2002 sets the following basic principles for such delineation:

- the already privatized land plots, as well as those granted to municipal or federal property or property of the entities of the RF shall be excluded from the process of delineation;

- the land plots may become property only of that subject of public power which owns (or used to won prior to privatization) real estate located on this land plot.

In reality the Federation and the entities of the RF often claim the same plots simultaneously. Contradictions between different levels of power, departments, agencies and individual bureaucrats lead to a lengthy procedure of coordination and registration of original ownership for land.

In addition, in certain regions governments are deliberately delaying land property delineation process. Until the property rights are not properly delineated, lease payments for the respective land plots are remitted to either regional or mu nicipal budgets, thus providing counter incentives for delineation process. Often the procedure of buying out and registering the rights for land takes 2.53 years, and the certificate for state registration of title the business entity receives after months or a year upon executing the sales and purchase agreement with regards to this land plot99.

The issue of delineation of state owned lands became especially acute in Moscow. In April 2003 the decision about selling the land plot occupied by a privat ized business entity was made for the first time after enactment of the Land Code.

The plot of 1.7 hectares was evaluated at $500K, i. e., $30 per sq. m. However, the decision was made not by Moscow Government, but by Moscow territorial agency of the RF Ministry for Property Management. This decision became possible be cause the building occupying this plot used to be federal property before privatiza tion.

Land Relations Reform and Land Privatization in the Cities: Review and Evaluation Analytical Re port by the Institute of Urban Economics, pp.1415. See: www.asdg.ru.

Section Institutional Problems This transaction caused high profile scandal with a broad resonance in the media. Top ranking Moscow City officials claimed the deal to be illegal100, because according to them, prior to delineation of federal and Moscow land ownership the RF Ministry of Property Management is not entitled to execute any deeds with land.

According to some estimates, lands occupied by business entities which used to be federal property prior to their privatization may constitute c. 40% of all Mos cow land101. In case federal property management authorities deal with buying out these lands, the huge proceeds from such sales will be fully remitted to the federal budget. That is why Moscow government will be doing everything not to allow for a precedent which may cause a knock on effect102.

7) Technical problems of exercising the right for land plot privatization.

The main challenge (besides those mentioned above) that many businesses are facing after applying with request for privatization of land is related with local governments turning down the applications. They may be basing their decisions on unavailability of cadastre map and refusal to make it, or on attributing these lands to the category which is not qualified for privatization.

As for the problem of unavailability of cadastre map for the respective plot, one needs to remember that as of today only 10% of the RF territory is covered by cadastre maps103.

In some cases attributing lands to a certain category (e. g., lands of general use) is confirmed by a directive of local administration, however, there are no effective legal documents to confirm this specific mode of using the given plot was established. This complicates the court review and making a judgment with regards to whether turning down of privatization request by the local administration was lawful or unlawful (e. g., Resolution of Supreme Arbitration Court Presidium No.322/05 of April 19, 2005).

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