Is it necessary to register an agreement for the gratuitous use of real estate?

Free use agreements

Type

Name

A contract of gratuitous use is concluded when the owner of any property or a person authorized by him transfers to another person the right to temporarily use this property. The owner does not receive any payment for this, which is why use is called gratuitous.

Article 689 of the Civil Code of the Russian Federation also calls this agreement a loan agreement (both concepts are acceptable in practice and literature). The parties to this agreement will be, respectively, the lender and the borrower. In everyday life, a loan is often understood as a monetary loan, but in civil law terms, a “loan” is precisely the gratuitous use of property.

Only non-consumable property that retains its properties during use can be transferred under a contract of gratuitous use. The subject of the agreement can be real estate (residential and non-residential premises, land plots) and movable things.

A loan agreement can be concluded orally, but if one of the parties is a legal entity or the value of the loan subject exceeds 1000 rubles, then a written form is required. State registration, by analogy with a premises rental agreement, is not required. Notarization of the agreement is possible at the request of the parties.

An agreement for gratuitous use has a lot in common with a lease agreement and a gift agreement, but it also has its own specific features (like every agreement included in a separate chapter of the Civil Code).

Is it necessary to register an agreement for the gratuitous use of real estate?

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In accordance with paragraph 1 of Article 131 of the Civil Code of the Russian Federation (hereinafter referred to as the Civil Code of the Russian Federation), ownership and other real rights to immovable things, restrictions on these rights, their occurrence, transfer and termination are subject to state registration in cases and in the manner provided for by the Civil Code of the Russian Federation, other federal laws, including Federal Law No. 122-FZ of July 21, 1997 “On state registration of rights to real estate and transactions with it.”

According to paragraph 1 of Art. 689 of the Civil Code of the Russian Federation, under an agreement for gratuitous use (loan agreement), one party (the lender) undertakes to transfer or transfers an item for gratuitous temporary use to the other party (the borrower), and the latter undertakes to return the same item in the condition in which it received it, taking into account normal wear and tear or in contract condition.

Within the meaning of paragraph 2 of Art. 610, paragraph 2 of Art. 689 of the Civil Code of the Russian Federation, the period for which the property is transferred may not be specified in the loan agreement. In this case, such an agreement is considered concluded for an indefinite period.

In accordance with paragraph 2 of Art. 689 of the Civil Code of the Russian Federation, the rules provided for in paragraph 1 of Art. 607 and the first paragraph of paragraph 2 of Art. 610, pp. 1 and 3 tbsp. 615, paragraph 2 of Art. 621, para. 1 and 3 tbsp. 623 of the Civil Code of the Russian Federation and regulating relations of the parties under a lease agreement.

At the same time, an indication of the application of clause 2 of Art. 609 of the Civil Code of the Russian Federation, which establishes the obligation of state registration of a real estate lease agreement, is absent.

Moreover, Federal Law No. 122-FZ of July 21, 1997 “On state registration of rights to real estate and transactions with it” also does not provide for the need for such registration.

Thus, we can conclude that an agreement for the gratuitous use of real estate is not subject to state registration, regardless of the period for which it is concluded.

This legal position is confirmed by judicial practice (See: Resolutions of the Federal Antimonopoly Service of the Far Eastern District dated March 11, 2013 No. F03-385/13, Fourth Arbitration Court of Appeal dated February 3, 2014 No. 04AP-6025/13, Nineteenth Arbitration Court of Appeal dated June 30, 2011 No. 19AP-2891/11).

Additionally, we inform you that in accordance with paragraph 3 of Article 689 of the Civil Code of the Russian Federation, an agreement for the gratuitous use of an object of cultural heritage must be registered, including regardless of the period for which it is concluded.

Attention! The information provided in the article is current at the time of publication.

Terms of the free use agreement

At first glance, an agreement for free use may seem quite simple, based on the good will of the owner to transfer his property for temporary free use. In fact, in addition to the main contractual obligation to transfer the property for use, the lender also bears other obligations, for example, to compensate for the losses of the borrower. But first things first.

An essential condition of a contract for gratuitous use is only the subject of the contract. The property being transferred must be described in the same detail as in the lease agreement. If this property has individual characteristics, for example, a vehicle is given for use free of charge, then its state registration and identification number, make and model, and engine number are indicated.

It is recommended to indicate the monetary value of the transferred property in the subject of the contract. Firstly, the borrower’s accountant will need this in order to record this property on an off-balance sheet account, and secondly, in the event of damage or loss of the item, the parties will not have to argue about the amount of compensation.

The lender must guarantee in the contract that the transferred property belongs to him as a property, it is not under pledge or arrest, and third parties have no rights to it.

You can conclude a contract for free use for a specified period or without specifying it. If the agreement is fixed-term, the borrower may cancel it at any time by notifying the borrower one month before (or another period specified in the agreement). The lender does not have the right to refuse a fixed-term agreement if such a condition is not specified in it. At the same time, any of the parties can cancel an agreement that is concluded for an indefinite period, of which it must notify the other party one month in advance or another period specified in the agreement.

The free use agreement can also be terminated early on the following grounds:

• the borrower uses the item in violation of contractual terms or for other purposes;
• the borrower does not create conditions for maintaining the thing in good condition;
• as a result of use, the condition of the thing deteriorates significantly;
• the borrower, without the consent of the lender, transferred the thing to another person;
• defects of the thing were discovered that prevented its use, which the borrower did not know about at the time of concluding the agreement;
• if circumstances arise for which the borrower is not responsible, as a result of which the thing will be in an unusable condition.

If the term of the contract has expired, and the borrower continues to use the thing, to which the lender does not object, then the contract is considered extended for the same period and on the same conditions.

Additionally, the parties should include other important conditions in the free use agreement. For example, agree on the issue of reimbursement of the borrower's expenses for inseparable improvements to the property received for use.

What is an agreement for the free use of non-residential premises?

In what cases is an agreement for the gratuitous use of non-residential premises drawn up?

An agreement for the gratuitous use of non-residential premises is a type of agreement drawn up when concluding loan transactions.

The essence of a loan is that a person transfers money or property to another person free of charge with a mandatory right of return.

In this transaction there are 3 main subjects of legal relations:

• Lender is a person who transfers his property for temporary use free of charge to another person. The main obligation of the lender is to transfer to his opponent in the transaction such property that can be used for its intended purpose.
• Borrower is a person who receives property for temporary use free of charge from another person. The main responsibility of the borrower is to maintain the received property in proper condition and use it exclusively for its intended purpose.
• The subject of the transaction is the specified premises transferred under a loan agreement from one person to another.

In addition, each party to the transaction undertakes to comply with other terms of the agreement, and also has the right to terminate the agreement early if there are any violations of the agreement by the opponent to the agreement.

Do not forget that the loan agreement for the described premises is a gratuitous transaction, the content of which cannot indicate any benefit received by the lender from the borrower.

Otherwise, the agreement will be re-qualified as a lease agreement and will require re-registration, as it will be declared invalid.

Transfer of loan subject

An item that is transferred under a contract for gratuitous use must be in good working order and in the condition in which it will be suitable for use. Along with the item, its accessories and documents related to it (registration certificate, instructions, etc.) are transferred. The fact of transfer of property for free use is formalized by an act that describes the condition of the thing at the time of transfer.

If the thing was not transferred within the period specified in the agreement for gratuitous use, and the borrower suffered real losses because of this, then he may demand reimbursement of his expenses from the lender.

Property that is transferred for free use must be inspected upon transfer. If defects are discovered in a thing that will not allow it to be used for its intended purpose, the borrower has the right to demand from the lender:

• correct deficiencies;
• reimburse the expenses that the recipient of the property will incur to eliminate its shortcomings;
• terminate the contract early and compensate for damage if it was caused as a result of a malfunction of the transferred item.

The lender can also replace the defective item with a similar one without defects.

The return of the property by the borrower is also documented in a document describing its condition at the time of return. The item must be in the same condition in which it was received, subject to normal wear and tear, or in the condition agreed upon by the parties in the contract.

Obligations and rights of the parties to the free use agreement

The main obligation of the lender is to transfer the thing to the borrower within the agreed period and in proper condition. If technically complex property is transferred for use, the contract may provide for the obligation of the lender to familiarize the borrower with the rules for operating such equipment.

In order to ensure the safety of the thing transferred for free use, the lender may be granted the right of unhindered access to the property to inspect it and check the conditions in which it is operated.

The lender has the right, during the period of validity of the agreement for gratuitous use, to sell the transferred property or transfer it for compensated use (rent or lease) to another person. The new owner or user receives all the rights of the lender under the concluded agreement.

The main contractual obligation of the borrower is to return the property received for free use in a condition no worse than when it was received. In this regard, the borrower must take care to create appropriate conditions in which the property is located.

As a general rule, he must bear the costs of major and current repairs of the item received, as well as bear the costs of its maintenance. At the same time, the agreement can agree on a different procedure for distributing these costs, shifting part of them to the lender, as the owner of the property.

Considering that from the moment the thing is transferred under the acceptance certificate, the borrower is responsible for its safety, and he also bears the risk of accidental death, loss or damage to the property. In this case, the borrower will bear responsibility if:

• the item was not used for its intended purpose;
• without the consent of the lender, the thing was transferred to another person;
• he could have prevented the loss or damage to the contract property by sacrificing his property, but did not do so.