How we solve your problems

For many years CLSLU has been engaged in resolving of various problems of Russian clients connected with land plots. During this period we managed to collect rich materials on standard problems and ways of their solution. Presently our company is entering a more extensive (international) market, but the company will never reduce its activity within Russia.
During the latest two years the representatives of western companies have been applying to us asking to help in solution of emerging problems.  

We were surprised to find out that foreign investors often fail to find a way out of the situations, which cannot be considered even partly cumbersome by the majority of Russian businessmen. As a rule, it is connected with the fact that foreign investors are perplexed in the unknown cultural and legal environment. Due to the same reason they fully ignore the matters which really cause difficulties.

In order to show a telling example of foreigners' problems arising during dealing with the above named matters, I will describe a situation with Mr. C, being a Board member of the Russian branch of a major European company.

When opening a hypermarket in the Leningrad Region the organizers faced the impossibility to bring the equipment across the Russian border without a document, issued by the local administration confirming the fact that such a facility is being built in the given locality. Such a certificate is just for information and is not an authorization document.

I came across Mr. C at the reception office of the administration. It emerged that for nearly two months their company was unable to obtain the required documents, thus making the customs clearance of the equipment impossible, and consequently breaking the scheduled opening of hypermarket, which would result in company's payment of penalty sanctions amounting to millions. And he was not the  first employee of the company trying to solve the arisen problem.

I asked some details, and found that his package of documents was incomplete, some papers were executed with violation of the effective Russian law. In particular, Mr. C did not have a power of attorney authorizing him to settle such problems. The construction contract confirming the authority of the company represented by him to erect and commission the named facility was also unavailable. It was not due to lack of Mr. C's professionalism, but due to the fact that acting in compliance with the European practice he failed to take into account the generally known (within Russia) office management requirements different from those accepted in Europe. For example, a letter on a company letterhead signed by the director LEGALLY IS NOT CONSIDERED an official letter if the director's signature is not affixed with company's seal.

After I have prepared the necessary letters of inquiry according to established forms (pursuant to the  RF law), I saw about sending of missing documents from the Moscow office directly to the fax machine of the official from whom they could not receive the required document for two months. In the result Mr. C was holding the certificate in his hands in less than 30 minutes. The whole procedure was performed in the reception office of the respective official, without any lengthy correspondence or financial expenses on the part of Mr. C or the company represented by him, just only adequate short help of a professional.  

I would like to tell another example of resolution of problems emerging during investments, referring to bank credits.  

Mr. D, a correspondent of a TV channel applied to us. He wanted to buy agricultural land, but did not have enough money. Until this moment there have been no cases of credit granting for acquisition of agricultural land.  

The further actions and their results were described in detail in the article published in mass media, the excerpts from which we would like to present here.
" RF Savings Bank grants credits for acquisition of land by employee of federal television /radio company.

Today the acquisition of property using bank credits is routine practice. Household appliances, cars, apartments, tours abroad, medical treatment and education - all these things may be obtained using the services of numerous banks. One could hardly expect a noticeable event in this domain.

But an event occurred last week, which captured public attention. With participation of the Center for Legal Support of Land Users (hereinafter CLSLU) the Savings bank of Russia for the first time granted a credit for purchase of agricultural land.

An unnamed correspondent of federal TV channel is the purchaser, and respectively receiver of credit.

'Apart from legal niceties which should have been taken into account in the transaction, the actual possibility of credit receipt was questionable. For the practice of RF Savings Bank it was the first credit of this kind. As usual, a new affair is always accompanied by difficulties connected with lack of expertise in granting credits for acquisition of agricultural land,- says Victor Shchelokov, Chairman of the Board of Directors of the Center for Legal Support of Land Users, who was in charge of the transaction support procedure.

The credit receipt process made it obvious that the procedure for granting credit on the security of agricultural land was not thrashed out, and more than that, the bank itself was not interested in operations of this type. It became clear when we got familiarized with the list of documents requested by the Savings Bank officer, which are required for granting a credit according to their practice of land plot purchase transactions. The list surprised us, for example, the land seller was required to submit a new form of the certificate of ownership right, while the certificates of ownership right issued since 1992 were recognized as valid. As the same time the bank did not requested the Federation constituent's waiver of preemptive right, without which the Federal Registration Service would reject the acceptance of purchase-sale transaction documents.

It took over three months to coordinate all issues and niceties related to crediting. Nevertheless, the transaction was closed. In the opinion of Victor Shchelokov the transaction may set a precedent and lay foundation for large-scale crediting of individuals for buying of lands, which in its turn stimulates the market, as mortgage credit landing affected the housing market.

Like many other our clients Mr. V asked a question of rather general nature. He wanted to get advice on reliable investment of spare money, to understand who could help him in this regard, and how to gain maximal profit upon sale of land plot.

Investment in land plots, as "real investments" are more reliable, than the "financial" ones, as we mentioned above. Let's consider 3 main types of investment activities on the land plot acquisition by you.

Option № 1. Purchase of land plot with the purpose of further sale, to gain profit for account of difference between the purchase price and sale price.
Advantages of this option: you receive a large amount of money right away, upon reaching an agreement on the sale you are aware of the profit you will receive in the result of transaction.
Disadvantages: from the moment of sale you lose the right to the land plot you owned, the price of which will further increase and return profit to another owner..
It should be noted that this opportunity of investment activities has several variations:
1. The earlier acquired land plot is sold in the state it had been bought, without any changes in the legal status and quality. The average calculated profitability may range between 20 and 40% per annum, depending on the  plot location, type of land and demand.
2. Legally significant operations are made with the acquired land plot intended for increase of its value. As a rule, they imply change of land category (from agricultural to industrial or lands for development) or "splitting" of a large land plot into several small ones, and obtaining of individual cadastral numbers for them. Thereafter the plot is sold (calculated profitability between 50 and 100%).
3. Apart from legal execution, arrangements are made for actual preparation of the plot for development  (connection of water and power supply lines, construction of approach roads, etc.)
4. Ready-to-operate construction of industrial and residential facilities to be sold together with the land plot.
It is clear, that  the land sale after each subsequent of the above named stages will bring good profit, though their successive realization requires considerable funds and time.

Option № 2. The investor completes the development of land plot, whereupon the industrial or residential facilities built on the plot are leased to an individual or a legal entity for its  commercial activities.
The advantages of this option are as follows:
- guaranteed monthly receipt of monetary funds within the limits of priory agreed amounts to the owner's account;
- no liability of the owner for the results of lessees' business activities, impossibility of attachment or seizure of the property for the lessee's debts;
- the possibility to terminate the lease contract and search for another lessee in case of disagreements on rental fee, procedure for the use of rented lands and premises;
- the opportunity for the investor to use the property in his possession as a pledge when receiving a bank credit  (for example, for implementation of another investment project).
One disadvantage - the owner's income is significantly smaller than in the event of his own operation of the facility.

Option № 3. The investor completes the development of land plot, whereupon he himself operates the industrial and residential facilities located on the plot, or is engaged in agricultural production on undeveloped plot.
Advantages of this option are as follows:
- in case of successful investment project the profit will considerably exceed the amount to be received from lease of the premises;
- the possibility of independent management of the enterprise, definition of its development trends, personnel and marketing policy, distribution of funds;
- at any stage the owner may make a decision on complete or partial sale of the property and assets of the enterprise, land plot, their lease, use as a mortgage.
Disadvantage: the owner shall bear full responsibility for the results of enterprise's activity in the event of court judgment (in case of bankruptcy, debt, etc.) the property may be seized as security for a claim.  
By no means, the presented investment schemes are very simplified. One can often come across combination of several types in one project. For example, the investor buys a large land plot, changes its category to "industrial lands", splits it into several plots, and sells one of the plots. The received money he uses for construction of enterprise to be leased on one of the plots, and the other plot is used for construction of his own manufacturing facilities.

Such examples are numerous. They have one common feature.

Insignificant (in comparison with general expenses for business organization) legal support expenses enable to avoid the risk of effective law violation by foreign investors, and accelerate significantly the investment project execution.