Starting from April 01, 2012 provisions of the Federal Law No.427-FZ “On introducing amendments to Articles 2 and 3 of the Federal Law ‘On putting into force the Land Code of the Russian Federation’ and certain legislative acts of the Russian Federation” (hereinafter the “Law No.427-FZ”) will come into effect, setting forth a special procedure for termination of lease agreements for state and municipally owned land parcels located within Moscow and St. Petersburg borders.

Thus, Law No.427-FZ provides government or self-governing authorities of Moscow and St. Petersburg with a right to an early and unilateral termination of lease agreements with developers if they commit substantial violation of agreement conditions in regard to the land parcel lease and/or in the event of significant change in the circumstances which the parties relied upon when entering into the lease agreement.

The Law No.427-FZ classifies the following as substantial violations of lease agreement conditions:

• Developer’s violation of the timeframes for construction or reconstruction of real estate items, as set forth in the lease agreement or permit for construction/reconstruction of this item (if contractual timeframes are unavailable).

These grounds for unilateral termination of the lease agreement only apply if the construction readiness of the item as of the last day of such timeframe amounts to less than 40% of the total volume of its construction/reconstruction, as set forth in the design documentation approved in the procedure as established by law.

• Absence of a permit for construction/reconstruction of real estate item upon expiry of 5 years from the date of signing the agreement.

These grounds for lease agreement termination only apply if the timeframe for construction/reconstruction completion is not set forth in the agreement.

A substantial change of circumstances which the parties relied upon when entering into the land parcel lease agreement will also constitute grounds for unilateral termination. Such substantial grounds under Law No.427-FZ means termination of another agreement signed with a government or self-governing authority, government or municipal establishment or unitary enterprise and providing for the construction/reconstruction of a real estate item on such land parcel leased under this agreement.

In this case the land parcel lease agreement is deemed terminated starting from the day of terminating the specified agreement, save for the cases when survival of the lease agreement is provided for in the agreement on termination of such other agreement.

In other cases of lease agreement termination as described above, the agreement is deemed terminated upon expiry of one month from the day of submitting a notification of terminating this agreement to the government or self-governing authorities.

However, prior to expiry of the specified month-long timeframe, the tenant of the land parcel is entitled to submit its written objections concerning agreement termination to a government or self-governing authority. In the event a government or self-governing authority receives such objections prior to expiry of the indicated month-long timeframe, the agreement is deemed terminated starting from the day the government or self-governing authority provides a notification confirming the decision on agreement termination adopted earlier.

Federal Law No.427-FZ “On introducing amendments to Articles 2 and 3 of the Federal Law ‘On putting into force the Land Code of the Russian Federation’ and certain legislative acts of the Russian Federation”

Additional notes

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

This Information letter keeps the clients of the 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.