Commercial real estate in Kazakhstan: overview for Practical Law (a Thomson Reuters legal solution)

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  • Resource type: Country Q&A
  • Status: Law stated as at 01-Dec-2014
  • Jurisdiction: Kazakhstan

A Q&A guide to corporate real estate law in the Kazakhstan.

The Q&A gives a high level overview of the corporate real estate market trends; real estate investment structures, including REITs; legislation; title and public registers of title; confidential information; state guarantee of title; tenure; sale of real estate; seller's liability; due diligence; warranties; cost; taxes and mitigation, including VAT and stamp duty/transfer tax; climate change targets; third party outsourcing; restrictions on foreign ownership or occupation; finance; leases; planning law and consents; and proposals for reform.

To compare answers across multiple jurisdictions, visit the Commercial Real Estate Country Q&A tool.

This Q&A is part of the multi-jurisdictional guide to corporate real estate law. For a full list of jurisdictional Q&As visit www.practicallaw.com/realestate-mjg.

Andrey Artyushenko, Gulnar Ospanova, and Andrey Reshetnikov, Artyushenko & Partners

The corporate real estate market

1. What have been the main trends in the real estate market in your jurisdiction over the last 12 months? What have been the most significant deals?

The real estate market in Kazakhstan is growing, mostly due to state programmes. A large amount of economy class buildings have already been built or are being constructed. Buildings older than 50 years in large city centres are also being gradually disposed of.

Residential buildings are being constructed (more in Astana than in Almaty). A number of large shopping malls in Almaty and Astana have been put in operation.

The oil and gas sector remains very active for foreign investors and for the government:

  • Modernisation of one of the largest oil refineries in Chimkent has started.
  • Aktay sea port has been extended.
  • Construction of the Kazakhstan-China gas pipeline continues.

Due to the EXPO 2017 event in Astana, construction of an exhibition centre covering 160 hectares has started. The main topic of the exhibition is renewable power generation. Several solar energy plants and wind power stations are planned.

Kazakhstan encourages the introduction of modern technology into construction, in particular renewable power generation. A new law has recently been adopted, setting out additional requirements for engineering and expertise. State programmes to improve the energy efficiency of older buildings also apply.

Construction of Kazakhstan's part of the inter-governmental West Europe-West China Highway project is to be completed in 2015.

The President has also recently announced big projects relating to, among others:

  • Government, tourist and energy infrastructure.
  • Housing for citizens.

The time frame is from five to 15 years. They will be funded by national stability funds and foreign investment.

Real estate investment

2. What structures do investors typically use for real estate investment in your jurisdiction and what are the main advantages and disadvantages of each (for example, flexibility and tax transparency)?

Direct acquisition of a real estate asset

A direct acquisition of real estate has the advantage of avoiding acquiring all the liabilities of a company owning real estate. However, an asset purchase generally incurs value added tax (VAT) at 12% of the asset value (see Question 20) and property tax (see Question 21).

Purchase of shares in a company owning real estate

The advantages of a share purchase include that:

  • The transaction may not be subject to VAT.
  • The transaction can be governed by English law and performed abroad.
  • However:
  • It is necessary to perform a full audit and due diligence of the target company (accounting audit and legal due diligence).
  • Some risks that were not found during due diligence might subsequently arise.

Real estate investment funds

The advantages of real estate investment funds include:

  • Mitigation of taxes payable (no property tax, no tax over the rented property, and mitigation of corporate taxes).
  • Possibility of creating closed-end funds.

However, Kazakhstan lacks a sufficient number of professional operators (management companies) and custodians who can create and operate such funds.

3. What are the main sources of finance and types of investors for real estate investment in your jurisdiction? Does your government encourage overseas investment into real estate in your jurisdiction, for example through real estate investment legislation?

Both internal financing by local banks and external financing are used in Kazakhstan.

In the last few years, the fight against money laundering has been reinforced in Kazakhstan. Therefore, some transactions must be registered in special registers. The National Bank is also introducing additional forms of control (for example, reporting procedures).

At the same time, the value of foreign investments is not decreasing. Many Turkish, Russian and Korean banks and investment funds are investing in private businesses in Kazakhstan.

Kazakhstan actively attracts investments from international financial institutions, such as the:

  • International Bank of Reconstruction and Development.
  • World Bank.
  • International Development Association.
  • Asian Development Bank.
  • Islamic Development Bank.

Restrictions on foreign ownership or occupation

4. Are there restrictions on foreign ownership or occupation of real estate (including foreign ownership of shares in companies holding real estate)? Are there restrictions on foreign guarantees or security for ownership or occupation and on lending for the purchase of real estate?

Only citizens of Kazakhstan can own land plots for the purpose of farm enterprises, private farming, afforestation, gardening, and rural construction.

Foreigners, foreign legal entities, and Kazakhstan legal entities, in which the authorised capital held by foreigners or foreign legal entities is more than 50%, can only own agricultural land temporarily under a lease for a term up to ten years.
Loans and money transfers as security by non-residents are subject to currency control rules. Such transactions made for more than 180 days (or for less than 180 days with a payback term or a performance period exceeding 180 days) must be registered with the National Bank. The National Bank must also be notified about payments by non-residents to Kazakhstan residents related to the acquisition of real estate.

Title to real estate

5. What constitutes real estate in your jurisdiction? Is land and any buildings on it (owned by the same entity) registered together in the same title, or do they have separate titles set out in different registers?

Real estate includes:

  • Land plots.
  • Buildings.
  • Premises.
  • Linear infrastructure (such as pipelines, electricity and communication cables, roads and railways).
  • Permanent plantations and other property firmly tied to the land, that is, it cannot be transferred without material damage to their intended use.
  • Sea vessels and spacecraft.

Rights to land and a right to any building constructed on it are registered under different titles, in one unified legal cadaster (see Question 7).

The following is not allowed (taking into account some legal disclaimers):

  • Disposal of a land ownership right (or a permanent or temporary right to land use), where the land has specified buildings and is designated for a certain operation, without also disposing of the buildings. Equally, disposal of the buildings without disposal of the land is not allowed.
  • Providing land for exploitation through a temporary land use right, where buildings on the land are allocated to another person, without the proper delivery of a temporary right to use the buildings on the land.

There are some exceptions, for example if ownership of a pipeline is not connected with the ownership right to the land on which it is installed.

6. How is title to real estate evidenced? What is the name of the public register of title and the authorities responsible for managing it? Is electronic access and electronic conveyancing available?

The owner is provided with the title registration documents and other documents confirming registration. The registration authority, after entering a record sheet on the title, creates an inscription on the title, and then issues the title documents to the owner with a mark confirming registration.

Kazakhstan has a legal cadaster, which is a unified state register of registered rights to real estate, including land plots.
Entries in the legal cadaster are completed for all property. The cadastral number identifies real estate parcels.
All state registration of rights to immovable property are recorded by the territorial bodies of justice in the legal cadaster information system. The Ministry of Justice (www.adilet.gov.kz) manages the unified information system of the legal cadaster.

As from May 2010, information on registered rights and charges to immovable property and its technical characteristics, and certificates on the absence or presence of immovable property, are issued only in electronic form, with a certified electronic digital signature of the registering body. This is done by the regional bodies of justice, through the population service centre and the web portal of electronic government (www.egov.kz). This electronic document is legally equivalent to the paper form. This public service is provided free of charge.

7. What are the main information and documents registered in the public register of title? Can confidential information or documents be protected from disclosure in the public register of title?

The legal cadaster contains the following information:

  • Existing and terminated titles to the real estate.
  • Identification characteristics of the real estate.
  • Details of titleholders.
  • Transactions subject to mandatory registration.
  • Encumbrances to the real estate such as leases, mortgages, pledges, easements, and court rulings.
  • Claims and contracts that form any title or encumbrance to the real estate.
  • Information requests from the legal cadaster.

Following the legislation reform in 2012 to 2014, public access to information in the legal cadaster became limited. Only the owner of the real estate, advocates, and authorised state bodies have access to information in the legal cadaster. Personal data of titleholders (except for identification data) is protected from disclosure.

8. Is there a state guarantee of title? Is the authority that manages the public register liable to pay compensation for any errors it makes in relation to title registration? Is title insurance available and is it commonly used?

Under the Civil Code, the right to property (title) is a recognised and protected legal right of a person, at his discretion, to possess, use and dispose of property belonging to him.

The Constitution stipulates that Kazakhstan must recognise and protect state and private property.

Guarantees of ownership are also enforced in the following ways to protect property rights:

  • Recognition of property rights.
  • Replevin lawsuit (action vindicatio): reclamation of property from illegal possession.
  • Negatory action lawsuit (action negatoria): elimination of violations of the owners' rights not connected with the depriving of possession.

If a person has suffered damage due to an error made by the registration authority on registration, this person is entitled to claim compensation from the registering body in court.

Title insurance is available in Kazakhstan but the insurance fee is very high (8% to 10% of the object cost).

9. How can real estate be held (that is, what types of tenure and other main ownership rights exist over land)?

The following types of rights over land exist:

  • Property right (there is no concept of freehold or leasehold in Kazakhstan).
  • Land use right (permanent or temporary, alienable or inalienable, acquired for a charge or free of charge).

Foreign persons cannot own the right of permanent land use (see Question 4).

Sale of real estate
Preliminary agreements

10. What types of preliminary agreements are typically used in the sale of real estate? Are they legally binding?

There are two types of preliminary agreements:

  • Preliminary contract.
  • Letter of intent (agreement of intentions).

A preliminary contract is executed in writing. It can specify the conditions and establish the subject matter and other essential terms of the basic contract (for example, the price). In a preliminary contract, the period in which the parties undertake to conclude the principal contract must be specified. If a party does not conclude the contract, it must compensate the other party for any losses caused.

A letter of intent does not constitute a contract under Kazakhstan civil law.

Sale contract

11. Briefly outline the typical main provisions of a corporate real estate sale contract and main real estate provisions of a typical share purchase agreement.

The typical main provisions of corporate real estate sale contracts are specified in the Civil Code as follows:

  • Subject of the contract: description of the real estate object.
  • Cost and payment procedure.
  • Terms of transfer of the real estate.
  • Rights and obligations of the parties.
  • Liability of the parties.
  • Warranties.

Transfer of the ownership of infrastructure objects such as a water supply system or gas pipelines is regulated by specific legislation.

Due diligence

12. What real estate due diligence is typically carried out before an acquisition and what key areas does it cover? Which documents are typically reviewed? Which specialist advisers are usually involved and which reports do they typically produce?

Legal due diligence typically consists of checking the following:

  • Ownership of the real estate: title documents, signatures, and registration in the state register.
  • Registration in the state register of any encumbrances or other ownership limitations.
  • The initial seller's ownership right: checking that the relevant deal complied with legislation when it was completed (for example, corporate issues, registration chains in the state register, and anti-trust permissions).
  • Sellers' corporate rights to sell.
  • Land use limitation in the state register (for example, easements).
  • Ensuring that the buyer can use the real estate according to its future aims.
  • The seller against tax and other blacklists, for example ensuring that the seller has not entered into liquidation or incurred tax debts.
  • If the seller has carried out construction or modernisation (reconstruction) works, that the initial approval and construction documentation is correct and has been properly obtained (for example, construction permissions, notifications, state expertise, approvals, entering into force, and initial rights to use the real estate).
  • Exploitation limits (for example, technical conditions imposed by the state and private companies on the use of public utilities).
  • Anti-trust permissions for any relevant deals (in some cases, these must be obtained in advance).
  • Construction due diligence is also carried out.
  • Accounting due diligence is also carried out, including checking:
  • Tax compliance by the owner.
  • Accounting books for the previous five years.
  • Tax reports for the previous five years.

Sellers' warranties

13. What real estate warranties are typically given by a seller to a buyer in the sale of corporate real estate and what areas do they cover? What are the main limitations on warranties, for example are they typically qualified by disclosure?

The seller typically guarantees that it will transfer the right of ownership to the real estate through its proper execution of the transfer of title, and typically includes a special section in the sale contract to cover this.

The seller usually guarantees that:

  • The real estate is not seized, pledged, mortgaged, or otherwise encumbered.
  • There are no claims or any disputes over the real estate.
  • There are no other limitations to the property, except as listed by the seller.
  • The real estate meets any applicable environmental and sanitary requirements.

The warranties of the seller may be limited by:

  • The statute of limitations (the general term is three years: this is the deadline to appeal to a court in Kazakhstan).
  • A qualification that the warranty is made so far as is known by the seller.

Liability

14. Does a seller have any statutory or other liability to the buyer in a disposal of real estate?

The law requires that the seller must disclose to the buyer complete information regarding the subject of the transaction and his rights to it. As confirmation, it must submit the:

  • Original of the title documents (for example, the sale contract, exchange, gift agreement, privatisation, or inheritance certificate), which must be registered at the registration authority.
  • Technical certificate for the premises.
  • Identification documents for the land plot.

The seller must inform the buyer of any encumbrances on the property (for example, debts due to municipal payments, pledges, leases, and easements).

The seller must also inform the buyer about the condition of the property and report all the known defects.

The seller is liable to the buyer for providing false information. For example, in case of a failure to notify the buyer about known defects in the property or the detection of latent defects the buyer, at its own choice, has the right to:

  • Demand their removal.
  • A proportionate reduction of the purchase price.
  • A cancellation of the contract and a refund of the amount paid.

The buyer can make claims for defects to residential real estate within two years from the date of the transfer.

15. Briefly outline the environmental legislation and potential liability for a buyer in a purchase of real estate. Is it common to carry out environmental surveys and searches and to obtain environmental insurance? How is environmental liability typically dealt with in the sale contract?

Environment legislation includes the:

  • Environment Code of 9 January 2007.
  • Land Code of 20 June 2003.
  • Forestry Code of 8 July 2003.
  • Water Code of 9 July 2003.
  • State laws regulating specific situations.

A polluter is liable for the following:

  • Elimination of or damage caused to natural resources.
  • Unauthorised and irrational use of natural resources.
  • Unauthorised or contamination above certain limits.

Compensation for the damage incurred is ordered to be paid by a court decision, in an amount equivalent to the economic evaluation of the damage.

Only an offender (person who actually caused the damage) can be liable.

If the real estate is bought through a purchase of the title, a buyer is only liable for the damage caused after his right to the property entered into force.

If the real estate was bought through the purchase of shares in a legal entity holding the real estate, the legal entity is liable for any damages caused at any time (taking into account the three year appeal term in Kazakhstan (see Question 13)).

Environmental surveys are usually only obtained relating to subsoil users operating in the oil and gas, energy, mining, and chemical industries, and in agriculture and transport.

16. Can an owner or occupier inherit liability for other matters relating to the real estate even if they occurred before it bought or occupied it? Can a seller or occupier retain any other liability relating to the real estate after it has disposed of it?

An owner or occupier does not generally bear any liability for matters occurring before the entering into possession or occupation of the premises. However, they should be able to prove that the matter that caused the liability occurred before they entered into ownership or occupation.

The seller or occupier retains liability for defects, even when he did not know about them.

Completion arrangements

17. What are the typical arrangements and main documents required for completion of the sale? When does title transfer and what are the formal legal requirements to execute the sale documents, transfer the real estate and register the change of title? Is notarisation required?

A real estate sale is made in a simple written form and is subject to mandatory state registration. It is deemed effective from the date of the state registration, which is the moment when the transfer of title occurs. The following documents are submitted for registration:

  • Application for state registration, using the state standard form.
  • Title documents proving the object of the registration, in particular:
    - sale contract;
    - court decision;
    - legal act of an executive body;
    - certificate of inheritance;
    - transfer act or separation balance sheet for the reorganisation of non-governmental legal entities; or
    - ownership of a land plot by right of ownership, or by a rented temporary land use right (lease).
  • Further title documents for a land plot, in particular the document creating the right of:
    - private property on land;
    - permanent use of land;
    - temporary paid for land use (lease); and
    - temporary unpaid land use.
  • Copy of any document certifying a representative identity.
  • A document confirming payment of the state fee for registration of rights to immovable property.

Legal persons should also submit the founding documents and extracts from meeting minutes of the founders (participants, board of directors, and shareholders) relating to the acquisition or disposal of the real estate.

Foreign legal entities must submit a legalised extract from the trade register or another legalised document confirming that the foreign legal entity is a legal entity under the laws of a foreign state, with a notarised translation into the Kazakh and Russian languages.

Notarisation of such transactions is not required. However, as a rule, the parties often decide to use the services of a notary, because it simplifies the registration of ownership based on a deal. The typical notary fee is US to US0.

If a deal is not notarised, the registration authority will check all participants in the transaction, because the registering body must check:

  • The authenticity of the parties' signature (or of their authorised representatives).
  • Their legal capacity.
  • The presence of necessary documents.
  • The absence of any encumbrances.
  • That they have given proper consent to the transaction.

Real estate tax

18. Is stamp duty/transfer tax (or equivalent) payable on the purchase of real estate? Who pays, what are the rates and are there any exemptions? Does it apply to the transfer of shares in a company holding real estate and at what rate?

There is no transfer tax or stamp duty payable on the purchase of real estate or shares in a company holding real estate.
A state registration fee of US to US0 is paid on registration.

19. Are any methods commonly used to mitigate real estate tax liability on acquisitions of large real estate portfolios? What is the general approach of the tax authorities in your jurisdiction to such schemes?

Real estate tax liability can be mitigated by purchasing the shares in a company that holds real estate. VAT can thereby be avoided in some cases.

20. Is value added tax (VAT) (or equivalent) payable on the sale or purchase of real estate? Who pays? What are the rates? Are there any exemptions?

VAT is payable on the sale or purchase of real estate, at a rate of 12% of the value of the real estate. The buyer must pay VAT to the seller if the seller is registered as a VAT payer, and to the state if the seller is not registered as a VAT payer.

21. Are municipal taxes paid on the occupation of business premises? Are there any exemptions?

There is no specific municipal tax on the occupation of business premises.

Property tax for corporate real estate is charged at 1.5% of the annual average book value of the real estate.

Land plots in populated areas are subject to land tax at a rate of KZT28.95 per square metre in Almaty, and KZT19.30 per square metre in Astana.

Climate change issues

22. Are there targets or incentives to reduce greenhouse gas emissions from buildings in your jurisdiction? Is there legislation requiring buildings to meet certain minimum energy efficiency criteria?

The Ecology Code imposes state measures for emissions reduction. These include:

  • Quotas for greenhouse gas emissions for subsoil users in the oil and gas, energy, mining, and chemical industries, and in agriculture and transport. They must be obtained where emissions of greenhouse gases exceed the equivalent of 20,000 tonnes of carbon dioxide per year.
  • Market mechanisms for reducing emissions and absorption of greenhouse gases.
  • Management of natural users. Natural users are legal entities engaged in activities related to greenhouse gases that do not exceed the equivalent of 20,000 tonnes of carbon dioxide per year in the oil and gas, energy, mining, chemical, agricultural, transport, and housing and utilities sectors.

Existing buildings are managed by state authorities through state programmes for the repair of residential buildings. The programmes impose conditions for improving the energy efficiency of multi-family residential buildings.

Conditions for new buildings are based on the new Law on energy saving and energy efficiency. Projects to construct new buildings that consume energy provide for the compulsory use of:

  • Energy-saving materials.
  • Metering devices for energy.
  • Automated systems to regulate heat consumption.

New multi-apartment houses must include:

  • Energy-saving materials.
  • Installation of house devices that account for thermal energy.
  • Door-to-door metering of electricity, cold and hot water, and gas.
  • Instruments to control heating systems.
  • Automatic heat consumption control systems.

The construction of energy consuming buildings without appropriate devices to account for energy resources and automatic heat consumption control systems is not allowed.

There are also the following rules approved by the government:

  • Resolution of 11 September 2012 1181 on establishing the requirements for energy performance of buildings, structures and their elements that are part of walling.
  • Resolution dated 13 September 2012 1192 on requirements for energy conservation and efficiency requirements before design and/or project (design estimate) buildings documentation and structures.

23. Are provisions relating to the energy efficiency of buildings commonly included in contracts for the sale of real estate or in leases (for example, green leases)?

Corporate real estate sale contracts and leases do not commonly include energy efficiency provisions.

Real estate finance
Secured lending involving real estate

24. Briefly outline the typical security package required by lenders in relation to real estate lending. How are the most common forms of security interest relating to real estate created and perfected (that is, made valid and enforceable)?

One of the most common forms of security in real estate finance (including land plots) is a pledge. There are the following types of pledge:

  • Mortgage (the pledged property remains in the possession and use of the pledgor or a third party).
  • Pawn (the pledged property passes from the pledgor to the pledge holder).
  • Pledge of a bank deposit (pledge of the right of the depositor under the bank deposit contract).

A mortgage is executed as a contract that must be registered with the registration body at the place where the mortgaged real estate is situated. There is no concept in Kazakhstan of a deed as provided for in English law.

Registration fees for the registration of ownership rights and pledge rights (mortgage) are:

  • For a non-residential property complex (building, structure, or construction), depending on the number of properties included: from ten to 25 monthly calculation indexes (around US2 to US6) per property.
  • For a multi-apartment residential building or non-residential premises in a residential building: eight monthly calculation indexes (around US).
  • For an apartment or detached house: 0.5 monthly calculation indexes (around US).

A number of individuals are exempt from registration fees (participants of the Great Patriotic War, disabled persons and so on).

Mortgage protection can be sought through:

  • The insurance of mortgage loans.
  • Borrower's liability insurance.
  • Insurance against the lender's financial risk.

The lender can quickly and accurately analyse the borrower's credit rating through credit bureaus. The lender can also track the financial behaviour of the borrower and take preventive measures to avoid the borrower's default.

25. What other real estate related measures do lenders typically take to protect themselves against default by the borrower?

The most reliable way to secure the loan is through a pledge. A secured creditor, in the case of non-performance by the borrower of the repayment obligation, can satisfy his claim from the proceeds of sale of the pledged property, before other creditors of the debtor.

Because security interests over real estate must be registered (see Question 24), the borrower cannot dispose of the real estate without removing such encumbrances. The debtor's other creditors can only claim against the pledged property after the secured debt has been repaid (though there are exceptions).

Local banks also use the following mechanisms when granting loans:

  • A co-borrower providing additional assets to secure the obligations of the main borrower.
  • Insurance of the pledged property and of the borrower's life (in some cases, at the bank's expense).
  • Additional guarantee from an individual or a company, who consents to assume liability if the borrower defaults.

26. Can lenders incur environmental liability? What measures do lenders typically take to manage potential environmental liability?

The Ecology Code imposes regulatory measures for emissions reduction (see Question 22). Lenders cannot incur environmental liability through just providing finance for projects (see Question 15).

27. Briefly outline the main remedies for lenders in relation to the secured real estate if the borrower defaults on the loan. What is the effect of the borrower's insolvency on the lender's remedies?

Common proceedings for lenders on the borrower's default are to enforce a mortgage (see Question 24):

  • Through court proceedings. The marshal of the court will sell the pledged property at a public auction, based on a court order.
  • Outside court proceedings, if stipulated in the mortgage agreement or a subsequent agreement of the parties. A trustee who is a legal person or a natural person with a power of attorney from the pledgee will sell the pledged property.

Appropriation by the creditor of the pledged property is possible if the auction sale is abandoned.

If the borrower is declared insolvent, the claims of secured creditors are satisfied after the following claims are paid:

  • Claims for damage to life and health.
  • Remuneration and other payments under labour contracts and tax claims.

28. Briefly outline key additional issues for lenders in relation to construction and development projects.

Getting local approvals (for design documentation, the right to construct, and so on) can take several months.

In central cities (Almaty and Astana) local authorities prefer to approve mixed-use commercial projects (with not only commercial buildings, but social uses like schools, children's play areas, and so on) instead of a single building construction.

In exchange for construction rights, a developer commonly provides public infrastructure (pump stations, linear energy conduits, city energy infrastructure, and so on). Afterwards, the ownership of these transfers to local state bodies free of charge.

A development company should make a preliminary plan for a project's legal basis. Some documents need to be developed and signed with the first purchase deals.

Other real estate financing techniques

29. Are other real estate finance techniques commonly used in your jurisdiction? For example, real estate securitisation and sale and leasebacks.

Other real estate finance techniques are not commonly used.

Real estate leases
Negotiation and execution of leases

30. Are contractual lease provisions regulated or freely negotiable? Which legislation applies?

Provisions of leases can generally be freely negotiated between the parties. However, some restrictions may apply when state-owned property is leased. Some terms of leases are mandatory and regulated in local law:

  • Lease registration with the relevant authorities, if the lease term is more than one year.
  • Free of charge leases are not admissible according to Kazakh law.
  • A tenant's right to extend the lease on preferential terms.
  • Mandatory rights to terminate a lease, for a landlord or a tenant.
  • Real estate transfer and acceptance between the parties (by separate act), and so on.

The following legislation applies to leases:

  • Civil Code (special part) dated 1 July 1999.
  • Land Code dated 20 June 2003, 442-II.
  • Law on state registration of rights to real estate dated 26 July 2007, 310-III.
  • Other special legislation in respect of state-owned real estate.

31. What are the formal legal requirements to execute a lease? Does the lease have to be executed by certain parties or as a deed? How do the formalities differ for a company, partnership and for individuals?

Real estate leases should be in written form and executed as a contract. There is no concept in Kazakhstan of a deed as provided for in English law.

Leases must be executed by and contain details of the landlord and the tenant.

Formalities are the same for individuals and companies (equal to partnership and joint stock companies). For companies there may be internal approvals necessary to execute the transaction.

The following formalities may be necessary in some cases:

  • Internal approval of landlord's shareholders.
  • Consent of a mortgagor if the property is mortgaged.
  • State registration if the term of the lease exceeds one year.
  • Corporate approval by the landlord's shareholders of a large transaction.

Rent payments

32. How are rent levels usually reviewed and are there restrictions on this? Is stamp duty and VAT (or equivalent) payable on rent? Is a rent security deposit required and does it have to be managed in a certain way?

As a general rule the rent payment can only be changed once a year. However, parties can agree their own periods for rent review. Parties can also make the rent payable at a floating rate, based on the tenant's revenue.

The rent amount can be revised at the request of one of the parties by reference to changes to prices and tariffs, which are set centrally.

VAT is payable on rent. The amount of the VAT is 12% of the rent amount.

Rent security deposit terms are free to negotiate between parties. In local practice, it is generally two months' to 12 months' rent).

Length of term and security of occupation

33. Is there a typical length of lease term and are there restrictions on it? Do tenants of business premises have security of occupation or rights to renew the lease at the end of the contractual lease term?

A lease of business premises is generally concluded for a term of at least 11 months. Legislation does not generally restrict the term of a lease. However, land plots can only be leased by the state for a term up to 49 years.

When the lease is terminated, parties may continue to be bound by the lease agreement on the same conditions for an indefinite term. However, parties have a right to terminate such relations at any time, provided that a notice period of at least three months is given. Leases can specify other grounds for termination.

If the term of a lease exceeds 12 months, the lease must be registered with the local authorities.

On termination of the lease, parties can agree a pre-emptive right of the tenant to conclude a lease for a new term. The tenant must give written notice to the landlord within the period indicated in the lease. The new lease can be concluded on different terms.

If the landlord no longer wants to lease the property, he can refuse to do so, even to a tenant with a pre-emptive right. However, if the landlord concludes a new lease with another party, the tenant can claim the assignment of the lease to him and compensation for any damage, or just claim compensation.

Disposal

34. What restrictions typically apply to the disposal of the lease by the tenant? Can the tenant assign or sublet the lease with the landlord's consent? Can tenants share their premises with companies in the same group? What is the effect of a legal reorganisation or transfer/sale of the tenant on the lease and on a guarantee of the lease?

The tenant can only dispose of the lease with the landlord's consent, in the following ways:

  • Sublet the rented property.
  • Assign the lease.
  • Provide rented property for free use.
  • Pledge the leasehold right.
  • Contribute the lease rights to the authorised capital of a company.

The tenant remains liable to the landlord, except that if the lease is assigned, liability passes to a new tenant.

A sublease or other agreement to transfer the leased premises cannot be concluded for a term exceeding the main lease.
Subletting depends on the headlease. Earlier termination of the headlease results in termination of the sublease, and invalidity of the headlease leads to invalidity of the sublease. A change of the tenant, sale or mortgage of the leased property will not affect the sublease.

Companies can share premises with companies in the same corporate group. It is arranged through sublease contracts with the prior consent of the landlord (if not already provided for in the lease). Such agreements are usually made on the same terms.

35. Does a landlord or tenant retain any liability under the lease after the lease is assigned?

In an assignment of a lease, all rights and obligations of the tenant are transferred to the assignee. Liability under the lease passes to a new tenant.

Repair and insurance

36. Who is usually responsible for keeping the leased premises in good repair and for insuring the leased premises? Are there provisions for the ownership of lease improvements?

Routine operative repairs are usually done by the tenant. Capital major repairs are carried out by the landlord. All separable improvements remain in the tenant's domain. Non-separable improvements are the landlord's concern. Non-separable improvements must be made with the landlord's prior consent, otherwise the tenant will not have the right to compensation for the costs of such improvements.

Responsibility for leased premises insurance is usually negotiated between the parties.

Landlord's remedies and termination

37. What remedies are available to a landlord for a breach of the lease by the tenant? On what grounds can the landlord usually terminate the lease and what restrictions and procedures apply? What is the effect of the tenant's insolvency under general contract terms and insolvency legislation?

If the terms of the lease are breached by the tenant the landlord usually seeks compensation for damage caused and/or termination of the lease. Damages include real damages and loss of income. Loss of income is difficult to justify and to obtain. The lease often provides penalties for violation of its terms, for example for delayed rent payment by the tenant.

On the landlord's demand, the lease can be terminated in the following cases:

  • If a tenant uses the property in substantial violation of the lease terms or purpose of the property.
  • If the tenant intentionally or negligently substantially damages the property.
  • If the tenant does not make timely payment of rent for use of the property more than two consecutive times.
  • If the tenant does not carry out a major repair of the property within the lease terms, if the tenant is obliged to carry out the repair under the lease or statutory provisions.

The landlord can only demand early termination of the lease after the tenant has been given the possibility to fulfil its obligations within a reasonable time.

The lease terminates on liquidation of the tenant, although there is no statutory requirement for the earlier termination of the lease on the basis of the tenant's insolvency. The landlord can be protected by putting into the lease a right to terminate the lease early if the tenant delays rent payments due to insolvency.

38. Can the tenant withhold rent payments in certain circumstances, for example for serious damage to the leased premises? Can the tenant terminate the lease in certain circumstances?

The tenant has a right to terminate the lease in the following situations:

  • The landlord does not transfer the property to the tenant or creates obstacles to the use of the property according to its intended use.
  • The landlord does not perform capital repairs to the property, in terms specified in the lease or in reasonable terms.
  • The property has defects preventing its use that were not mentioned by the landlord, which were previously unknown to the tenant and not found by the tenant during the inspection or verification of the property.
  •  The property is unfit for use, due to a circumstance for which the tenant is not responsible.

There are no statutory provisions regulating cases when the tenant can withhold rent payments. The parties may agree on the right of the tenant to do so when the landlord is in breach of the lease, or when the property was seriously damaged and became unfit for further use due to circumstances beyond the tenant's control.

Planning and development controls

39. In what circumstances can local or state authorities purchase business premises compulsorily? Is the purchase price market value?

Land can be forcibly sold for state needs in exceptional cases when it is otherwise impossible to satisfy these needs, provided that fair compensation is paid to the owner with the owner's consent or by a court decision.

The list of cases is exhaustive, for example relating to:

  • Defence and national security.
  • Discovery and development of mineral deposits.
  • Construction or reconstruction of roads and railways.

The owner has the right to initiate conciliation, in relation to a contract for the compulsory purchase of land for state needs that specifies the size, form of payment and terms of reimbursement for the land.

The owner's initial acquisition cost of the purchased land (excluding losses) is included in the compensation paid by the state to the owner. The compensation value for a land plot with a residential house on it is calculated by adding the owner's acquisition cost of the land and of the house, up to a maximum of their market value.

The amount of compensation paid for land acquired by an owner through legal action or a court order is the value specified in the relevant contract or the court decision, but not exceeding the land's market value. If the price of the land is not specified, the value of the land is determined according to the cadastral cost.

The market value of the land or other immovable property compulsorily purchased is determined by an independent appraiser. The state has a right to dispute the valuation.

On agreement with the landowner, another land plot can be granted to the landowner in exchange for the land that is compulsorily purchased. The other land plot will have the same value as the cadastral value of the purchased land.
If the owner disputes the compulsory purchase, or fails to agree on the amount of compensation, the local executive authority can apply to court to enforce the purchase.

40. What authorities regulate planning control and which legislation applies? Is there specific protection for special categories of buildings such as historic buildings?

The following authorities regulate planning control:

  • The government.
  • The authorised state body for architecture, urban areas and construction.
  • Specially authorised state bodies for environmental protection, such as for the management of land resources, forestry, and protected areas.
  • Local self-government bodies (representative and executive bodies).

The following legislation regulates planning control in Kazakhstan:

  • The Land Code 442-II of 20 June 2003.
  • The Law on Architectural, City Planning and Construction Activity 242-II, dated 16 July 2001.

Historic and cultural monuments are subject to mandatory protection and conservation, and have a special legal regime for their use, changes in ownership, and deprivation of their status. The owner has a right to possess, use, and dispose of historic and cultural monuments, but cannot destroy them. Owners of historic and cultural monuments must notify local executive bodies of any changes of ownership rights.

If the owner carries out harmful management of historic and cultural monuments that threatens their significance, they will be taken by the state through a court order from the owner, through foreclosure or sold at public auction. In a public sale of historic and cultural monuments, the state has a priority right of purchase at the market (auction) price.

41. What planning consents are required for building works and the use of a building?

An investor wanting to construct a facility must obtain approval granting the respective land right from the local executive bodies of the relevant districts or cities.

Utility and engineering service providers provide technical conditions for connection of the facility to utility and public supply sources.

If the local executive bodies grant approval, they will:

  • Approve the job design.
  • Provide technical conditions for connection to engineering and utility services and other source materials (data).
  • Issue an architectural and design requirement specification to the investor. Developed in accordance with the design task, the architectural and design requirement specification and other initial materials design (design budget) documentation must be issued, according to the normative standards in the state documents.

To carry out any construction or design development works, the person carrying out the works must obtain a licence for construction and assembling works or design development works.

Before the start of construction and assembly work, the project owner must notify the bodies exercising state architectural/building control at least ten working days in advance about the start of the construction and installation works, in accordance with copies of the approvals.

The construction process must be accompanied by architectural building control and supervision. A completed site is subject to the acceptance procedure (see Question 43).

For real estate use, it is important to use it in accordance with the real estate category for the land and its registered intended use. It is prohibited to:

  • Construct an office building on land, where the category and use is residential building construction.
  • Operate an office in a residential building.

42. What are the main authorisation and consultation procedures in relation to planning consents?

Initial consents

The following time limits for the relevant state bodies to issue approvals apply:

  • Real estate category change for land: 30 days.
  • Registered intended change of use: 30 days.
  • Granting the respective right to the land: 60 to 120 days.
  • Issuing technical conditions for connection to utility and public supply sources: 30 to 90 days.
  • Issuing the architectural and design requirement specification: 30 days.
  • Co-ordination and approval of the design documentation: 30 to 90 days.
  • Issuing a licence for construction and assembling works or design development works: 15 days.

The time required to obtain required sets of document is excluded from the above time limits.

The state-established time limits can be permanently suspended by the authorities. The real time for finalising these issues could be twice the time stated above.

Third party rights and appeals

Third parties generally cannot object to the issue of such approvals except for obligatory prior consents to the alteration of the premises by neighbours in the same residential building. In addition, public opinion is taken into consideration in the process of environmental authorisations.

Reform

43. Are there proposals to reform real estate law and are they likely to come into force and, if so, when?

There are proposals to reform the planning approval process for construction projects. In particular:

  • Introducing personal liability of the contractor, engineering supervision, and site supervision bodies for accepting constructed buildings. This will produce effective compliance and other reports confirming that a building has been built according to the planning documentation.
  • Abolishing the state acceptance procedure. Currently, the state acceptance commission issues an acceptance signed by all members of the commission. This procedure has become a mere formality, with no-one directly liable if the property is defective. The authorities approving the building are often not involved in the construction process, and often only inspect the site once at the approval stage.
  • Simplifying the process for getting state approval to start a construction project.

A draft new law is passing through parliament but it is difficult to say when it will be adopted.


Online resources
Kazakhstan Ministry of Justice legal information system (Adilet)
W http://adilet.zan.kz/eng
Description. This is a Ministry of Justice project, free of charge. It includes all state legislation, but is not updated quickly.

Contributor profiles

Andrey Artyushenko, Managing Partner
Artyushenko & Partners legal consulting company

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Professional qualifications. Kazakhstan, Bachelor of Law, 2001. More than 14 years' experience as a lawyer in real estate development, construction and FIDIC in Kazakhstan and CIS countries.

Areas of practice. Construction law (EPC, FIDIC); contract law; real estate law; investment law; licensing; corporate law.
Non-professional qualifications. Real Estate Development General Manger course in Saint Petersburg, Russian school of management, 2014.

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Professional associations/memberships. Kazakhstan Bar Association; ABA; IBA; ICES; Society of construction law.

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Gulnar Ospanova, Partner
Artyushenko & Partners legal consulting company

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Professional qualifications. More than 31 years' experience as a lawyer.

Areas of practice. Litigation; real estate; civil law; commercial law; corporate law; bankruptcy; marine law; commercial disputes on major investment projects with foreign investors in the banking, energy, machinery building, and non-ferrous metals sectors, concerning anti-trust, land, customs, tax, environmental, and bankruptcy and privatisation laws.

Recent transactions

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Languages. Russian

Professional associations/memberships. Certified arbitrator of Kazakhstan International Arbitration, the International Court of Arbitration, the Arbitration Court of the Kazakhstan's Chamber of Commerce, the International Commercial Arbitration Court (ICAC) of the Eurasian Mediation Center.

Publications

  • The practice of litigation in Kazakhstan.
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  • Case: participation of owners of non-residential premises in a residential building in sharing costs for maintaining the joint property of the condominium.
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Andrey Reshetnikov, Lawyer
Artyushenko & Partners legal consulting company

T +7 727 3281789
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Professional qualifications. Kazakhstan, Bachelor of Law, 2010; France, Master Degree in Theory and Practice of Human Rights, 2013

Areas of practice. Real estate; litigation.

Recent transactions

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Languages. Russian, English, French

Publications

  • Unconditional bank guarantees issued under Kazakhstan law: practical difficulties of which foreign creditors should be aware, 2013 (co-authored).
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