by Robert Muir
During the past few years, and, in particular, during the past month, a great deal of world attention has focused on the Soviet Union. There has been a large legislative programme during that period which has affected or will affect almost every aspect of commercial life in the Soviet Union. Property is no exception.
Despite the events of the past month and, in particular, the failed coup and the grant of independence to the Baltic states, the creation of a new legal framework will continue and it is the real property law which is emerging in the context of that framework which is considered in this article.
The legislation of the Soviet Union relating to property is intended to lay down fundamental principles which need to be considered together with the specific laws enacted or to be enacted by each of the republics which form a part of the Soviet Union. This article considers Soviet law, rather than the particular law of any republic.
Two preliminary points which need to be made are, first, that, unlike the position in some other eastern European countries, there is no concept of restitution of land to its pre-revolution owners and so any examination of the legal position does not need to consider this initial hurdle. Second, there is a fundamental and very deep-rooted concern among the Soviet people that ownership of land should vest in the state and it may be some time before it is politically possible to tackle this problem.
It is against this background, and in the knowledge that the target is constantly moving, that this article is written.
It is essential to understand that there is an important distinction in Soviet law between land on the one hand and buildings on the other and the law relating to them differs considerably.
Land
The law relating to land is principally contained, first, in the Soviet law of ownership, and, second, the fundamental principles of legislation of the USSR regarding land. As regards the latter, on February 28 1990 the Law on Land was passed and that law came into force on March 15 1990. The general principles contained in that legislation are or will be supplemented by more specific laws enacted or to be enacted by each of the 15 republics. Subsequent to Perestroika there has been conflict between the laws enacted by some of the republics, including in particular the Russian Federation, and the fundamental principles. This has been referred to by the Soviet media as the “war of laws” and still needs to be resolved. It is, therefore, only possible to examine land issues against a background of legislation which is at a transitional stage.
Furthermore, many of the concepts which have emerged in that legislation have not yet been developed. One obvious area is in connection with the law of pledge and the ability to raise money on the security of property. Although there is a draft law of pledge in existence its principles are by no means clear and it does seem that the traditional funding structures which have been used in the United Kingdom may not be suitable.
Article 3 of the Law on Land states that land is the property of the people living on the territory in question and continues by providing that every citizen of the USSR has the right to a plot of land, the conditions and rules for the provision of which are determined by the present basis (ie the status quo) and the legislation of union and autonomous republics.
Although land is stated to be the property of the people living on the particular territory, the management of that land is given to the local soviet which has the ability to provide land and also, in certain circumstances, to withdraw it. If land is withdrawn it may be re-allocated by the soviet. The legislation does not contemplate that any one other than the people of the particular territory can own the land and it is the responsibility of the local soviet to grant rights of possession and to regulate use of the land. In this respect the law on land commences with a statement of its general objectives which, inter alia, should be “directed towards rational usage and protection of land, improvement of the fertility of the soil, preservation and improvement of the natural environment” and to provide “equal opportunities for development of all forms of enterprise”.
It should be noted that the laws relating to agricultural land differ from those relating to other land, and many of the subsequent statements in this article do not apply to agricultural land, although recently there has been discussion about giving ownership of uneconomic agricultural land to the people who work on it.
There are essentially two rights to occupy (as opposed to own) land which may be created and which are particularly relevant for the purpose of this article.
The first relates to land which has been used historically for a particular purpose, eg by a collective, or is designated for use for a particular purpose by the local soviet and if it ceases to be used for that purpose the local soviet may withdraw it, although politically it may decide not to do so. The right to use this land continues either indefinitely or temporarily and is generally referred to as the right of usage. New rights of usage may be granted by the local soviet and there are no rules as to whether payments will be demanded for this right, but a foreigner will almost certainly have to pay.
The right of usage is, however, more tenuous than it may at first appear. It may not be disposed of on the open market — the property must first be withdrawn from its present “owner” and then “provided to the new owner”. Second, article 9 of the Law on Land contains provisions relating to the termination of the right of usage of a land plot by the local soviet in certain circumstances, including use for a purpose other than that for which it was provided. It would appear therefore that if someone is allocated land for residential purposes, for example, and it is used for business purposes, then that person may have the land confiscated. It is too early to say exactly how these provisions will operate, but if interpreted literally they may undermine the right of usage and severely jeopardise the bankability of many proposed arrangements which are based on these rights.
Alternatively, the soviet may grant contractual rights which are broadly similar to leases, and the conditions of the “lease” (for want of a better word) are determined by agreement and are secured in a document. That agreement will regulate matters such as use and even whether the rights can be sold to a third party. Leases can be agreed on a short-term basis for up to five years and long-term leases for up to 50 years. The leaseholder has priority to extend the lease at the end of the term of the original agreement.
It is worth noting that there is a third right of occupation which is available only to Soviet citizens. This is a right of occupation for life and that right may be passed on to heirs. The land, which may be subject to such a right of hereditary possession, is primarily domestic and, also includes certain types of agricultural land.
Buildings
Buildings which are situate on land are governed by different legislation, namely the Law of Property which was passed on March 6 1990 and came into force on July 1 1990. It is therefore appropriate to consider who can own property, as opposed to land.
Persons who are entitled to own property include: Soviet nationals, either individually or collectively; the state (unsurprisingly), meaning both the local soviet, the republican government and the all-union government; co-operative and public enterprises, institutions and organisations. Property may also be owned in the Soviet Union by foreign states, international organisations, foreign legal entities and foreign citizens, which means that a foreign individual may also own a share in a joint venture. Joint ownership by several persons and also by different entities, eg one soviet and one foreign is also permitted. Thus foreign citizens and legal entities may own in the USSR industrial and other enterprises, buildings and structures for the purpose of conducting through their use economic and other activities, subject to the laws relating to those activities, some of which still have to be enacted. It should be noted that not all forms of ownership are available to all of the above categories.
Article 10 of the Law on Land provides that upon the transfer of ownership of a building the right of use of the land is transferred under the rules and on conditions set out in legislation of union and autonomous republics.
Against the background of these legislative principles it may be useful to consider some practicalities. First, how does one obtain the use of a flat in the Soviet Union? A flat cannot be owned outright, but one can obtain a right to possession or a lease of a flat which forms part of a building. There are a very small number of private flats, where the person who presently has the right to possession can deal freely ie sell his right of possession on whatever terms he chooses. A large number of flats are owned by cooperatives and in that situation the other members of the co-operative must approve any arrangement whereby the right to possession is sold by one party to another. Payment for the flat is legally due in roubles and the arrangement must be registered with the local soviet, which means that it must effectively also be approved by the soviet in advance or that the agreement is made conditional on that approval.
In practice the sensible thing to do, assuming it is possible, is to arrange for the soviet joint-venture partner to organise the accommodation, because knowledge of the availability of flats is very much on the basis of word of mouth, although there are signs that the equivalent of estate agents are appearing.
Second, how does one obtain the necessary premises to conduct business? Obviously that depends to a certain extent on the nature of the business and whether the business is accredited or is a joint venture. Again a Soviet joint-venture partner may be able to provide the accommodation, but one factor which needs to be borne in mind is, as referred to above, that if the right to use the land is a right of usage that right may be withdrawn under article 9 of the Law on Land.
Accreditation of businesses in the Soviet Union is important. The benefit of accreditation is that in the absence of a joint venture the local soviet will make available permanent office space and apartments for the staff of the accredited company. The space will be available on either a right of usage or a lease. Without such accreditation it will probably be necessary to come to some informal arrangement or even to operate from a hotel room. Any such arrangement necessarily means that there will be communication difficulties, eg arranging telephones, telex and fax. Also, office space is available at the World Trade Centre in Moscow and in the Littlewood Business Centre in St Petersburg, albeit at a price.
The cost implications should not be ignored. In this respect it is ironic that, notwithstanding that there is so much space, the amount of suitable and available space is relatively small, particularly in Moscow, because most of it needs substantial refurbishment and the actual cost of the available space is very high. Office rents in Moscow have been reported recently to be as high as £66 per sq ft for refurbished premises.
This article paints only a brief picture of real property issues in the Soviet Union and in conclusion it should be noted that although soviet legislation in this area is not developed, that fact should be seen as both a strength and a weakness.
The benefit is that it is possible to operate without the restraints of a legal system which has been developed over a period of many years such as the one which prevails in England and Wales, but, on the other hand, the absence of many firm rules does create uncertainty. That uncertainty should be seen as an opportunity and the real consideration to be addressed is whether any specific proposal will breach any of the laws which have been made — whether relating to land or other property or in other areas such as banking, tax or exchange control. Provided that there is no such breach there is scope for flexibility and arrangements can be settled on an arm’s length contractual basis in such a manner as to suit all the parties to any agreement.
