Baker & McKenzie: Border Territories Where Land can not be Owned by Foreigners Defined

A list of Russian border territories where foreign and stateless persons may not now own land has recently been formally introduced.

Should you have any questions, please contact Konstantine Kouzine, partner, or Maxim Kuznechenkov, partner, at the Baker & McKenzie Moscow office, by calling +7 (495) 787 27 00 or Maxim Kalinin, partner, at the Baker & McKenzie St. Petersburg office by calling +7 (812) 303 90 00.

The list of the border territories on which foreigners may not own land was introduced in Presidential Decree No. 26 of January 9, 2011 (officially published on January 11, 2011) (“Decree 26”).

Decree 26 was adopted in elaboration of Article 15 (3) of the Land Code of Russia, which establishes general restrictions on foreign legal entities and foreign and stateless persons’ (“Foreign Persons”) ownership of land in Russia.

Earlier, border territories were only vaguely defined - in the Law on the State Border of the Russian Federation. Equally vague were the transitional rules of Article 3 (5) of the Land Code Implementation Law, which barred the granting of land to foreigners, pending adoption of Decree 26.

Under Decree 26, border territories are now defined to include municipal districts and cities (in their geographical entireties) adjacent to Russia’s border.

Among the border territories are the city of Sochi (and other near-shore municipalities in the Krasnodarsky Krai), four districts in the Leningrad Oblast (the Lomonosovsky, Kingiseppsky, Slantsevsky and Vyborgsky districts), the Kronshtadtsky District in St. Petersburg, a number of municipal districts in the Bryansk, Tyumen, Rostov, Voronezh and Belgorod Oblasts, most of the municipalities in the Kaliningrad Oblast, a great many municipal districts in the Far East, and others.

Effectively, the border territories now represent a broad skirt around the terrestrial border of the Russian Federation and the shores of its boundary seas where land may not be owned by Foreign Persons.

Pursuant to the Land Code, the described ban on owning border-territory land applies to foreign legal entities (including entities acting in Russia through branches or representative offices), foreign individuals and stateless persons; it does not apply to Russian legal entities wholly or partially owned by foreign investors.

Decree 26 provides neither for a transitional period, nor a clear indication as to what should be done with land plots within restricted border territories acquired by Foreign Persons earlier in compliance with the then effective legislation. These matters are similarly not addressed by the Land Code or the Land Code Implementation Law either. Although the Land Code prohibits “ownership” of land of border territories (rather than “acquisition” of land), by implication this prohibition extends to the acquisition of land of the border territories included in the list.

Arguably, the lack of transitional or implementation rules in Decree 26 reflects the intention of its authors to prompt foreign owners of lawfully acquired land of border territories to dispose of such land in accordance with general principles envisaged in the Russian Civil Code. At the same time, such general principles fail to address a timeframe within which a foreign owner must dispose of land.

Finally, in the context of other provisions of the Land Code dealing with the concept of unity of title to land and facilities (buildings) built thereon, in the absence of any exemptions in Decree 26 for Foreign Person-owners of developed land plots, a Foreign Person will also have to dispose of all the facilities and buildings developed on all such land plots that it owns.