12.01.2018 — Growth of Investments in Commercial Real Estate Sector Continues
In 2017, investors invested about US Dollars 4.6 billion in the Russian commercial real estate market. Moreover, at the year-end of 2017, the share of foreign investment in Russian real estate grew almost than 3-fold. According to experts, the commercial real estate market is gradually recovering after the crisis. According to analysts’ forecasts, in 2018 investors’ activity will continue to grow, and the total volume of transactions and the share of foreign investment will increase.
According to the joint report of JLL and Sberbank analysts, 2017 was successful for the Russian commercial real estate market. The total volume of investments in Russian commercial real estate amounted to US Dollars 4.6 billion, which is 9% higher than the same indicator for 2016.
Investors are mostly interested in shopping premises (40% of total transactions) and office premises (35% of total transactions). As for the territorial location, Moscow (79% of transactions) and St. Petersburg (16% of transactions) are leading. In addition, there is a revival of foreign investors’ interest in Russian real estate compared to last year. In particular, while in 2016 the volume of foreign investments amounted to 6%, in 2017 this indicator increased to 17%.
Experts predict further growth of investment in this segment: it is expected that in 2018 the volume of transactions with real estate will continue to grow and by the end of the year will amount to US Dollars 5 billion.
11.01.2018 — Notaries Will Have Access to Electronic Database of Register of Births, Marriages and Deaths
The law on acts of civil status was amended, so that now it provides for the creation of a uniform register of births, marriages and deaths. As a result of amendments, notaries will have access to the register through the Notaries’ Unified Information System. The implementation of this system will solve the long-standing problems in Russian law in connection with the concealment by opportunistic persons of their marriage when concluding transactions, so that there arises a risk that their spouses may challenge the transactions, as well as with fraudulent actions with the inheritance. These legal developments also increase the relevance of voluntary notarization of transactions, even in case notarization of a transaction is not mandatory under law.
It should be noted that so far the databases of the register of births, marriages and deaths has not been uniform throughout the country. In fact, each region maintained its own database. This fact opened the door for abuse and fraud, since in fact there was no opportunity to obtain reliable information on the counterparty’s marital status and to verify the authenticity of the inheritance documents.
With the entry into force of these amendments, notarization of transaction will mitigate the aforementioned risks, reducing the opportunity of abuse. Notaries will check the information provided by counterparties and heirs against the information in the register through the Notaries’ Unified Information System. Therefore, in order to eliminate the above-mentioned risks, the counterparties are advised to notarize all material transactions with individuals, even if the notarization is not mandatory under law.
10.01.2018 — Decree of Plenum of Supreme Court on Assignment: Important Explanations in Light of Civil Code Reform
On December 21, 2017 the Plenum of the Supreme Court adopted an important Decree on substitution of parties in an obligation (assignment). The Decree contains both explanations that constitute well-established practice and some new provisions that are a response to the Russian Civil Code reform. Such important explanations include those aimed at resolving the issue of assigning the same right twice, the mandatory state registration of assignment of rights arising out of registered contracts and the survival of the arbitration clause after assignment. At the same time a significant explanation on the innocent purchaser of the right was excluded from the final text of the Decree, since the judges decided that this issue needs to be elaborated further.
The need for development and adoption of the Decree of the Plenum of the Supreme Court of the Russian Federation dated December 21, 2017 No. 54 on assignment was caused primarily by the extensive reform of Chapter 24 of the Russian Civil Code devoted to assignment of rights. The Decree of Plenum includes legal positions on assignment agreement: such a contract may be either expressly provided by law or a mixed or unnamed contract. As a general rule, the contract is presumed to be compensated.
As for the mandatory state registration of the assignment agreement, the Supreme Court explained that if the rights arising out of a registered contract are assigned, then assignment agreement shall be subject to state registration in the same manner as the underlying transaction (for example, assignment of the right to receive lease payments under a registered lease contract is also subject to state registration). Moreover, as a general rule the arbitration clause shall remain in force for the new creditor and debtor.
One of the most significant provisions of the Decree concerned protection of innocent purchasers from various kinds of fraud. In particular, the provisions on assignment of the same right twice, according to which in case the right is assigned to several persons, then the person to whom the right was transferred earlier shall be the appropriate new creditor. The remaining purchasers can only claim damages from the assignor.
However, the provision concerning the innocent purchaser of right, namely the situation when the assignee transfers the right to a third party, which purchases it in good faith and for compensation, and such an ultimate innocent purchaser shall have the respective right assigned to him even in case the initial assignment is declared invalid, has not been included in the final Decree. This provision would be particularly relevant in shared construction. Yet, in the opinion of the authors of the Decree this provision needs to be elaborated further, and at this stage its adoption would be premature.
09.01.2018 — Supreme Court Doubts That Parties May Establish Grounds for Termination of Suretyship Not Provided by Law in Suretyship Agreement
The Supreme Court considered whether suretyship may be terminated on the grounds that the parties established in the agreement, if such grounds are not expressly provided by law, in particular additional circumstances that lead to termination of security coverage. In the dispute at hand, the suretyship agreement stipulated that the company director shall be surety in respect of the company’s debt to the bank, yet the suretyship shall terminate in case of his dismissal. However, despite of the dismissal of the director, the Supreme Court considered that the findings of the lower courts on termination of the suretyship were not consistent with law, because law does not explicitly provide for such grounds for termination of the suretyship as the dismissal of the director. Thus, the case was remanded for a retrial.
In the case at hand, the bank filed a claim on the recovery of the debt arising from the company’s loan to the surety – the company’s director. However, the courts found out that under the terms of the suretyship agreement, the suretyship has terminated upon the termination of the employment contract with the company’s director, which had been terminated by the time the claim was filed.
The court of first instance disagreed with the arguments of the former director that the suretyship had been terminated and recovered the debt from the former director. The court of appeal reversed the decision of the court of first instance, declaring that the contractual provision on termination of the suretyship in case of termination of the employment contract was legal, based on the principle of freedom of contract.
However, the Chamber of the Supreme Court for Civil Disputes noted that Art. 367 of the Russian Civil Code on the termination of suretyship does not expressly provide for such a ground for termination as the termination of the employment contract. In this regard, in the opinion of the Supreme Court, the lower courts were to determine whether the suretyship agreement could provide that the termination of the employment contract with the director is a ground for termination of suretyship (see Decision of the Supreme Court No. 9-KG17- 14).
The final outcome of the case, which was sent for re-examination to the court of appeal, is of particular interest, since limiting the parties’ right to agree on additional grounds for termination of the suretyship at their own discretion may seriously restrict the freedom of contract in this regard, what needs to be taken into account in contractual practice.
08.01.2018 — Economic Results of 2017: Record-Beating Capital Outflow from Russia
At the year-end of 2017 the largest outflow of foreign investments from Russia was recorded – US Dollars 900 million. According to experts, the reduction of foreign investment is associated with unrealized expectations about the rapprochement between the US and Russia after the election of Donald Trump as US President, the fall in oil prices, and the lack of significant drivers of growth in the Russian economy. Thus, experts predict further increase of Russia’s economic lag from developed countries, unless steps are taken to reform the economy.
According to the report of Bank of America Merril Lynch, in 2017 the net outflow of capital from Russian investment funds amounted to about 900 million US Dollars. Moreover, according to the report of the Russian Academy of National Economy under the President of the Russian Federation, despite the “deofforization” policy declared by Russian authorities, in 2017 Russia is among the top five countries that withdraw funds and assets into offshore jurisdictions.
Long-term expert forecasts are not encouraging either: according to the information of the British Center for Economic and Business Studies, by 2032 Russia will no longer be in the list of the world’s largest economies and will drop in the world rating from 11th to 17th position, falling behind such countries, as Turkey and Spain.
According to experts, negative trends in the Russian economy are mainly associated with internal risks that have led to deterioration of the investment climate in the country, as well as with the absence of significant drivers of economic growth. The expansion of anti-Russian sanctions and their prolongation for an indefinite period, as well as decline in oil prices also contributed to the economic downfall. Therefore, the planned Russian economy reforms aimed at improving Russia’s performance at the global level are of particular importance.