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Real Estate

How To Rent Accommodation The Right Way ‑ Legal Tips
By Elizaveta Fedyunkina, Penny Lane Realty

Every day, several hundred people in Moscow rent accommodation. This includes those from far-away countries and people who have arrived from nearby regions, young families who have decided to live separately from their parents, or people who want to live in leased accommodation whilst their own apartments are undergoing major refurbishment. In order to eliminate the possibility of any problems arising with renting, at the beginning, in accordance with law, a lease agreement must be concluded. Vadim Lamin, the Head of Penny Lane Realty’s Division for Renting Elite Apartments will give advice on how to draw up such an agreement, explain possible problems and how to address them.

Vadim, what is the first thing an individual who wishes to rent an apartment should do?

Initially, a future lessee should know what and where they want to rent and how much they are prepared to pay for rent. The next step is to phone a reliable real estate agency and chose a rental accommodation which they can afford. Some chose apartments using various Internet databases, however, here I would like to warn you. Some of the offers, especially those with surprisingly low prices are often put forth by unprofessional and even fraudulent companies/private realtors. In such cases, either the given price does not match the actual price, or an agency requires that a preliminary deposit is made for this cheap offer, something which they shouldn’t do. My advice is to contact a company with a good reputation which has been proved. Reliable agencies have large bases of offers and provide professional assistance for transactions.

So, a future lessee has worked out what sort of apartment they wish to rent, phoned a reliable agency, met a broker and inspected accommodation which suited them. What’s next? Should an agreement be concluded now?

Yes. The next step is to conclude a lease (rent) agreement which has been drawn up professionally. Since the terms and conditions contained in an agreement defend the interests of both parties, this will help avoid any undesirable consequences for the owner of the apartment and well as for the individuals who intend to rent the apartment. An agreement must envisage the terms for payment, the procedure for early termination of the agreement, compensation for damaged caused to the apartment, furniture, equipment etc. Using negotiations to agree the said terms and conditions will enable the parties to avoid any possible future disputes.

Which legal difficulties may apartment owners and lessees encounter when concluding a rent agreement?

Legal difficulties concerning apartment owners are rather varied. At the stage of signing a rent agreement, as a rule, these difficulties are connected with the existence of documents of title. For example, it often happens that an apartment belongs to an individual, but there are several restrictions which prevent the owner from leasing it. Such restrictions to title include: annuity and mortgage agreements, and in such cases the consent of other individuals are required in order to rent out the apartment. Another problem is when the lessor can only present an investment contract of the documents of title, that is, the building is new and the apartment has been furnished, but the certificate of title has not yet been issued (there are several reasons for this – the building has not undergone state inspection etc.). In addition to this, when drawing up an agreement, it is necessary to obtain the consent of state bodies (child protection services) if the owner of the apartment is an underage child and it is being leased for more than one year. A number of issues affect the interests of owners with regard to the migration registration of foreign citizens in the Russian Federation. Issues of taxation need to be discussed because the income an individual receives from renting out an apartment in the Russian Federation is subject to 13% income tax. Individuals who receive the aforementioned income must submit a tax return for the tax period with a copy of the rent/lease agreement to the tax inspectorate where they are registered. This 13% tax may be legally reduced to 6%, in order to do this one must register as an individual entrepreneur and switch over to the simplified taxation system.

Who is a rent agreement more beneficial for – the owner of the accommodation or the lessee?

Any civil agreement must be beneficial for both signatories since it envisages, regulates and protects their interests. It is not advisable to conclude an agreement on terms and conditions that are already known to be unbeneficial for you.

Which legislative changes have affected the rental market as of late?

Legislative innovations are very rarely introduced to rental market. The last one was in 2009, when the legislator introduced amendments to the second part of the Tax Code of the Russian Federation. These amendments concerned the application of a simplified tax system on the basis of a licence, namely, a permit for the usage of the said system if garages, privately owned residential premises and also premises constructed on land plots for country houses (dachas) are transferred for temporary ownership and (or) usage. Citizens of the Russian Federation who rent out their apartments, garages and country houses, and also carry out a number of other types of activities related to real estate were provided with another opportunity to optimise their taxes by buying a licence. In Moscow, for example, a licence is beneficial for people whose income from leased property is from 720,000 roubles to 20 million roubles per year. Starting from 2010, the maximum amount of income from renting out property was increased to 60 million roubles. In this case taxpayers are not required to provide the tax authorities with tax returns stating income, instead they just have to keep a record of income.

There are many legal implications. How should one take them all into account?

To avoid confusion with regard to the legal aspects of a transaction it is necessary to obtain assistance from professional lawyers. These specialists work in all the major real estate agencies. For example, at our company, a lawyer not only helps to carry out a transaction, but also advises lessors and lessees on various legal issues free of charge throughout the rent period. Besides this, anyone who has questions about the legal aspects of renting can consult us. We will be happy to answer any questions!

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