The authorities of Kislovodsk intend to manage the resort project on their own

The administration of Kislovodsk is seeking in court to terminate a long-term investment contract with Moscow-based Korin Development (a subsidiary of AFI Development). An agreement on the restoration of the only city reservoir and the construction of commercial facilities next to it was signed back in 2007; due to the crisis, the project was suspended and in 2011, Korin Development’s lease on the land was terminated. The city authorities began to improve the territory using budget money, but the investment contract is still in force and the developer does not refuse to implement it “in the future.”

The authorities of Kislovodsk want to reconstruct the Old Lake using budget money

The Arbitration Court of the Stavropol Territory accepted the claim of the Kislovodsk administration against Korin Development LLC (a subsidiary of AFI Development). The city authorities intend through the court to terminate the investment contract of 2007 related to the construction of a sports and recreation complex and related infrastructure in the area of the city lake.

The officials' intention to terminate the agreement with the developer appeared following the decision of the Federal Antimonopoly Service of the Moscow District on one of the claims of Korin Development, although the administration of the resort city was neither a defendant in the case nor a third party. The developer was suing the Moscow tax inspectorate, which refused to refund VAT on contracts concluded at the initial stage of the investment project (2007–2008). The inspectorate referred, in particular, to a letter from the head of Kislovodsk about the termination of the lease agreement with the investor back in 2011, about the lack of a construction permit and registration of the investment contract itself. The court satisfied the company’s demands, pointing out that the investment contract “does not require registration and approval by the head of the municipality,” since construction should be carried out only at the expense of the investor, and the absence of current rental relations “does not affect the future possibility of continuing” the project.

The Kislovodsk authorities do not count on the return of the investor. Korin Development continues to claim the contract as its asset, despite the fact that it has not begun the reconstruction of the reservoir and the construction of facilities. The project has long been transformed from commercial to social - the lake and the area around it are being improved with budget funds, a recreational area is being created, which will be open to citizens by the summer. We sent the developer a notice that the investment contract should be terminated, but they refused to do so,” an administration representative told Kommersant.

The investment project, contested by the administration, is listed on the developer’s website and in the reports of the Ministry of Economic Development of the Stavropol Territory as “Old Lake” and is one of five AFI Development projects in Kavminvody. In 2005, the company introduced a 4-star Plaza Spa Hotel in Kislovodsk, and later announced the construction of a 3-star Park Plaza with 500 rooms, a 5-star Versailles with 90 rooms (both in Kislovodsk), as well as the creation of sanatorium named after Kalinin in Zheleznovodsk, a 3-star hotel with 135 rooms. The developer also agreed with the local authorities on the restoration of the city lake in Kislovodsk: on the adjacent territory it was planned to create a recreation area, a water park, build retail premises, a spa center and a hotel. The total cost of the four projects in 2010 was estimated at $320–330 million.

Due to the crisis, resort construction had to be suspended; in 2010, the developer announced the resumption of projects and agreements with Sberbank to open a credit line for $20 million. As AFI Development told Kommersant, Spa Plaza Kalinina was completed last year, the rest “active work” is not currently being carried out at the facilities. “We have not abandoned a single project in Kavminvody; they have been postponed for the future and, quite possibly, will be resumed,” says a company representative. He did not say whether Korin Development had already contacted the Kislovodsk administration regarding a new lease agreement for the Old Lake.

The agreement with Korin Development, which has not yet been terminated, expires in 2022, but the developer is unlikely to be able to regain the plots, even in the event of a trial, experts believe. “An investment contract cannot be considered as a preliminary lease agreement; the administration has already fulfilled its obligation to provide the site for rent once and is not obliged to do it again,” believes Sergei Radchenko, senior lawyer at the Yug law office.

The position of an investor trying to maintain a full presence in Kavminvody is also quite logical, says Evgeniy Panasenko, head of the GVA Sawyer representative office in the Southern Federal District. “It’s not even about specific projects, but about land plots with recreational potential. The federal authorities are going to create a tourism cluster in the North Caucasus and the south; if the project begins to be implemented in one form or another, the cost of land in recreational areas will rise rapidly and it will be difficult to gain access to it,” he notes.

Oleg Kuznetsov

The developer is being led away from the "Old Lake"