The Supreme Court will deal with the rights and responsibilities of state land tenants

The Supreme Court of the Russian Federation (SC) will decide the extremely controversial issue of how a tenant of state land has the right to use it and whether auxiliary purposes should be expressly stated in the contract. It depends on the position of the Supreme Court whether the tenant will be fined for misuse of the land, whether it is possible to increase his rent and collect a penalty. Lawyers say that most of these disputes arise in Moscow, and the capital’s courts often take the side of the authorities.

The Supreme Court will consider a case on how a business can use land leased from the state. The story began with the fact that in March 2017, Vantage LLC rented a site from Moscow for the operation of a shopping center building with a permitted use (AP) for retail trade of food and non-food products. In March 2021, the state inspectorate for control over the use of real estate in Moscow fined Vantage under Art. 6.7 of the Code of Administrative Offenses of Moscow (violation of the permitted use of the site) for 50 thousand rubles. The company challenged this in court.

The Moscow Arbitration Court rejected the claim in August 2022, explaining that according to the lease agreement, the site had a specific purpose, but in the end it is partially used for other purposes. Thus, the court decision says, part of the premises is given over to household services (clothing, shoe repair and photography studios), insurance activities, educational purposes and a pawnshop. According to the court, this violates the Moscow land use law and falls under Art. 6.7 Code of Administrative Offences.

The appeal overturned the fine, deciding that Vantage, as the owner of the building, could choose the primary and accessory uses of the property. The only thing is that the town planning regulations must allow this type of use in the territorial zone. The court added that no more than 25% of the total area of ​​the shopping center is used for auxiliary purposes, which is permissible under Moscow land use and development rules. But the cassation supported the city, deciding that the company does not have the right to use the facility for purposes other than its main purpose without directly stipulating this in the lease agreement.

Vantage appealed to the Supreme Court, insisting that it is not limited in choosing the type of use of the facility from those permitted, and that less than 10% of the total area of ​​the shopping center is used for auxiliary activities. Neither federal nor Moscow legislation obliges the tenant of the plot to amend the contract in order to use the plot for auxiliary purposes in addition to the main purpose, the complaint says. The case was transferred to the Economic Collegium of the Supreme Court, the hearing is scheduled for October 11.

ProLegals lawyer Andrey Statsenko explains that the plots and buildings on them can be used in strict accordance with the requirements of urban planning regulations and VRI established in the state real estate register (USRN). Owners and tenants of land have the right to use it for auxiliary purposes, but with restrictions, Orchards lawyer Peter Matskevich clarifies. Thus, according to the Moscow PZZ, an auxiliary type of use cannot be the only one and must be carried out jointly with the main VRI, and the area of ​​​​facilities for it is limited to 25% of the total.

The head of Kuchembaev and Partners, Almaz Kuchembaev, explains that when transferring land for lease, the Moscow authorities establish the type of use of the site from among those permitted by the town planning regulations and the Unified State Register of Real Estate. If the VRI changes, then changes must be made to the contract, he adds. But, Mr. Statsenko emphasizes, it remains unclear whether the auxiliary use should be expressly specified in the lease agreement.

Lawyers explain the government’s interest in three factors. Firstly, for violation of the permitted use of the site under Art. 6.7. The Code of Administrative Offenses of Moscow can be fined (from June 2021 – 200-400 thousand rubles), says Elena Gladysheva, managing partner of RI-Consulting. Secondly, this allows you to recalculate the rent, explains Averta Group advisor Anna Friedrichsen. The fact is, adds Denis Litvinov, managing partner of the Land Law Firm, that the cadastral value of the site depends on the type of use of the site, and the rent is calculated from it. Thirdly, Ms. Friedrichsen continues, in contracts with Moscow, “for violation of the purpose of the lease agreement, a penalty is prescribed in the amount of 1.5% of the cadastral value of the site, which can amount to tens of millions of rubles.”

Advisor to ALUMNI Partners Maxim Popov emphasizes that “there is a gap in regulation and there is no clear understanding of what a tenant of a public land plot has the right to do and how to use it.” At the same time, according to Mr. Litvinov, even if several VRI are fixed in the state register of real estate, the government agency-lessor can narrow their list in the contract. And as a result, the authorities consider a violation of the situation when, according to the state register of the VRI, the placement of public service facilities on the land is allowed, but in the lease agreement the purpose is indicated only for retail trade, the lawyer explains.

“Most often, such incidents in Moscow are recorded by the state real estate inspectorate in areas of future redevelopment – on former production sites, which, pending redevelopment, are used by their tenants for all sorts of needs,” says Mr. Litvinov.

Judicial practice has long been far from uniform. Disputes regarding the administrative fine were not referred to the Economic Collegium of the Supreme Court, but in February 2022, the Collegium considered the related issue of recalculating the rent due to the use of land for other purposes. Then the Supreme Court ruled in favor of the tenant (PIK-Industry JSC), explaining that if non-target activities fall under the auxiliary criteria, then there is no reason to revise the fee, Ms. Friedrichsen emphasizes.

Arbitration courts began to follow this position, not only in disputes over rent, but also over fines, taking the side of land users, says Mr. Statsenko. But in 2023, the courts, especially the cassation of the Moscow District, began to legitimize fines against land users, recognizing the failure to include auxiliary uses in the lease agreement as a violation, notes Maxim Popov. In his opinion, the reason is “the desire to protect fiscal interests and replenish the budget.”

If the decision at the Supreme Court level is made in favor of the tenant, this “should have an impact on the situation.” “I hope that common sense will prevail, and the decision of the Supreme Court will serve as a signal to Moscow that it needs to take a slightly more liberal approach to issues of land use,” expects Mr. Popov. Andrey Statsenko also expects that the Supreme Council will support commercial real estate owners.

Anna Zanina, Ekaterina Volkova