Promised Land: SEZ residents allowed to pledge rights to plots of land
Residents of special economic zones will be permitted to pledge rights to land plots. This concerns territories owned by the State. The new norm will allow residents to attract additional financing for investment projects. The mechanism is able to ensure transparency of the procedure, but it needs to be finalized to avoid possible abuses, experts believe. What sectors of the economy will benefit from the innovation - in the material "Izvestia".
New order
The bill, expanding the rights of tenants of special economic zones (SEZ), in the final reading passed the State Duma. The document was initiated by the Government.
Now, according to the law, SEZ residents cannot pledge lease rights to plots owned by the state. The new norm provides them with such an opportunity.
"The removal of these restrictions will allow SEZ residents to attract additional amounts of external debt financing, including preferential, from Russian credit organizations and development institutions for the implementation of investment projects significant for regional development", - is noted in the explanatory note to the document.
The procedure for transferring a plot of land for lease is determined by the Russian government. However, restrictions are also established by the new law. For example, it regulates the procedure of actions in case of foreclosure on the pledged lease right. In this case, it can only be acquired by another SEZ resident or a management company.
If the pledged lease right has not been realized within a year from the moment of foreclosure, it shall be purchased by the management company of the SEZ within the boundaries of which the plot is located.
The law will come into force 180 days after the day of its official publication.
Taking care of business
Sean Betrozov, a practicing lawyer of the Moscow Chamber of Lawyers and a member of the Russian Bar Association, believes that themain purpose of this norm is to create a flexible and modern mechanism to support business.
- In conditions of high competition for investments both inside and outside the country, the availability of accessible financial instruments plays a key role. The change in the law was a response to the demand of business, which needs additional opportunities to scale up projects and attract resources on favorable terms," the expert explains.
Previously, SEZ residents could use the land as collateral only after it had been repurchased, recalls Nikita Chaplin, a member of the State Duma Committee on Budget and Taxes. However, the legislation allowed to buy out plots of land only after fulfillment of all conditions of the agreement on carrying out activities in the zone.
- This meant that companies could mortgage plots when the main stage of investment had already been completed," the parliamentarian explains.
And the need for financing is most acute at the construction stage, when the main expenses have already been invested but the project has not yet been completed, points out David Adams, General Director of the AID professional legal group, lawyer.
- The new norm allows residents to attract borrowed funds on the security of lease rights, which reduces the financial burden and increases the speed of realization of investment projects, - he believes.
Thanks to it, Russian banks and development institutions, according to Chaplin, will be able to provide SEZ residents with loans secured by such lands, since the lease rights are formalized and protected.
The implementation of the law will not only improve the business environment, but will also contribute to the development of regions where SEZs are located by increasing jobs and tax revenues, Betrozov is convinced.
Clear mechanism
The procedure for leasing land and pledging lease rights provides for a high degree of transparency and coordination between all parties to the transaction, believes Betrozov. First, the SEZ resident enters into a lease agreement with the state, which necessarily specifies the conditions that allow for the transfer of rights as a pledge. This agreement becomes the basis for further actions.
The next step is to agree on the terms of the pledge between the resident and the financial organization.
- Here it is important that all provisions comply with the law and protect the interests of both the creditor and the state. The transaction must be registered with the authorities that keep records of state property in order to exclude possible abuses," says the lawyer.
In case of successful fulfillment of obligations, the resident retains its rights to lease the plot, and the lien is removed, he specifies.
The innovation is accompanied by strict control mechanisms, Nikita Chaplin points out. This procedure excludes the possibility of transferring land into the hands of third parties, which are not related to the development of SEZ, and ensures the preservation of land plots within their intended use.
At the same time, lease rights can be pledged only to Russian legal entities, David Adams adds.
Another key restriction concerns the intended use of land. The funds received may be used only for the implementation of projects specified in the lease agreement. Any deviation from this purpose may lead to the annulment of the agreement, draws attention to Sean Betrozov.
These changes, according to Nikita Chaplin, create more favorable conditions for business, allowing companies to launch projects faster and use financial instruments more effectively.
- This approach has already shown its effectiveness in the Arctic zone, where a similar model has been in place since 2021. Now it has been applied to SEZs, which makes them more attractive to investors and strengthens the role of such zones as points of economic growth," the MP said.
With malicious intent
The established procedure minimizes the risks of abuse due to strict rules of foreclosure of lease rights, but there may be situations when lenders may try to use loopholes in the legislation to circumvent the established restrictions, does not exclude David Adams.
- For example, if an SEZ resident defaults, the bank may find it difficult to enforce the rights, which temporarily blocks the use of the land. To prevent such cases, clear regulation at the level of bylaws will be required," the lawyer believes.
Another risk is the possibility of misuse of funds received as collateral, adds Sean Betrozov.
- Although the law obliges these funds to be used for project implementation, cases of circumvention of these requirements may arise, especially if control by the governing bodies is not strict enough," says the expert.
Another risk is related to the possible monopolization of land resources by financial organizations. If a resident fails to fulfill its obligations, creditors will be given the right to manage lease rights, which may lead to concentration of resources in the hands of a limited number of players, the lawyer warns.
- The risk of corruption is also worth considering. The process of approving transactions with management bodies can become a source of abuse if transparent procedures and control mechanisms are not put in place. These risks require constant monitoring and improvement of legislation," Betrozov is convinced.
Economy on the plus side
Nevertheless, the adopted changes open up significant prospects for many sectors of the economy, believes Sean Betrozov. Capital-intensive areas, for which access to additional financing is vital, will be the first to benefit.
- The main beneficiary of the innovations will be industrial production. The ability to borrow against the security of lease rights will allow plants and factories to invest in equipment modernization, process automation and increased production capacity. This will ensure the competitiveness of Russian products on world markets," the expert believes.
Logistics and transportation will also feel a significant effect. In particular, financing for the construction of warehouse complexes, transportation hubs and infrastructure will become more accessible, Betrozov points out.
- This is especially relevant in regions with high economic activity. The creation of a powerful logistics network will strengthen trade ties and accelerate trade turnover," he believes.
In addition, innovative technologies will receive a significant impetus for development. Companies engaged in IT developments, biotechnology or artificial intelligence will be able to invest in scientific research, attract highly qualified specialists and implement new solutions. This will turn SEZs into centers of technological innovation, the lawyer emphasizes.
- The agro-industrial complex also benefits from the reform. Investments in modern land cultivation technologies, construction of greenhouses and processing complexes will help increase production and ensure food security," he is convinced.
In other words, the adopted law improves working conditions for SEZ residents and opens access to borrowed funds at the stage when they are most needed, says David Adams. The new norm strengthens the investment attractiveness of such zones, while maintaining control over land use.
- These changes will make economic zones a more effective tool for stimulating regional development and attracting new players in the field of entrepreneurship," summarizes the expert.
