City Hall is scrambling to overturn a ruling by the Moscow Arbitration Court that could change the face of the capital's real estate market and free scores of companies from stifling red tape by letting them own their own land. Prompted by soaring rental fees, Mostranskomplekt, a storage and vehicle parts company, asked City Hall more than two years ago to sell it the 13.8 hectares of city-owned property that it currently leases together with a sister company, Mostransklad. But Moscow said no, so in August Mostranskomplekt took the city to court. And last month the court, in a precedent-setting decision, ruled in the plaintiffs' favor, ordering the city to sell the land at the bargain price of $300,000. City Hall last week appealed the decision, but legal experts say it is just a matter of time before Mostranskomplekt prevails, opening the door for hundreds of other companies to do the same.
"I don't know what they're thinking. [Moscow Mayor Yury] Luzhkov thinks he's above the law and above [President Vladimir] Putin," Mostranskomplekt general director Yury Koryagin said Monday. Under the Land Code, the price of a plot of land is equal to the annual land tax multiplied first by any figure from 5 to 30 (depending on local legislation) and then again by a coefficient of 0.7 to 1.3. The law is designed to encourage local governments to enact their own legislation, which is required to sell and buy land, because if local governments, like Moscow's, do not, they must sell their land at the minimum price of five times the annual property tax rate. Luzhkov has said in the past that the capital's rates will equal 30 times the land tax, the maximum allowed by federal law. "Luzhkov wants the rate to be higher," said Koryagin, "but we took advantage of the [legal vacuum]." A City Hall resolution that came into effect last month has already raised rent prices for some businesses this year by between 100 and 500 times, Vedomosti reported. City Hall's Feb. 3 appeal temporarily freezes the court's ruling, and even though the case looks likely to go in Mostranskomplekt's favor, Koryagin sees problems ahead. "Even if we win the case, things aren't going to be smooth. The city uses rent to put pressure on businesses," Koryagin said, adding that a victory would only make that pressure grow. City Hall's land committee, which filed the appeal, declined to comment. Konstantine Kouzine, a real estate specialist for law firm Linklaters, said Mostranskomplekt's case looks strong. "The city does not have a lot of influence on the arbitration court," he said, adding that the case could be the one that breaks the dam. "I've been telling my clients to wait until this happens, let someone else clear the road before they try to buy land," he said. City Hall, at least officially, supports land sales, but has in reality kept the process from taking off because privatizing land is not in the city's interests. "The city makes more money selling 49-year leases and collecting rent than it could by selling land in accordance with federal law," Kouzine said. "The city would also lose control of the land." Many companies say they will not bother suing the city simply because it has other forms of leverage it can use outside of the court system to keep organizations from purchasing land. "Unfortunately, even if you win a court case, you still remain in the city and have to operate here," Kouzine said. "For example, the city could either refuse or delay an organization a building permit to use its land." Nevertheless, Moscow is preparing its own legislation to comply with federal law. According to City Duma Deputy Ivan Novitsky, lawmakers next week will vote in the third and final reading on a law regulating land sales. But it remains unclear when it will come into force once passed, and until then the capital's land market will remain a monopoly. "The city is currently delaying the development of the land market and concentrating price control in one pair of hands," Kouzine said.