Russian Federation: Investor-Initiated Integrated Site Development: New Opportunities

Starting 1 January 2017 holders of land plots and the immovable properties on the land plots will be able to get approved site development and site survey plans within one month without public hearings as part of integrated site development.

Changes in the town-planning legislation

One of the last draft laws adopted by the State Duma of the sixth convocation was Federal Law No. 373-FZ of 3 July 2016 on Amendments to the Town-Planning Code of the Russian Federation and Certain Legislative Acts of the Russian Federation Improving Regulation of the Preparation, Negotiation and Approval of Site Planning Documentation and Supporting Integrated and Sustainable Site Development and Repealing Certain Provisions of Legislative Acts of the Russian Federation ("Federal Law No. 373"). Federal Law No. 373 introduces numerous—often technical—amendments to the Town-Planning Code of the Russian Federation (the "Town-Planning Code") having to do with zoning, and with drafting site development plans ("proekt planirovki territorii", referred to below as the "site development plan") and site survey plans ("proekt mezhevaniya territorii", referred to below as the "site survey plan"); however, of particular interest is the new mechanism for integrated site development initiated by the titleholders of plots and/or the immovable properties located thereon.

The integrated site development mechanism

Federal Law No. 373 defines integrated site development as activity for preparing and approving site planning documentation (the site development plan and site survey plan) for the siting of permanent residential, industrial, public and business and other structures and necessary infrastructure, and also for the design, construction and reconstruction of such properties. It is no accident that the definition emphasizes planning: a key incentive for participating in the integrated site development process today is the possibility of expedited approval of the site development plan and site survey plan. By participating in integrated site development, the investor will be able to get approved site development and site survey plans without public hearings for the land planned for the construction project within 30 days of when the investor submits the prepared draft site development plan and site survey plan to the local government authorities (the approval process currently takes an average of about six months and requires public hearings).

It is a prerequisite for integrated site development to enter into an agreement on integrated site development with the local government authorities. It follows from Federal Law No. 373 that the following will be negotiated under the agreement with the local authorities:

• Division of responsibilities for integrated and sustainable development of the site, changing the permitted use of land plots, forming plots, establishing easements, and ensuring that rights to the plots and/or the immovable properties located on them are registered
• Division of responsibilities for site improvements
• Obligations of the local government authority to support the construction of infrastructure needed for permanent facilities sited as part of integrated site development to operate, and supporting human activities, or obligations of titleholders to ensure that such infrastructure is put in place at their own cost in accordance with early design and construction schedules¹
• Types of incentives provided to titleholders and the conditions for providing them in accordance with the Town-Planning Code, legal regulatory acts of the Russian Federation constituent entities and municipal legal acts
• Compensatory measures (provision of tax incentives, land plots of equal value, reduced rent, etc.) if the agreement provides for siting infrastructure on the titleholder's plot
• Terms and conditions for transferring infrastructure built at the titleholder's expense to local government authorities free of charge, etc.

Overall, Federal Law No. 373 includes only general requirements to the integrated site development agreement and does not detail the process of how integrated site development is done, the only exception being the conditions for the parties to repudiate the integrated site development agreement out of court. For example, if the titleholder repudiates the integrated site development agreement this will invalidate the approved site development plan and site survey plan for the plot. Also of particular note is the fact that the local government authority may repudiate the agreement if the investor is late doing the integrated site development, including building infrastructure, and claim losses².

Who is entitled to do integrated site development at their own initiative?

The following may initiate integrated site development:

• The owner of a land plot and/or real estate properties located on that land, or
• The tenant or person using the state- or municipally owned land plot for free, provided the person that is not the owner of the plot and/or real estate on the plot is entitled for at least five years to use the plot on the date of the integrated site development agreement³

If two or more titleholders are the initiators, then before applying to the administration they enter into an agreement on division of responsibilities for integrated site development activities setting forth their mutual obligations related to implementation of integrated site development and terms for sharing expenses and income from implementation of their investment projects through integrated site development.

It is important that under Federal Law No. 373 titleholders prepare site planning documentation as part of integrated site development for the land within the boundaries of the plots whose titleholders executed the agreement. Considering that public hearings will not be held on draft site development plans and site survey plans, neighboring landowners and other third parties will have almost no opportunity to influence the approval of the site development plans and site survey plans of titleholders participating in integrated site development, which will expedite the approval process.

Basic stages of integrated site development

Federal Law No. 373 envisages the following procedure for carrying out integrated site development:

• The titleholder(s) send(s) the local administration the prepared site development plan and site survey plan, agreement on division of responsibilities (if there are at least two titleholders) and draft integrated site development agreement setting forth only the titleholders' rights and obligations.
• The local government authority checks the site development plan and site survey plan for compliance with the requirements of the Town-Planning Code within 30 days of receiving the drafts and approves the site development plan and site survey plan without public hearings or decides to reject the drafts and return them for revision.
• The local government authority enters into an integrated site development agreement with the titleholder(s) without an auction for a term of not more than 15 years and sends it to the titleholder(s) within 30 days of approval of the site development plan and site survey plan.
• The titleholder(s) sign(s) the agreement within 30 days of receiving the agreement and begin to perform their obligations.

Federal Law No. 373 does not generally detail the procedure for negotiating the terms of the integrated site development agreement, nor does it detail the negotiation of incentives and compensatory measures. One can already suppose that the integrated site development structure will follow the principle of a tailored approach to investors and it will be most attractive for groups of investors planning to implement mixed-use projects on adjoining plots. In that case, the model of integrated site development will help participants to considerably reduce the amount of time needed to approve site planning documents with the required parameters and, together with the local government authorities, to settle the conditions for creating the necessary infrastructure and site improvements.

Footnotes

1 According to Federal Law No. 373, for these purposes lease of state- and/or municipally owned plots that are not encumbered by third-party rights may be granted without an auction in compliance with the requirements of land legislation. However, it is not entirely clear from Federal Law No. 373 whether it is possible to negotiate the terms of further operation of created infrastructure and to allocate responsibility for it in an integrated site development agreement. At the same time, tools for public-private partnership dealing with investor guarantees could be added to the integrated site development structure as far as creating infrastructure is concerned; however, Federal Law No. 373 does not contain any specific provisions to this effect.

2 That said, Federal Law No. 373 does not say that the planning documents are invalid if the local government authority repudiates the agreement.

3 The wording for the time period used in Federal Law No. 373 is not entirely correct; likely it is meant that the rights to the plot should be held for at least five years from when the integrated site development agreement is concluded. In addition, one may get the impression from a literal reading of the text that the owner of real estate on a leased plot may be the initiator regardless of the effective period of the lease rights to the plot. We believe that a uniform approach to interpretation will evolve after the new provisions enter into force as of 1 January 2017.

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