Construction is completed, the title to the real estate property is registered, now it’s time to acquire the public land plot necessary for its use – this is the general rule known to all developers. However, in practice there arises the question of how to calculate the land plot area so as to not miss anything and at the same time not take what doesn’t belong to you.

Previously there were two diametrically opposed approaches in court practice regarding the legality of acquisition of a land plot owned by the state or municipality exceeding the area of the real estate property located on it.

According to the first approach, the owner of the real estate is entitled to acquire a public land plot of the same size as that determined in the previously concluded lease agreement for such land plot (see e.g. Decree No.4345/04 of the Presidium of the Supreme Commercial Arbitration Court of the Russian Federation dated August 17, 2004 on case No.А41-K2-6580/03, Decree No.09АP-28751/2010 of the Ninth Commercial Arbitration Court of Appeal dated December 13, 2010 on case No.А40-42711/10-106-210).

However, according to the second approach, the area of the land plot leased for a construction project doesn’t automatically mean that it is what’s to be used for the purposes of land acquisition, especially if the completed building occupies only an insignificant part of the land plot being acquired (see e.g. Ruling No.VAS-2722/14 of the Supreme Commercial Arbitration Court of the Russian Federation dated April 25, 2014 on case No.А32-46630/2011, Decree of the Federal Commercial Arbitration Court for the Northwestern Federal District dated January 27, 2014 on case No.А56-20059/2013).

The Supreme Court of the Russian Federation has recently made another attempt to unify the approach regarding this issue in its Ruling on case No.А40-100700/2015 dated March 6, 2017.

In this case, the court examined a dispute between the Directorate of the Federal Antitrust Service for Moscow Region (“UFAS”), OOO Stolychnye Investitsii. Dubna (the “Company”) and the Administration of the town of Dubna (the “Administration”).

In 2007, the Company and the Administration entered into a lease agreement for a land plot on which the Company built a shopping and office center (the “Facility”). Later the Company, being the owner of the Facility, in 2013 acquired the disputed land plot. The area of the acquired land plot (10,000 sq. m) exceeded by far the area actually occupied by the Facility (796 sq. m).

After that, the Company partitioned the acquired land plot into two new ones, on one of which the Facility was located, and the other part not occupied by real estate the Company intended to use for new construction.

Based on the review of the procedure of transfer of the ownership title to the public land plot to the Company, the UFAS detected that the actions of the Administration and the Company violated Federal Law No.135-FZ “On protection of competition” dated July 26, 2006, since the newly formed land plot that the Company planned to use for construction was transferred to it without a public tender procedure. In this connection, the UFAS ordered that measures be taken in order to return the ownership title to the land plot back to the public.

The court of first instance, court of appeal and court of cassation deemed the above mentioned order of the UFAS unlawful, since they presumed that the owner of the real estate had exclusive rights to acquire the land plot on which it is located, regardless of the ratio of areas of the land plot and the building constructed on it.

However, the Supreme Court of the Russian Federation didn’t agree with the viewpoint of the lower courts and pointed out that “a public authority is obliged to consider the need for the land plot based on the designated purpose of the real estate located on it, town-planning and other requirements imposed on buildings in operation, as well as projects on planning and development of territory of the respective municipality.”

Since neither the Company nor the Administration provided such justification, the Supreme Court deemed unlawful the conclusion drawn by the courts of the three instances that the transfer of ownership title to the land plot to the Company without considering the area actually needed conforms with requirements of the Land Code of the Russian Federation.

Please note that regulations of the Land Code in the edition that was in effect until March 1, 2015 were applied in proceedings in this case. At the same time, due to a lack of regulations in the current edition of the Land Code that would clearly regulate the calculation of the area of a public land plot being acquired by the owner of the real estate located on it, we presume that the conclusions drawn by the Supreme Court in case No.А40-100700/2015 will continue to be relevant today.

We will monitor further changes in the court practice in this area and will inform you of the dynamics. At present, a similar case is being examined by the Commercial Arbitration Court for the West Siberian Circuit between the Main Directorate of Property Relations for Altai Krai and OOO Lenta (case No.А03-4772/2015).

Elena Stepanova  Partner                                Moscow   Tel.: +7 (495) 970 10 90

Olga Sofinskaya   Senior Associate                Moscow  Tel.: +7 (495) 970 10 90

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Elena Stepanova or Olga Sofinskaya, Moscow Office of Capital Legal Services.

This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues.