According to the Art. 147 of the Civil Code of the Republic of Kazakhstan (hereinafter referred to as “Civil Code”): “the actions of citizens and legal entities which are aimed at establishing, changing or terminating civil rights and obligations, shall be recognized as transactions”.
Immovable property (Art. 117 of the Civil Code) includes the following: land plots, buildings, structures, perennial plantations, and other property, which is firmly associated with their physical location, i.e. entities for which the move without infliction of disproportionate damage to their designation is impossible. Flats and other residential premises as well as uninhabited premises being part of the condominium are considered as independent objects (types) of the real estate if they are in the individual (separate) ownership.
Following deals could be identified as the most widespread transactions with the real estate in the Republic of Kazakhstan: sale and purchase, donation and lease. The Chapters 25, 27 and 29 of the Civil Code regulate such transactions.
It is necessary to point out that:
- a transaction, the contents of which do not comply with the requirements of legislation of the Republic of Kazakhstan shall be invalid (Art. 158 (1) of the Civil Code);
- as it follows from the customs of business practice transactions with the real estate shall be concluded in writing (Subparagraph 1 Para. 1 Art. 152 of the Civil Code). In certain cases they may be notarized (Art. 21 (4) of the Law of the Republic of Kazakhstan On the State Registration of Rights to the Real Estate) and subject to the state registration (Art. 118 of the Civil Code) following the procedure established by the Law of the Republic of Kazakhstan On the State Registration of Rights to the Real Estate;
- Art. 157 of the Civil Code establishes a list of the grounds of invalidity of transaction regardless of its subject;
- A fictitious transaction is one which is entered into only for the sake of appearances, without intentions to cause any legal consequences shall be invalid (Art. 160 of the Civil Code);
- Some transactions with the real estate assume preliminary obtaining of the written consent of the antimonopoly body of the Republic of Kazakhstan (Art. 21 (3-1) of the Law of the Republic of Kazakhstan On the State Registration of the Rights to the Real Estate).
There is an unlawful practice in Kazakhstan to sale the real estate property several times by the same seller to different buyers. Not even the proprietor himself may do such sale. There is a range of existing examples when after some time it becomes clear that the lessee falsifying the documents has sold the apartment.
Recent story in Almaty, when a woman sold the apartment to four different buyers in a day, serves as illustrative example of taking the decision in a hurry.
Based on the practice prior to the entrance to the agreement we recommend to:
- assure that the object of the real estate is not encumbered by the rights of third persons (registered as well as unregistered);
- objectively understand who is the seller as well as to understand if he is the proprietor of this object of the real estate (or has all necessary power to execute the deal);
- to do a detailed Legal Due Diligence (possibly by own efforts) of the whole transaction prior to its execution;
- not to be in a hurry prior to enter to an agreement.
Powers of the representative should be fixed in the text of effective power of attorney.
If a buyer is a legal entity it is necessary to check the charter and other existing corporate documentation of the company to the extent of availability of the additional restrictive measures defined by the founders of the company, board of directors of the company or executive body of the company. Such restrictions may be defined according to the civil legislation of the Republic of Kazakhstan.
Whilst accompanying one of the agreements on the sale of a building in Almaty the buyer was a legal entity and the seller was an individual. The buyer had very complex and overregulated corporate procedure of obtaining of the consent of the founders to execute such agreements and of the whole process of their accomplishment. It was necessary to make several decisions of the general meetings of the founders, decision of the board of director for the seller to be cleared from the risk of the agreement to be cancelled.
According the articles 4, 5 of the Law of the Republic of Kazakhstan On the State Registration of the Rights to the Real Estate (hereinafter referred to as “the Law”) following rights, transactions and encumbrances with respect to the real estate (including their appearance, alteration and termination) are subject to the registration:
- Ownership right
- Right of economic management;
- Right of operational management;
- Land use right for a term no less than one year;
- Easement for the benefit of the principal land plot or other object of the real estate for a term no less than one year;
- Right of use for a term no less than one year including the lease, free use, easements, right to lifetime maintenance and dependence;
- Right of trust management, including custodianship, trusteeship, heritage relations, bankruptcy and other;
- Limitations (prohibitions) on the use, disposal of the real estate or to execute a defined work laid by the state bodies within the scope of their competence;
- Other encumbrances to the real estate provided by the laws of the Republic of Kazakhstan with the exception of primary interests.
Whole information on the registered transaction, rights and encumbrances to the real estate is contained in the unified legal cadaster (Chapter 2 of the Law).
Therefore, whilst obtaining the information from the legal cadaster it may be possible to be assured in the absence or existence of the rights and encumbrances with respect to a particular object of the real estate.
According to the Art. 17 of the Law information on the registered rights to the real estate may be provided not to any person. Information on a particular object of the real estate and summarized data on the rights of an individual or legal entity on the objects of real estate as well as copies of the documents on the disposal of a property verified by the registering entity are issued on the request of the right holder (authorized representative) as well as on the motivated requests of the:
- Law enforcement, judicial bodies on the criminal, civil and administrative matters according to their competence defined by the legislation of the Republic of Kazakhstan;
- Judicial enforcement agents on the enforcement documents according to their competence defined according the legislation of the Republic of Kazakhstan;
- Bodies of the state revenues and other state bodies according to their competence defined by the legislation of the Republic of Kazakhstan;
- Notaries, successors;
- Temporary, bankruptcy and rehabilitation managers in the scopes of the procedures of rehabilitation and bankruptcy, liquidation commission (liquidator) of the legal entity being forcefully liquidated;
- Bodies of trusteeship and guardianship;
- Other persons with the consent of the right holder.
More detailed procedure on the provision information from the legal cadaster is defined by the Order of the Minister of Justice of the Republic of Kazakhstan №131 of March 28, 2012 On the adoption of the Rules of the provision of information from the legal cadaster (hereinafter referred to as “the Order”). This Order defines following particularities:
- Provision of information about the state registration of the rights to the real estate from the legal cadaster is made free of charge (paras 3, 18 of the Order);
- Data concerning information about the citizens (personal data) and other right holders excluding date identifying the right holder (surname, name, patronymic and the date of birth of an individual, name and registration number of the legal entity) are not provided (para. 5 of the Order);
- Registering body on the basis of written request of the applicant provide information no later than three working days from the date of the application of the request on obtaining of the information (para. 9 of the Order). If the application is forwarded with the use of electronic signature information from the State Data Base “Registrar of the Real Estate” in the electronic way is provided during 20 minutes from the moment of application (para. 15 of the Order);
- In the certificate of the registered and ceased rights to the real estate information on all individuals or legal entities is mentioned (paragraph 10(2) of the Order);
- Information from the State Data Base “Registrar of the Real Estate” provided as electronic document is deemed as official and equals to the information provided by the registering body (para. 19 of the Order);
- Registering entity denies to provide the information in the following cases: when inappropriate body addressed; when the package of documents is not full; when the documents are not formalized in a proper manner (para. 20 of the Order).
We will consider separately the Legal Due Diligence of the transactions with the real estate. It is not important of what agreement we are talking about (sale and purchase, lease or something else). We recommend to consciously approach the question of the Legal Due Diligence since it is important to gather, analyze and take into account a lot of information which at first sight may be deemed as minor even for the notary. Such information about the object of analysis may be gathered at the object itself. Object of the Legal Due Diligence may be a person – enterprise which may provide an input data. It is possible to obtain information from the proprietor of an object. Internet and printed sources may be used additionally.
We recommend to analyze this information: questions related to the property, title, administrative aspects, for instance, availability of permits to carry out special types of activities – licenses, patents etc. Special consideration should be provided to the obligation related to the object. It is not improbable that certain political and constitutional questions might arise with respect to the large objects of the real estate as well as other questions defining the character of risks related to the acquisition of the object.
In the usual sense a notary do not do a Legal Due Diligence, notary revise the documents as prescribed by the legislation of the Republic of Kazakhstan and sometimes authenticate such transactions.
Based on the results of the Legal Due Diligence a conclusion may be drawn upon the necessity to enter into a transaction and at what price.
Whilst doing a Due Diligence of the transaction for the acquisition of a land plot in Almaty our company has discovered that the seller of the previous owner concealed from the previous owner an obligation which he had taken when acquiring of this object from the state agency. This obligation was in the purchase and sale agreement but was not registered appropriately because in that time such encumbrance was not subject to any registration.
Unregistered encumbrance discovered by us may be restored which was a risk for a new buyer. Such risk led to the possibility of the deprivation of a new buyer from the property purchased through judicial process. This transaction was aborted.
The Legal Due Diligence costa will be compensated by the minimization of risks in the future or may help to take the adverse decision and not to participate in the real estate deal.
“Artyushenko and Partners”
Published in the magazine “Accountant and the Law” №2 (104), February 2015
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