Who owns Russia now?

At last, it seems the doors are opening to Western developers wishing to explore Russia. Until recently, a private company's right to own land was governed by inconsistent and sometimes obsolete rules, and in any case almost all land was the state's. After a long struggle through the 1990s, this has now changed and a "land code" was adopted with effect from 30 October 2001.

Under the code, the authorities are obliged to grant outright ownership or the leasehold of land to anyone requiring it for construction purposes. Certain types of land are excluded from this general rule, including nature reserves, "first grade" forest or land in military zones.

The procedure for obtaining land is only outlined sketchily in the land code. In most cases, it involves a tender stage where the initial applicant has to compete with other potential buyers. The final stage is the registration of ownership or a lease in the Russian land register.

This privatisation of land is open to foreigners as well. The only limitation on them worth mentioning is that they cannot own (but can lease) land near Russia's borders and other security-sensitive but yet-to-be specified areas. Politically sensitive agricultural land may not be sold or leased to anyone for the time being.

Would-be developers should be aware of a fundamental difference in the way property is dealt with in Russia. Under the Russian civil code, buildings and land usually had separate titles. So if you owned a building, you did not necessarily own the land underneath it, although you would have had an automatic right to use it.

The new code introduces the principle that "buildings follow the land" and effectively terminates the civil code rule of use. The land code provides for a transition where a building owner may opt to buy or lease the land under its building. Supplementary rules set the upper and lower price limits for the purchase of such land.

A note of caution: as you would expect with such a revolutionary change in approach to national property rights, there will no doubt be teething troubles and not a little confusion.

For example, an important chapter of the civil code became effective from April 2001. This defines the scope of ownership and other rights to land and some other principal issues (including withdrawal of land), and although the land code repeats and elaborates on some of the civil code's provisions, it also contradicts it in parts. On many of these contradictory points, there is no answer as to which set of rules should be followed. Until the two codes are made consistent, any conflict will have to be decided on a case-by-case basis.

Another source of potential confusion lies in identifying the actual owner of the land that a developer wants to buy or lease. The Russian system is made up of the federal state, its 89 regions and their municipalities. A federal law establishing the principle of separation between these elements for all state-owned land became effective in January, but much work still needs to be done by the relevant land authorities to work out exactly who owns what.

Finally, although the new land code applies to Russia generally, Russia's structure of a federal state and regions, means that local laws and regulations will need to be passed in order to implement certain aspects of the land code, particularly on issues where it cannot regulate in sufficient detail.

Certainly the foundations for development activity in Russia are in place. Although there will no doubt be some uncertainty, those with the most entrepreneurial spirit, ready to commence development projects, are likely to be the ones who benefit when the mist finally clears.