13 July 2022

Real Estate Lease Agreements in Russia: A Comprehensive Legal Guide

July 13, 2022

BRACE Law Firm ©

Like all transactions involving real estate, leasing requires special attention. Like all transactions involving real estate, leasing also requires special attention because it has many specific features.

Leasing represents a common basis for obtaining possession and/or use of a real estate object. In cases involving the lease of privately owned real estate objects, concluding a lease agreement and coordinating its terms provides the parties not only with the stability of such an agreement during a long-term lease, but also allows them to regulate a large number of issues, ranging from the amount and procedure for paying rent to the right to use facades for placing advertisements and signs.

When concluding a lease agreement for objects in public ownership, the lessee does not possess broad negotiating power, and the lease agreement is concluded, as a rule, on the lessor's terms, both when concluding a lease agreement without bidding and when conducting bidding.

Within the framework of this article, we will consider real estate lease agreements, including those where commercial entities or public authorities act as the lessor.

Who Is Authorized to Conclude a Lease Agreement as the Lessor?

In accordance with Article 608 of the Civil Code of the Russian Federation (the "Civil Code"), the right to lease property belongs to its owner. Lessors may also be persons authorized by law or by the owner to lease property.

A lessor who has concluded a lease agreement and assumed the obligation to transfer property to the lessee for possession and use, or for use only, must possess the right of ownership to it at the moment the property is transferred to the lessee. This means that a lease agreement concluded by a person who does not possess the right of ownership to the object of the lease at the moment of its conclusion (a lease agreement for a future thing) is not invalid based on Articles 168 and 608 of the Civil Code.

In the event of failure to fulfill the obligation to transfer the thing for lease, the lessor must compensate the lessee for damages caused by the breach of the agreement.

The same rule also applies to cases where the lessor has not registered the right of ownership to the object being transferred for lease in the established manner.

At the same time, the owner of a real estate object that was leased by an unauthorized person may, upon its return from illegal possession, bring a claim based on Article 303 of the Civil Code against the person who concluded the lease agreement without possessing the right of ownership to this thing for the recovery of all income that this person received or should have received. From a bona fide lessor, the owner is entitled to demand the return or compensation of all income that the lessor received or should have received from the time they knew or should have known about the unlawfulness of the property lease [1].

Subleasing property is possible with the consent of the lessor (owner), which may be expressed in the agreement itself or requested separately in each case of subleasing. Sublease terms cannot grant the sublessee more rights than those granted to the lessee under the lease agreement. The termination of the lease agreement also signifies the termination of the sublease agreement.

Form of the Lease Agreement and State Registration

A lease agreement for a term of more than one year, or if at least one of the parties to the agreement is a legal entity, regardless of the term, must be concluded in written form.

According to Clause 2 of Article 609 of the Civil Code, a lease agreement for real estate is subject to state registration, unless otherwise established by law. In particular, a lease agreement for real estate concluded for a term of less than one year is not subject to registration.

At the same time, the absence of registration for an agreement signed by the parties excludes the possibility for one of the parties to contest the agreed amount of lease payments and the penalty provided for by the agreement. However, such an agreement does not grant the lessee a preferential right to conclude a new lease agreement [2].

Failure to comply with the form of a lease agreement entails its invalidity. Requirements for a notarized form for a lease agreement in relation to commercial leasing are not provided for. By agreement of the parties, a lease agreement may be notarized.

In Clause 3 of the Information Letter of the Presidium of the Supreme Arbitration Court of the Russian Federation No. 165 dated February 25, 2014, Review of Judicial Practice on Disputes Related to Recognizing Agreements as Non-Concluded, it is clarified that a party to an agreement that has not undergone the necessary state registration is not entitled to refer to its status as "non-concluded" on this basis. As indicated in the named clause, the state registration of an agreement is carried out for the purpose of creating the possibility for interested third parties to know about a long-term lease.

At the same time, by virtue of Clause 3 of Article 433 of the Civil Code, an agreement subject to state registration is considered concluded for third parties from the moment of its registration. Thus, the legislator once again emphasized that state registration for agreements has significance only in relations with third parties.

Object of the Lease Agreement in Real Estate Leasing

Any real estate objects, including land plots, may be the object of a lease agreement. The right of disposal is excluded from the classic triad of powers characteristic of the right of ownership.

Buildings, structures, constructions, land plots, as well as parts of such objects, may be the object of a lease if it is possible to identify them. If the leased thing is not properly individualized in the lease agreement, but the agreement was actually performed by the parties, the parties are not entitled to contest this agreement on the basis related to the improper description of the object of the lease, including referring to its status as "non-concluded" or "invalid".

At the same time, it should be remembered that real estate objects withdrawn from commercial circulation cannot be the object of a lease. Forest plots may be the object of a lease only on the condition that such plots have undergone state cadastral registration. Subjects of the fuel and energy complex that own or legally possess objects assigned a high hazard category may not lease buildings, structures, constructions, or parts thereof that are part of such objects of the fuel and energy complex, or the land plots on which the specified objects of the fuel and energy complex are located, for purposes not related to production activities, without coordination with the authorized federal executive body.

When leasing a part of a building or premises, the same rules apply as when concluding an agreement for an entire building or land plot. In particular, the agreement may be recognized as non-concluded if the essential terms are not agreed upon.

The provisions of the Civil Code (including taking into account Article 606 of the Civil Code on the possibility of transferring the object of the lease only for the use of the lessee) do not limit the right of the parties to conclude a lease agreement under which not the entire thing as a whole, but only its separate part, is provided for the lessee's use. If the rights to the specified real estate things (land plots, buildings, structures, premises) were previously registered to the lessor, a document signed by the parties containing a graphic and/or textual description of that part of the real estate thing, the use of which will be carried out by the lessee (including taking into account the data contained in the cadastral passport of the corresponding real estate thing), may be submitted for state registration of the lease agreement. If it follows from this description that the subject of the lease agreement has been agreed upon by the parties, then the refusal to register the lease agreement due to the failure to submit a cadastral passport for the object of the lease may be recognized by the court as unlawful.

At the same time, on April 30, 2021, Federal Law No. 120-FZ dated April 30, 2021, On Amending the Federal Law On State Registration of Real Estate and Certain Legislative Acts of the Russian Federation, entered into force. Among other changes, the legislator regulated the procedure for state registration of a lease agreement, the subject of which is a part of a land plot, building, structure, or premises, in more detail.

The lease agreement must specify data that allows for the definite identification of the property to be transferred to the lessee as the object of the lease; in the absence of these data in the agreement, the condition regarding the object to be transferred for lease is considered not agreed upon by the parties, and the corresponding agreement is not considered concluded.

In accordance with Federal Law No. 218-FZ dated July 13, 2015, On State Registration of Real Estate (the "Law No. 218-FZ"), the state registration of the lease of real estate is carried out through the state registration of the real estate lease agreement.

State cadastral registration and state registration of rights are carried out simultaneously in connection with the formation or termination of the existence of a part of a real estate object to which restrictions on rights and encumbrances of the corresponding real estate object apply (Clause 4 of Part 3 of Article 14 of the Law No. 218-FZ).

At the same time, the technical plan is the basis for carrying out state cadastral registration and (or) state registration of rights.

However, Federal Law No. 120-FZ dated April 30, 2021, On Amending the Federal Law On State Registration of Real Estate and Certain Legislative Acts of the Russian Federation, introduced changes to Article 44 of the Law No. 218-FZ. If the EGRN contains information about all premises located in a building or structure, and a lease agreement for a building or structure is submitted for state registration of rights, providing for the right of use (possession and use) of a part of the building or structure, which represents one or several premises having common construction structures (adjacent rooms in the premises) located within a floor (floors), building, or structure, the registration authority ensures the state cadastral registration of the part of the building or structure without the submission of the corresponding technical plan.

Thus, the legislator consolidated provisions that the submission of a technical plan is not required for the state registration of a lease agreement for a part of a building (structure), provided that information about the premises being transferred for lease is available in the EGRN. In the absence of such information in the EGRN, the submission of such a document will be required.

When evaluating the possibility of leasing an object of unfinished construction (ONS), it is necessary to note that such a transfer of the object is possible with the simultaneous fulfillment of the following conditions:

The ONS is not the subject of an active construction contract and meets the criteria of a real estate object (that is, the foundation has been completely erected).
The purpose of providing the ONS for lease must correspond to the legislation of the Russian Federation. The absence of a permit for commissioning a capital construction object, which is the object of the lease, at the moment this object is transferred to the lessee does not in itself entail the invalidity of the lease agreement. In the presence of corresponding grounds, the persons (lessee and/or lessor) guilty of operating a capital construction object without a permit for its commissioning are subject to administrative liability in accordance with Part 5 of Article 9.5 of the CAO RF [3].

The lease of real estate objects is regulated by Chapter 34 of the Civil Code. The regulation of leasing in relation to land plots in public ownership is also regulated by the Land Code, and in relation to the lease of buildings and premises in public ownership, also by Federal Law No. 135-FZ dated July 26, 2006, On Protection of Competition (the "Law No. 135-FZ").

The lease agreement must specify data that allows for the definite identification of the property to be transferred to the lessee as the object of the lease. In the absence of these data in the agreement, the condition regarding the object to be transferred for lease is not considered concluded.

However, if the leased thing is not properly individualized in the lease agreement, but the agreement was actually performed by the parties (for example, the thing was transferred to the lessee and at the same time a dispute regarding the improper fulfillment of the lessor's obligation to transfer the object of the lease was absent between the parties), the parties are not entitled to contest this agreement on the basis related to the improper description of the object of the lease, including referring to its status as "non-concluded" or "invalid" [4].

Individualization of the object of the lease may be carried out by specifying the cadastral number of the object, the area, and the location on the floor. When providing a part of an object for lease, the method of highlighting on the floor plan of the real estate being transferred for lease is often used.

In a specific case, the lessee, contesting the lease agreement on the basis of its status as "non-concluded", pointed out that there was an indication in the lease agreement by the parties that the premises being transferred for lease must be shaded, however, such shading was not applied, in connection with which there is uncertainty in the coordination of the subject of the agreement. The court, in refusing to satisfy the requirements, indicated that the agreement was registered, while uncertainty regarding the object of the lease did not exist for either the lessee or the lessor either at the moment the agreement was concluded or subsequently, and they reached a substantiated conclusion that the parties had reached an agreement on all essential terms of the agreement, including its subject. At the same time, certainty regarding the object of the lease was achieved between the parties; all premises subject to transfer for lease have their own individual number in relation to each floor. Moreover, the court of appellate instance noted that the question of the status of the agreement as "non-concluded" due to the failure to agree on essential terms can only be discussed before the start of its performance, and the performance of the agreement by one party and the acceptance of this performance by the other testify to the presence of a common will of the parties for the emergence of civil rights and obligations by performing the specified actions in relation to a specific subject, and, consequently, to the presence of a transaction [5].

Lease Payments in Real Estate Leasing

As a general rule, the amount of the lease payment is not an essential term of the agreement, however, in relation to a real estate lease agreement, the amount of the lease payment is an essential term of the agreement.

The lease payment may be determined for the entire object as a whole, or per square meter of the object. In addition, the lease agreement may contain an algorithm for determining the lease payment. For example, in proportion to the revenue received by the lessee in the occupied premises.

By virtue of Clause 3 of Article 614 of the Civil Code, the amount of the lease payment may change by agreement of the parties at intervals not more than once a year. Otherwise may be coordinated by the parties. This norm is discretionary and allows for a change by agreement of the parties to the term of the lease agreement regarding the amount of the lease payment more often than once a year, including in the case where an indication of the possibility of such a change in the lease agreement itself is absent.

According to Clause 2 of Article 614 of the Civil Code, the amount of the lease payment in the lease agreement may be established, in particular, in the form of payments made periodically or as a lump sum, and a combination of various methods for determining the lease payment may also be provided for. The lease payment is established for all the leased property as a whole or separately for each of its constituent parts in the form of:

payments defined as a fixed sum, made periodically or as a lump sum;
an established share of the products, fruits, or income obtained as a result of using the leased property;
the provision of certain services by the lessee;
the transfer of a thing specified by the agreement by the lessee to the lessor into ownership or for lease;
the imposition of costs specified by the agreement for the improvement of the leased property on the lessee.

Other Terms of the Real Estate Lease Agreement

The term of the lease agreement is not an essential term. If the lease term is not defined in the agreement, the lease agreement is considered concluded for an indefinite term. In this case, each of the parties is entitled at any time to withdraw from the agreement, having warned the other party about this one month in advance, and in the case of leasing real estate, three months in advance. A different term for warning about the termination of a lease agreement concluded for an indefinite term may be established by law or the agreement.

Maximum terms for a lease agreement in relation to separate types of real estate may be established by separate laws. For example, a lease agreement in relation to centralized water supply and sanitation systems in public ownership cannot constitute more than 10 years [6].

The right to withdraw from a lease agreement concluded for an indefinite term is an unconditional right of the lessor [7]. The right to unilateral withdrawal from the agreement cannot be limited by the lease agreement. Clause 2 of Article 610 of the Civil Code provides for the right of each of the parties to a lease agreement concluded for an indefinite term to withdraw from the agreement without motivation, having warned the other party about this within the terms named in this norm. From the essence of the legislative regulation of the lease agreement as an agreement on the transfer of property for temporary possession and use or for temporary use, it follows that the parties to such an agreement cannot completely exclude the right to withdraw from it, since as a result of this, the transfer of property for possession and use would effectively lose its temporary character [8].

Despite the fact that these conditions are not essential, it is extremely important to determine the following conditions in the lease agreement.

During long-term leasing, the question of regulating relations connected with inseparable improvements acquires great significance. In the case where the lessee has carried out improvements to the leased property that are inseparable without harm to the property at their own expense and with the consent of the lessor, the lessee has the right after the termination of the agreement to reimbursement of the cost of these improvements, unless otherwise provided for by the lease agreement.

The cost of inseparable improvements to the leased property carried out by the lessee without the consent of the lessor is not subject to reimbursement, unless otherwise provided for by law.

Unless otherwise provided for by the agreement, after its termination, the lessee is entitled to offset the cost of inseparable improvements coordinated with the lessor against the lease payment.

A significant condition when concluding a lease agreement is also the coordination with the lessor of the list of works that the lessee has the right to carry out in the building or premises. It is advisable to carry out such coordination at the stage of concluding the agreement, and also to clearly prescribe the algorithm for such coordination in the future when the need arises. Without fail, it is necessary to specify not only construction works, but also works related to carrying out new communications.

When concluding a lease agreement, it is also necessary to prescribe the volume of provided utility loads (electrical energy) in the agreement, as well as the capacity of the lessee's power-receiving equipment, and in the event of insufficiency of the specified capacities in the object of the lease, also to coordinate the algorithm for obtaining a connection (or increasing) such loads.

In the lease agreement, it is also advisable to provide for the procedure for using common areas and the regime of such use, which acquires the greatest significance when leasing premises in shopping centers, as well as the procedure and limits for using the land plot adjacent to the leased premises, in particular, the regimes and procedure for unloading on the plot.

In the presence of grounds for early out-of-court termination of the lease agreement, it is advisable to determine the procedure for compensation for the inseparable improvements carried out, as well as the procedure for returning the security deposit.

Lessor's Liability for Defects in the Property Transferred for Lease

The lessor is liable for defects in the leased property that wholly or partially hinder the use of it, even if at the time the lease agreement was concluded they did not know about these defects.

In the ruling of the Economic Chamber of the Supreme Court of the Russian Federation No. 305-ES15-15053 dated March 3, 2016, a legal position was formulated that, within the meaning of the provisions of Clauses 2 and 4 of Article 620 of the Civil Code, not only the physical condition of the object of the lease, but also the legal impossibility of using the property for its purpose and for the goals coordinated by the parties to the lease agreement, can be attributed to defects hindering the use of the leased property.

In one of the cases considered, the arbitration court, recovering unjust enrichment in the form of the paid lease payment, taking into account the conducted expertise in accordance with which the use of the land plot for the construction of a residential house was impossible, satisfied the requirements [9].

Upon discovery of defects, the lessee is entitled at their choice:

to demand from the lessor either the gratuitous elimination of defects in the property, or a proportionate reduction of the lease payment, or reimbursement of their expenses for the elimination of defects in the property;
to directly withhold the amount of expenses incurred by them for the elimination of these defects from the lease payment, having previously notified the lessor about this;
to demand early termination of the agreement.

Lease of Buildings, Structures, and Premises

The object of the transaction is completely covered by the requirements indicated above and requires individualization of the object, that is, an indication in the agreement of such data that identify the object. Such criteria may be area, location, and cadastral number.

Any buildings, structures, constructions, or premises may be leased. By virtue of Article 222 of the Civil Code, an object of unauthorized construction cannot be leased. At the same time, an object of unfinished construction may be the object of a lease agreement.

Given that an object of unfinished construction is real estate property, the right of ownership to which, by virtue of Article 219 of the Civil Code, arises after registration in the manner established by law, and Article 650 of the Civil Code does not contain provisions limiting the possibility of leasing objects of unfinished construction, such an object may be the object of a lease. At the same time, the circumstance that at the moment the agreement was concluded, the building in which the premises being the object of the agreement are located had not been commissioned in the established manner does not testify to the fact that the subject of the agreement has not been agreed upon [10].

A lease agreement for a building or structure is concluded in written form by drafting one document signed by the parties. Failure to comply with the form of the lease agreement for a building or structure entails the invalidity of the real estate lease agreement.

When transferring a building or structure for lease, according to the lease agreement for a building or structure, the rights to the land plot that is occupied by such real estate and is necessary for its use are transferred to the lessee simultaneously with the transfer of the rights of possession and use of such real estate.

As a general rule, if the lessor is the owner of the building or structure, the land plot is transferred for lease. If the right being transferred to the land plot is not defined, then the right of use of the corresponding part of the land plot passes to the lessee of the building or structure. The absence in such an agreement of terms on the lease of the land plot cannot serve as a basis for recognizing it as invalid.

Under the specified circumstances, the lessee is not entitled to demand in judicial proceedings the conclusion with them of a lease agreement for the land plot. They may use the land plot occupied by the leased building or structure without a corresponding agreement by virtue of law during the term of the real estate lease [11].

The payment for the use of the building or structure established in the lease agreement for a building or structure includes the payment for the use of the land plot on which it is located, or the corresponding part of the plot being transferred together with it. Otherwise may be provided for by agreement of the parties.

If an agreement on leasing the land plot under a separate agreement has been reached by the parties to the lease agreement for a non-residential premises, but such an agreement was not concluded, the lessee of the non-residential premises, who did not make payments for the land, has unjustly saved monetary funds that they should have paid for the use of this plot [12].

The condition on the lease payment is an essential term. In the absence of a condition on the amount of the lease payment coordinated by the parties in written form, the lease agreement for the building or structure is considered non-concluded.

The lease payment may be established in a fixed amount for the entire object, calculated based on the cost of the lease per square meter, and also contain a basic (fixed part) and a variable part, as a rule including utility and other similar payments.

Utility Payments

For the possibility of using buildings and premises, depending on the designated purpose, the real estate object must be connected to utility resources. Often, the reimbursement of utility payments represents a part of the lease payments. Along with this, only the payment of utility payments cannot be considered as the lease payment coordinated by the parties.

The imposition on the lessee of the obligation for the payment of utility services cannot be considered as a form of lease payment. The payment by the lessee of utility services in itself does not signify the consideration-based nature of the lease agreement [13].

At the same time, the impossibility of using the building or premises in accordance with the designated purpose due to the lack of utility resources testifies to the absence of an obligation for the lessee to pay the lease payment.

By virtue of Articles 611, 612, and 614 of the Civil Code, in addition to the obligation to provide the lessee with property in a condition corresponding to the terms of the lease agreement and the purpose of the property, the obligation to transfer such property for lease which does not have defects completely or partially hindering the use of it also lies on the lessor's side, even if at the time the lease agreement was concluded they did not know about these defects.

According to the clarification contained in Clause 10 of the Information Letter of the Presidium of the Supreme Arbitration Court of the Russian Federation No. 66 dated January 11, 2002, Review of the Practice of Resolving Disputes Related to Leasing, under a lease agreement, a reciprocal fulfillment of obligations takes place: the obligation of the lessor in relation to the lessee consists in providing the latter with property for use, and the obligation of the lessee consists in making payments for the use of this property. The lessor is entitled to demand from the lessee the fulfillment of the obligation to pay the lease payment only for the period from the moment the property was transferred to the lessee until the moment the lessor deprived them of the possibility to possess and use the leased property in accordance with the terms of the agreement [14].

Several models for the payment of utility payments may be used in lease agreements:

Fixed, when the amount of utility payments is established in a specific expression and does not depend on actual consumption. At the same time, such an amount may be included in the amount of the lease payment or paid on top.
Variable, when the amount of utility payments is determined by metering devices and is paid on top of the utility payments. A variety is the re-billing by the lessor of utility payments either based on the data of metering devices or in proportion to the area of the occupied premises.

Specifics of Land Plot Leases

The object of the land plot lease agreement represents an indication of the identifying features of the land plot: area, location, and cadastral number. An important point is the coordination of the boundaries of the land plot being transferred or its part.

A part of a land plot may be provided for lease. At the same time, if a part of a land plot, the right to which is registered in the EGRN, is transferred for lease, the state cadastral registration of such a part of the land plot, building, or structure is carried out simultaneously with the state registration of the lease agreement for such a part of the land plot, building, or structure. If a part of a land plot is transferred for lease, and a boundary plan is not submitted together with the application for state registration of rights and the documents attached to it, the state cadastral registration of this part of the land plot is not carried out, and the lease agreement for such objects is registered as an encumbrance on the corresponding real estate object.

Thus, when concluding a lease agreement for a part of a land plot, it is advisable to provide a boundary plan and put the part of the land plot on cadastral registration for the purpose of preventing the establishment of an encumbrance in relation to the entire land plot.

The amount of the lease payment is an essential term of the land plot lease agreement. The absence of coordination of the amount of the lease payment testifies to the status of the lease agreement as non-concluded. The amount of the lease payment may also be fixed, established for the entire object or per square meter, as well as be established by means of defining the procedure for determining the amount of the lease payment.

Upon obtaining a land plot for lease, it is important to determine the designated purpose of transferring the land plot for lease, since in the case of providing it for the purpose of construction, the violation of the designated use will mean that the constructed object that does not correspond to the designated purpose will be an unauthorized construction.

The non-correspondence of a structure to the designated purpose of the land plot on which it is located is a sufficient basis in order to recognize the structure as unauthorized and to impose the obligation to demolish it on the person who erected this structure [15].

At the same time, in the case of erecting a real estate object on the land plot in accordance with the terms of the agreement, the developer becomes the owner of the specified object, and consequently, by virtue of the unity of the fate of real estate and the land plot, has the right to use the land plot on which the real estate object is located.

The owner of a building, structure, or other real estate located on a land plot belonging to another person has the right of use of the land plot provided by such person under this real estate.

Upon transfer of an object for lease, the latter must be suitable for use according to its designated purpose. During the lease of buildings and premises, such a building must be provided with utility resources.

A lease agreement for non-residential premises does not give rise to an obligation of the lessee for the payment of utility services to the third party providing them (the utility service provider). In the absence of an agreement between the lessee and the utility service provider, the obligation for the payment of such services to them lies with the owner of the non-residential premises [16].

Lease of Buildings, Structures, and Premises in Public Ownership

The lease of real estate objects in public ownership has its own specifics. As a rule, the provision of such objects for lease occurs through bidding. At the same time, a list of grounds when such objects may be transferred without bidding is established by the legislation of the Russian Federation.

The procedure for concluding lease agreements is regulated by Article 17.1 of the Law No. 135-FZ. Exceptions are named from the general rule on the conclusion of lease agreements through bidding. The list of such grounds is exhaustive. For example, lease agreements for real estate in relation to law offices, notary offices, and chambers of commerce and industry are concluded without bidding.

In the remaining cases, the lease agreement is concluded through bidding. As a general rule, bidding is conducted in the form of an auction. In cases and in the manner established by the Government of the Russian Federation and in relation to specific objects, bidding is conducted in the form of a contest [17].

The agreement is concluded on the terms indicated in the application for participation in the contest and in the contest documentation submitted by the contest participant with whom the agreement is concluded. Upon the conclusion and (or) performance of the agreement, the price of such an agreement cannot be lower than the initial (minimum) price of the agreement (lot price) indicated in the notice on holding the contest, but may be increased by agreement of the parties in the manner established by the agreement.

The terms of concluding the agreement are determined in the notice on holding the bidding and in the contest documentation. In particular, the following information is determined in the specified documents:

the location, description, and technical characteristics of the state or municipal property, the rights to which are transferred under the agreement, including the area of the premises, building, structure, or construction in the case of transferring rights to the corresponding real estate property;
the designated purpose of the state or municipal property, the rights to which are transferred under the agreement;
the initial (minimum) price of the agreement (lot price) with an indication, if necessary, of the initial (minimum) price of the agreement (lot price) per unit of area of the state or municipal property, the rights to which are transferred under the agreement, in the amount of a monthly or annual payment for the right of possession or use of the specified property, in the amount of the payment for the right to conclude a gratuitous use agreement for the specified property, with the exception of holding a contest for the right to conclude a lease agreement in relation to objects of heat supply, water supply, and (or) sanitation;
the term of validity of the agreement;
the form, deadlines, and procedure for payment under the agreement;
the procedure for revising the agreement price (lot price) in the direction of increase, as well as an indication that the price of the concluded agreement cannot be revised by the parties in the direction of decrease [18].

However, the provided procedure for changing the amount of the lease payment cannot provide the lessee with more favorable terms as they were defined in the contest documentation, must not entail a restriction of the rights of third parties, and must not lead to a restriction of competition [19].

Lease of a Land Plot in Public Ownership

Obtaining public ownership for lease is, as a rule, carried out through bidding. The lease agreement is concluded after holding bidding in the form of an auction.

Besides the general terms for coordinating the object of the lease that allow for the identification of the land plot, it is necessary to take into account that, as a general rule, the consolidation of two or more land plots in state or municipal ownership into one auction lot is prohibited. Otherwise may be provided for by federal law.

Article 39.11 of the Land Code indicates a list of criteria in the presence of which a land plot cannot be the subject of an auction. Such a list is exhaustive. For example, a land plot in state or municipal ownership cannot be the subject of an auction if:

the boundaries of the land plot are subject to clarification;
the right of state or municipal ownership is not registered to the land plot;
in relation to the land plot, the maximum parameters of permitted construction or reconstruction are not determined in the established manner, with the exception of cases if, in accordance with the permitted use of the land plot, the possibility of constructing buildings or structures is not provided for;
in relation to the land plot, information on the possibility of connection (technological connection) of capital construction objects to engineering and technical support networks (with the exception of electric supply networks) is absent.

The lease payment is determined in accordance with the basic principles for determining the lease payment established by the Government of the Russian Federation [20].

The lease payment may be determined in the following manner:

1. On the basis of the cadastral value of the land plots. Cadastral value is publicly available information. In the case of calculating the lease payment on the basis of the cadastral value of the land plot, federal executive bodies provide in such an agreement the possibility of changing the lease payment in connection with a change in the cadastral value of the land plot. At the same time, the lease payment is subject to recalculation as of January 1 of the year following the year in which the change in the cadastral value occurred.

2. Based on the results of bidding conducted in the form of an auction. The amount of the lease payment is determined in accordance with the contest documentation based on the results of the conducted bidding and cannot be lower than the initial cost determined in the contest documentation.

3. In accordance with the lease payment rates approved by Rosreestr.

4. On the basis of the market value of the lease right of land plots, determined on the basis of an appraisal report. The right to carry out an appraisal of the appraisal object is unconditional and does not depend on the procedure for carrying out state statistical accounting and accounting reporting established by legislation. This right also extends to carrying out a repeated appraisal of the appraisal object. The results of carrying out the appraisal of the appraisal object may be used for adjusting the data of accounting and reporting. The results of carrying out the appraisal of the appraisal object may be appealed by interested persons in the manner established by the legislation of the Russian Federation. The right to choose the procedure for determining the lease payment is the prerogative of the authorized body.

The initial price of the subject of the auction for the right to conclude a lease agreement for a land plot is established at the choice of the authorized body in the amount of the annual lease payment determined based on the results of a market appraisal, or in the amount of not less than one and a half percent of the cadastral value of such a land plot, if the results of the state cadastral valuation were approved no earlier than five years before the date the decision on conducting the auction was made.

The agreement price of the lease based on the results of the bidding is defined as the amount of the annual lease payment or the amount of the first lease payment under the lease agreement for the land plot in the amount proposed by the winner of the auction, or in the case of concluding the specified agreement with the only participant in the auction who took part in it, is established in the amount equal to the initial price of the subject of the auction.

Preferential Right to Conclude a Lease Agreement

As a general rule, a lessee who has properly fulfilled their obligations has, upon the expiration of the term of the agreement, other conditions being equal, a preferential right over other persons for concluding a lease agreement for a new term. Otherwise may be provided for by the agreement.

In addition, restrictions on the conclusion of an agreement in the manner of using the preferential right may be established by laws. In particular, by virtue of Clause 15 of Article 39.8 of the Land Code, a lessee of a land plot in state or municipal ownership does not have a preferential right for the conclusion of a lease agreement for such a land plot for a new term without conducting bidding.

At the same time, since the provisions providing for the obligatoriness of conducting bidding do not deprive the lessee of state or municipal property of the preferential right belonging to them by virtue of Article 621 of the Civil Code for the conclusion of a lease agreement for a new term, such a lessee, regardless of whether they were a participant in the specified bidding, is entitled to demand in court the transfer to them of the rights and obligations under the agreement concluded at the bidding [21].

However, if the lessor, before the conclusion of the lease agreement with the winner of the bidding, offered the lessee to conclude a lease agreement with them on the terms proposed by the winner of the bidding, and the lessee refused to conclude the agreement or did not accept this offer within the term named in it, the court refuses to such a lessee in the protection of their preferential right.

For the conclusion of a lease agreement in relation to real estate objects for a new term without conducting bidding, the parties must reach an agreement on new terms of the agreement regarding the term and the lease payment with compliance with the provisions of Part 9 of Article 17.1 of the Law No. 135-FZ. If, before the expiration of the lease term, the lessor did not notify the lessee about the adoption by them in the established manner of a decision providing that the leased property will not be transferred for lease upon the expiration of the term of the agreement, in the absence of other objections on their side, the lessee, who has properly fulfilled their obligations, is entitled to continue to use the leased property.

At the same time, upon evasion of the lessor from the conclusion of a lease agreement, the lessee does not have the right to compel the lessor to conclude such an agreement, since Article 621 of the Civil Code provides only for the possibility of the transfer of rights and obligations under a lease agreement concluded by the lessor with a violation of the provisions of Article 621 of the Civil Code.

Summing up, it should be noted that upon the conclusion of a lease agreement, especially in relation to objects in private ownership, it is necessary to devote special attention to the conclusion of the agreement and the terms contained in such an agreement, especially if a long-term lease is concluded.

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References

[1] Clause 12 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation No. 73 dated November 17, 2011, On Certain Issues of the Practice of Applying the Rules of the Civil Code of the Russian Federation on Lease Agreements.

[2] Clause 14, ibid.

[3] Clause 11 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation No. 73 dated November 17, 2011, On Certain Issues of the Practice of Applying the Rules of the Civil Code of the Russian Federation on Lease Agreements.

[4] Clause 15 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation No. 73 dated November 17, 2011, On Certain Issues of the Practice of Applying the Rules of the Civil Code of the Russian Federation on Lease Agreements.

[5] Judicial acts for case No. A07-7071/2020.

[6] Article 41.2 of Federal Law No. 416-FZ dated December 7, 2011, On Water Supply and Sanitation.

[7] Ruling No. 304-ES15-17252 dated January 28, 2021.

[8] Clause 3 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation No. 16 dated March 14, 2014, On the Freedom of Contract and Its Limits.

[9] Resolution of the Arbitration Court of the Urals District No. F09-4691/21 dated August 12, 2021, for case No. A76-18419/2019.

[10] Resolution of the Arbitration Court of the Moscow District No. F05-11593/2019 dated July 31, 2019, for case No. A40-95570/2018.

[11] Clause 22 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation No. 11 dated March 24, 2005, On Certain Issues Related to the Application of Land Legislation.

[12] Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation No. 735/00 dated April 11, 2000, for case No. A82-29/99-A/2.

[13] Clause 12 of the Information Letter of the Presidium of the Supreme Arbitration Court of the Russian Federation No. 66 dated January 11, 2002, Review of the Practice of Resolving Disputes Related to Leasing.

[14] Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation No. 13689/12 dated April 9, 2013, for case No. A67-3141/2011.

[15] Ruling of the Supreme Court of the Russian Federation No. 18-KG15-65 dated June 9, 2015.

[16] Ruling of the Supreme Court of the Russian Federation No. 305-ES14-1452 dated November 10, 2014.

[17] Order of the FAS Russia No. 67 dated February 10, 2010, On the Order for Conducting Contests or Auctions for the Right to Conclude Lease Agreements, Agreements for Gratuitous Use, Agreements for Trust Management of Property, Other Agreements Providing for the Transfer of Rights in Relation to State or Municipal Property, and the List of Types of Property in Relation to Which the Conclusion of the Specified Agreements May Be Carried Out by Means of Conducting Bidding in the Form of a Contest.

[18] Clauses 31 and 40 of Rules No. 67.

[19] Ruling of the Supreme Court of the Russian Federation dated September 6, 2016, for case No. 304-ES16-5762.

[20] Resolution of the Government of the Russian Federation No. 582 dated July 16, 2009, On the Basic Principles for Determining the Lease Payment During the Lease of Land Plots in State or Municipal Ownership, and on the Rules for Determining the Amount of the Lease Payment, as well as the Order, Terms, and Deadlines for the Payment of the Lease Payment for Lands in the Ownership of the Russian Federation.

[21] Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation No. 73 dated November 17, 2011, On Certain Issues of the Practice of Applying the Rules of the Civil Code of the Russian Federation on Lease Agreements.