Privatisation of commercial immovable property by small and medium sized companies in Russia

The small and medium sized companies (SME) in Russia attempt to ride the privatization wave regarding lease of commercial immovable property. The Government pushes the privatization process further along and enacted on 22nd July 2008 a new law under No 159-FZ: “About features of the state and municipal immovable property privatisation by the small and medium businesses that have been leasing this immovable property, and amending some Acts of Russian Federation”, the Act actually came into force on 1st January 2009. Albeit this Act includes much ambiguity and confusion the one is one more a perceptible step to support small and medium sized companies. 

Under this Act SMEs who has been leasing the state or municipal immovable property for three and more years, have the preferential right to purchase of this property in course of it privatization. This preferential right emerges under the four conditions: the company must be small or medium sized; the company must lease the commercial immovable property not less than three years at the moment the Act comes into force; the commercial immovable property is subject to privatization process; and the limit square of commercial immovable property must be not more than 1 000 squared meters.

The price of the immovable property on a transaction is defined by the market assessment under the contract made by the local authorities and the person who deals with it, and this term of property privatization is the most vulnerable the one because property values may be increased rather than be a tantamount to.  However payment for the commercial immovable property by instalment may be provided for by the contract with the authorities. Be that as it may, some SMEs can’t pay the prise for immovable property when it is getting incomprehensible and they could lose the business since the property will have been sold to other persons in that case. In fact, it is becoming increasingly fraught with peril for the Act’s aim as SME supporting.

Really the wordings some of the rules are an incomplete and it seems to become much trickier that is somewhat paradoxically from point of view the idea of SME supporting. Lawyers are increasingly conscious about the problems created by the rules’ discrepancies which lead to ambiguity in the aims of commercial immovable property privatization. Since that is regarded as commensurate with public interest, it is getting the reason of wide public discussions in which the obstacles of the Act implementing to be air. What is more, the deficiencies of the Act and privatization of commercial immovable property procedure, especially regarding to the property market assessment, are incentives for SMEs to recourse to the courts. In the sequence of a lot of lawsuits are flowing at the courts, the Supreme Arbitration Court reviewing number of cases, and ultimately issued the Regulations of the Act implementing.  

In present there is no simple solution for dealing with the Act implementing problems and minimizing the risk of SMEs legal troubles, first of all, the risk of commercial immovable property loosing. Obviously there is no guarantee that SMEs interests will not be found to have violated by authorities with some rules implementing. It seems, in order to straighten out the situation with balance of the private and public interests, it is necessary to bring the amendments in the Act taking into account that authorities being the seller of immovable property assuming the liabilities to do transactions by transparency way because the sticking point is the SMEs’ real supporting.

Evgeny A. Nagornyy
October 2010