The Supreme Court will resolve the dispute on the recovery of damages from Rosreestr for delaying the state registration of rights to real estate

The Supreme Court of the Russian Federation (SC) will decide in which case Rosreestr can be held liable for the delay in state registration of the sale of real estate. In the dispute referred to the Supreme Court, the procedure dragged on for almost a year instead of the seven days allotted by law. Lawyers say that in practice this period is often not observed, including because the chances of recovering damages from the department are small. The Supreme Court can help discipline the employees of the registration authority.

The Supreme Court will consider a dispute on the recovery of damages from Rosreestr for delaying the state registration of rights to real estate. In January 2020, New Real Estate LLC sold three non-residential premises in Moscow in favor of New Version LLC. In June-July 2020, the buyer submitted an application to the Rosreestr for Moscow to register the transfer of ownership of the purchased objects. But for one object, the department did not take any action, and for the other two, a few months later, it refused registration, citing the lack of necessary information.

Novaya Versiya filed a lawsuit, considering the demand for additional documents and the long delay in registration to be unreasonable.

The arbitration courts satisfied the claim, declaring illegal the inaction of Rosreestr, which violated the seven-day period for registration provided for by law.

As a result, the buyer’s right to the premises was registered almost a year later (in May-June 2021) from the date of application.

After that, the buyer filed a lawsuit to recover 1.58 million rubles from Rosreestr. losses in the form of lost income from the rental of premises. The company explained that the reason for the lost profit was precisely “the late registration of the transfer of ownership”, the refusal of which has already been declared illegal. The fact is that the tenant of the property has been paying all this time to the former owner of the premises, who, due to the inaction of Rosreestr, remained the official owner.

The Moscow Arbitration Court agreed to recover damages from the department, noting the impossibility of replacing the lessor with the buyer, since the parties initially associated such a change of persons with a special procedure and rules.

But the appeal with a cassation rejected the claim, considering that Rosreestr was not to blame for the failure of the New Version to receive income, and the parties could change the terms of the contract and prescribe the right of the new owner to receive rent before registering real estate for him.

The company applied to the SC. The applicant explained that the powers of the owner arose only from the moment of state registration, and before that he could not dispose of the property. New Version clarified that it had asked the seller to redirect the rent payments to it, but was refused, as under the terms of the agreement, the income remained with the previous owner until the official transfer of ownership. When buying real estate, the company “did not foresee the possibility of difficulties” with the registration of the transaction, which lasted for a year, and if Rosreestr had not committed violations, the buyer would have long ago become a landlord and received income. The case was referred to the Economic Board of the Armed Forces, the hearing is scheduled for September 26.

The law contains an extensive list of grounds under which Rosreestr may suspend the registration of an agreement, including an incorrect application form, failure to confirm the applicant’s authority, lack of necessary documents, and a litigation regarding property. The suspension period can be up to three months.

At the same time, “Rosreestr employees often abuse this opportunity and, in the event of a small defect, refuse registration or suspend it for a long time,” says Vasily Malinin, partner at the law firm Rustam Kurmaev and Partners. Cases of unreasonable refusal to register rights to real estate or delays in this procedure are “quite common,” confirms Kirill Chukhaldin, project manager at Yurtekhconsult.

However, courts rarely agree to recover damages from Rosreestr, lawyers emphasize. Disputes about losses are “in principle not the easiest,” says Forward Legal lawyer Lyudmila Lukyanova, the main problem for the plaintiff is to prove the connection of losses with the actions or inaction of the defendant, and “in the case of Rosreestr, the complexity factor doubles.”

Another reason for the refusal of the courts, according to Mr. Malinin, is that they do not want to create “a high-profile precedent that will negatively affect the activities of the authority” and lead to a massive spread of claims against the department for damages, which, in turn, “hit on the budget”

Vasily Malinin says that in 2016 the Civil Collegium of the Supreme Court considered a similar dispute in which an individual, due to a long delay in registering a home purchase, overpaid interest on a loan taken to purchase real estate. The Supreme Court then agreed to recover from Rosreestr in favor of the citizen an overpayment of interest as losses.

However, in the New Version case, it is not about protecting a citizen, but about commercial relations, therefore, “the economic board can take a tougher position, since companies bear the risks of their business activities,” Mr. Malinin admits.

Nevertheless, Ms. Lukyanova expects that the Supreme Court will support the buyer’s claim, which “will have a positive effect on practice in any disputes about the recovery of damages from government agencies.” In addition, Kirill Chukhaldin adds, such a decision by the Supreme Court “should encourage Rosreestr employees to study documents more carefully and reduce the number of unlawful refusals to register.”

Ekaterina Volkova, Anna Zanina