The Law “On the State Registration of Rights in Real Property”: Encouraging or Deterring Foreign Investment in the Russian Federation?

Siegel, William R. | January 1, 1998

The Law “On the State Registration of Rights in Real Property” of July 21, 1997 (the “Registration Law” or “the Law”) constitutes a major step towards the achievement of an effective national registration system and, concomitantly, a viable real estate market for foreign investors in the Russian Federation (“RF”). Prior to this law, foreign investors could not rely upon a formal system of state registration to protect their interests in real property.To remedy this problem, the Registration Law creates a system that, at least on paper, is comparable to Western registration systems in its consistency, accessibility and certainty. However, the Russian reform process has consistently shown that plans which appear sensible and practical on paper are not always achievable in practice. Thus, one must view the Registration Law, like all ambitious reform plans in Russia, with a skeptical and cautious eye. The Russian Federation should strive to create a registration system for rights in real property that is simple, consistent, accessible and certain. First, the rules and procedures should be as simple as possible in order to prevent the emergence of a cumbersome, rent-seeking bureaucracy that could accompany the creation of this new system. Second, these procedures should be administered in a consistent manner so that foreign and domestic real estate investors can plan the certain and expected steps they must take to gain security of title for their properties. Third, the registration system should be accessible and devoid of unnecessary secrecy in order to provide sufficient public notice of rights in real property. Such notice would serve to discourage competing claims to property that lack evidentiary support. Fourth, this system should provide a certainty of title enforced by the state so that investors in real property — whether from Russia or abroad — can be confident in the security of their investments. The creation of such a system would benefit foreign and domestic investors alike and provide a significant boost to the developing Russian market. In analyzing the Registration Law’s impact on foreign investors, this comment first discusses the U.S. title assurance system. This comment then lays out the features of a model title assurance system that would be appropriate for Russia. Next, this comment discusses the particular features of the Registration Law that will benefit foreign investors in Russian real estate. Finally, this comment highlights the provisions of the Law that may deter foreign investment in the Russian Federation.