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Real Estate Due Diligence in Russia

Real Estate Due Diligence in Russia

Updated on Wednesday 22nd February 2017

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When it comes to real estate, the Russian legislation makes a clear distinction between the terrain and the structures built on it, treating them separately and individually. Real estate, according to the Russian law, is divided into land parcels, constructions - that can be finished or unfinished - and registered properties, such as airplanes, boats and yachts.

Our lawyers in Russia can provide you with a wide range of services including buying or selling real estate and starting a business.

Legal aspects when buying property in Russia

Because of the ramifications of the Russian law on real estatedue diligence is necessary and very popular in Russia when buying a building or a land. The buyer must investigate the legal issues that can appear before making the purchase.

Before buying, due diligence implies a comprehensive assessment of the property to be bought. First of all, the buyer must check if there are any encumbrances regarding third parties who could claim the plot. According to the Russian law, you need permissions in order to use land in certain purposes; therefore, the buyer must make sure the land he or she intends to acquire will be used accordingly, considering the land could be confiscated if used improperly.

Another important matter is to verify the law with respect to environmental and town planning policies.

Carrying out real estate due diligence in Russia

In the past few years, most of Russian citizens did not register their properties with the Land Register which could be a problem when trying to buy real estate in this country. This is why the first stop when performing real estate checkups is the Russian Land Registry where information on the property one intends to buy can be found.

When buying real estate in Russia is very important to verify the boundaries of the property. A cadastral verification is recommended, in this case.  One should also verify the property itself. This verification is called technical real estate due diligence and can be completed with the help of an architect. The state of the property is very important, especially if the real estate is bought for commercial purposes.

Share deal and asset deal in Russia

When an investor wants to purchase commercial real estate properties, he can choose from two types of transactions in Russia: the share deal and the asset deal. The share sale refers to selling the shares in a Russian company with real estate rights and the asset sale refers to selling the real estate asset itself. Share sales are the common type of commercial real estate sale as the taxes are lower than in the case of asset sales. When performing real estate due diligence in Russia, an investor must pay attention and make sure that:

  • - the legal title of the property is correct;
  • - the vendor is the rightful owner of the property;
  • - there are no mistakes or conflicts between the title of the terrain and the title of the building;
  • - there are no restrictions and encumbrances with respect to the public laws;

After performing the real estate due diligence, the parties can decide on an asset (direct) sale, finalized with a sale agreement for the property, or a share (indirect) sale, finalized with a sale agreement of shares in the company. Because of the specific laws is every region of Russia and the multitude of rules that apply to each land plot, it is recommended to address to experts that can advise you when buying a property.

Reviewing the documents when buying a property in Russia

One of the most important steps, which is usually skipped is a thorough verification of the documents related to the property one wants to buy. This step is not included in ordinary real estate due diligence procedures, but with the help of attorneys in Russia one can review the sale-purchase agreement and amend it, if necessary. The ownership title should also be verified when buying real estate in Russia as it could offer a lot of information. One should also check that all other special documents, such as various authorizations related to the property are in place before the sale is completed.

You can contact our law firm in Russia, if you need more information about Russian legislation on real estate.



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