The rules for changing the purpose of and remodelling premises are being supplemented
Pepeliaev Group advises that, on 1 April 2024, Federal Law No. 608-FZ dated 19 December 2023 Federal Law No. 608-FZ "On amendments to the Housing Code of the Russian Federation and Federal Law 'On State Registration of Real Estate'" dated 19 December 2023.
("Law No. 608-FZ") comes into force, clarifying the rules for changing the purpose of premises to residential or non-residential and the procedure for their remodelling.
Changing the purpose of premises
The owners of the premises must use them for their intended purpose. For instance, apartments must be used for individuals to live in (article 17(1) of the Russian Housing Code (the "Housing Code")). Right holders may reassign residential premises to non-residential or non-residential premises to residential, if they meet the conditions and requirements set out in the law (articles 22(2) and 22(4) of the Housing Code).
Once Law No. 608-FZ comes into force, the reassignment process will become longer. Previously, persons interested in changing the purpose of the premises could use them for the corresponding purposes starting from when they received a decision to reassign. Now the reassignment of the premises will be deemed completed, i.e. the right holder will be able to use the premises in line with their new purpose only when the changes are made to the Unified State Register of Real Estate (the "USRRE") (article 23(7) of the Housing Code). Local authorities notify Rosreestr (the Federal Service for State Registration, the Cadastre and Cartography) of the decision to reassign the premises for information to be entered into the USRRE (article 32(1)(5) of the Law on Registering Real EstateFederal Law No. 218-FZ dated 13 July 2015 “On the state registration of immovable property”.
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Comment
The legislature, by adopting Law No. 608-FZ, has sought to increase legal certainty in tax collection. In particular, property tax is determined depending on the purpose of the premises. Before the amendments, it was difficult to establish the moment from which the tax base was revised: from when the reassignment decision was received or from when the changes were entered into the USRRE.
Under the revised version of article 23(7) of the Housing Code, even after receiving the corresponding decision, the right holder is deprived of the right to use the premises for a new purpose before the information is entered into the USRRE. There is a risk, for instance, if the authority delays in transferring information about an adopted act to Rosreestr. In this situation, the stakeholder can appeal against the competent authority’s omission to act, but this will take time.
Remodelling of premises
Previously, the remodelling of the premises was understood to be any change in their configuration that required changes to the “technical passport” of the premises (article 25(2) of the Housing Code). The wording of the article left uncertainty about which works are considered remodelling, and did not imply that it is mandatory to enter information about changes in the configuration of the premises in the USRRE, which violated the principle that the information in the USRRE should be accurate.
Under the revised version of article 25(2) of the Housing Code remodelling includes the following results of work:
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changes to the boundaries and/or area of premises; and/or
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formation of new premises, including when adjacent apartments are joined; and/or
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changes to the internal layout of premises (including without the boundaries and/or the area of the premises being changed); and/or
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changes to the boundaries and/or area of the premises.
The approval procedure is also amended. In particular, upon completion of the work, the stakeholder sends a notification to the competent state authority, attaching the technical layout of the reconstructed premises (article 28(1) of the Housing Code). The competent state authority ensures that the commissioning certificate is drafted and approved within 30 days after the date it receives the notification (article 28(2) of the Housing Code), and then, within 5 business days, sends the commissioning certificate and the technical layout to Rosreestr for changes to be made to the information about the premises in the USRRE (article 19(1.10) of the Law on Real Estate Registration).[]
Comment
That the USRRE is to be filled with up-to-date information can only be welcomed. However, the range of work that is covered by the rules for remodelling is significantly expanding, which owners need to take into account after 1 April 2024 to avoid fines and claims for premises to be restored to their original state.
Moreover, some positions of Law No. 608-FZ are radically at odds with the case law. In particular, shortly before Law No. 608-FZ was adopted, the Russian Supreme Court (the "Supreme Court") considered the merger of adjacent apartments into one and the division of an apartment into two to be a reconstruction of an apartment building, which involves a construction permit being obtainedParagraph 5 of the Overview of Judicial Practice on Disputes Connected with the Reconstruction, Redevelopment and Remodelling of Premises in an Apartment Building (approved by the Presidium of the Supreme Court on 13 December 2023).
. Such a contradiction between the positions of the Supreme Court and Law No. 608-FZ creates the risk of litigation over whether such work constitutes remodelling or reconstruction.
What to think about and what to do
Law No. 608-FZ contains contradictory changes: On the one hand, the information of the USRRE about premises is updated. For example, now buyers will be able to receive more accurate information that the decision has not been made to change the category of the premises and/or to agree on its remodelling On the other hand, difficulties remain in determining whether certain works need to be approved and whether they constitute remodelling or reconstruction. The professional assistance of a lawyer will be required to resolve these.
Help from your adviser
Pepeliaev Group's lawyers provide comprehensive legal support to persons planning to remodel premises and to the buyers of such facilities.
Pepeliaev Group’s range of services includes advising on sale and purchase issues and performing other transactions with real estate, analysing risks associated with a particular real estate item, representing the interests of companies when they liaise with state authorities and conducting legal due diligence of real estate.