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Alexander Rassudov: ‘One should remember about restrictions!’

An apartment hotel is a premium and very popular concept of residential construction. Developers started to implement this new concept from the suburbs. Crystal apartment building in Repino and Landskrona House in Zelenogorsk were commissioned. Having countered the claims, Pioneer Group resumed the construction of Komarovsky Bereg housing complex. Alexander Rassudov, CEO of Rightmark Group legal firm reflects on the legal nuances of transactions with apartment hotels and the intricacies of law to be taken into account by developers and (especially!) buyers. 
The advantages of apartment hotels are obvious: such real property may be constructed in areas where housing is not provided for by the planning regulations, with no social burden or a requirement of parking lot arrangement, etc. The main argument for buyers is the price. Reasonably priced apartment hotels are in great demand in Moscow and (as the market is saturated) St. Petersburg. One usually offers hotel service level in the premium segment. However, the customers have not yet had the opportunity to see if these promises are fulfilled in the course of long-term operation. 

That makes it all the more urgent to consider all legal aspects in advance — before making the purchase decision. 

Specific features of legal status of apartment hotels depend on the purpose thereof. Although individuals use them for permanent residence, such hotels are considered non-residential premises in legal terms. 
As early as at the stage of transaction registration a buyer can face the fact that the selection of mortgage programs for the acquisition of such property is less diverse (as compared to the housing stock), and interest on the loan is calculated at the rates for commercial real estate. 

One cannot invest maternity capital funds in the acquisition or construction of apartment hotels: in accordance with Article 10 of the Federal Law ‘On Additional Measures of State Support for Families with Children’ (Law No.256-FZ as of 12/29/2006) the money can be spent on purchase of housing units or construction and renovation of private residential structures. Apartment hotels are neither the first nor the second, nor the third. 

A person purchasing an apartment hotel (non-residential premises) is not entitled to use property-related tax deduction. According to paragraph 2, item 1, Article 220 of the Tax Code of the Russian Federation this deduction is provided in the amount of expenses actually incurred by a taxpayer for the new construction or purchase of ‘a residential house, apartment, room or share (shares) thereof’ in the territory of the Russian Federation. Non-residential premises are not included in this list. 

As for the individual property tax, an individual shall pay it regardless of whether it is residential or non-residential property. However, property tax rate for non-residential premises is higher than for residential accommodation. Property tax amount depends not only on the assessed value of facilities, but also on its designated purpose (Article 3 of the St. Petersburg Law No.625-93 ‘On Specific Issues of Taxation in St. Petersburg’ as of 11/11/2003). 

If the assessed value of real property exceeds RUB 500,000, the individual property tax rate will amount to 0.3% for residential premises, and 2% for non-residential premises. 

The difference may become even more significant after the single real property tax is introduced.  Rates will be set by regional parliaments. 

Moreover, the consumer protection legislation does not regulate the relationships in apartment hotel acquisition transactions. A person purchasing such real estate property will not be able to benefit from the relevant guarantees. By implication of law, a consumer is an individual that purchases goods solely for personal, family, household or other needs which are not related to carrying out of business activities. Only residential premises are intended for personal residence of individuals and their family members (item 2, Article 288 of the Civil Code of the Russian Federation). 

Furthermore, apartment hotels are not intended for domicile registration. This makes it impossible to register with health care and educational facilities. Thus, apartment hotels are unsuitable for permanent residence of families with children. 

Apartment hotels are costly to operate as compared to common apartments, as utility bills are assessed as per tariffs set for non-residential premises. If a purchaser is made aware of these aspects in advance and is fully informed of all terms and conditions when making a deal, the transaction is quite legal, and one can only be glad about the diversity of choices. 

Otherwise another wave of disputes is coming that may discredit the very idea of apartment hotels, as was the case with scandals around the use of premises in the house at the address 15 Kolomyazhsky prospekt which compromised the public image of lodging houses. 

Prepared by Dmitriy Sinochkin
Source: Nedvizhimost i Stroitelstvo Peterburga (St. Petersburg Real Estate & Construction) newspaper