Newly adopted property laws could pose a serious threat to the warming relationship between the Kremlin and Moscow City Hall following the city government's unwillingness to embark on land sales or share rentals or proceeds from its properties with the federal government.

The Land Code, one of several legal acts on land taking effect this year, specifically provides for the sale of land in the country, a prospect City Hall is not looking forward to with much enthusiasm.

"Generally speaking, leasing land [to potential property developers] has always been more reliable, more convenient and even more profitable for the city because it provides the government with a regular cash flow, while it retains the legal ownership rights over the leased land plots at the same time," Oleg Tolkachyov, City Hall's first deputy premier in charge of property and land issues, said last week.

But the passage of the Land Code has completely changed the situation in the country. However, apart from this code, land issues in the city are also regulated by several other legal acts, including the Federal Law on the status of Moscow as the capital city, he added.

"Consequently, land will be sold in Moscow only after City Hall passes enabling legislation, which is needed to regulate all land issues in the city," he said, adding that the duty of the city government at the moment is to "harmonize all the city's statutory acts on land with this Code in order to launch the sale."

However, he did not say when sale would begin.

But real-estate experts and property developers disagreed with city officials, saying investors would prefer to buy land instead of leasing it.

"We lease land for our project developments because that is the quickest way, or, put differently, it is the only option available on the market," said a major property developer, who requested not be identified.

"The real-estate community was hoping that the passage of the Land Code would resolve this problem. But considering City Hall's current position on the issue, we still have a long way to go before land becomes a bona fide object of trade on the city real-estate market," he added.

"From the investors' point of view, it's preferable to buy plots of land for property development, as investors would definitely like to own the land on which their properties stand," said Alexei Tchizhov, director of the valuation department at Noble Gibbons, a key property-consultancy firm on the real-estate market.

Of course, there are some places where land plots can only be leased because of their special locations, but the city government ought to provide investors with the choice of either buying or leasing plots for development in other locations where both are possible, he added.

Meanwhile, the federal government has anticipated the possibility of regional leaders, often referred to as "feudal lords," sabotaging the implementation of the Land Code in their dominions and, consequently, has warned them in advance by reiterating the implications of violating the code's tenets.

"Potential land investors or future land purchasers are free to sue any regional administration if it openly opposes land sales or sets up insurmountable red tape in sale procedures, and the federal government will support such investors," Deputy Economic Development and Trade Minister Alexander Maslov told the American Chamber of Commerce's real-estate committee last year.

Sharing of assets and profits from land and landed properties – another postulate in the code in conjunction with the law on "limitation rights on land" and the bill proposal on "cultural heritage" currently under revision – is another issue that is likely to have a negative impact on City Hall's relationship with the Kremlin.

These laws envisage transferring some parts of big cities' territories to the federal government. Or, alternatively, the regional administrations, including the Moscow city government, would share profits from their use with the Kremlin.

Noble Gibbons' Tchizhov also agrees that there is a need to define property ownership in the city.

"The city and the federal governments need to clearly divide the city's properties between themselves. This is very important, as City Hall considers almost everything in Moscow to be its own property."

However, Tolkachyov said the city government does not intend to share revenue from its land properties with anyone.

"We will never allow this to happen. We shall resort to active legal defense and, specifically, invoke the special law on Moscow as the capital," he added.

Such a blatantly confrontational stand on land issues by key city officials could chill the warming relations between Moscow Mayor Yury Luzhkov and the Kremlin, which only improved last year.

Now, with confrontational rhetoric gaining momentum in City Hall, a lot depends on how Luzhkov can maintain the balance between the hawks in his office and his instinct for political survival, according to local media reports.

Generally, City Hall officials do not like to toe the general line on certain vital issues and traditionally invoke the unique legal status of Moscow to break or bend any federal law that runs counter to their interests. Examples abound, but their refusal to honor the constitutional repeal on "propiska," a vestigial Soviet-era practice, which greatly limits the ability of non-Muscovites to reside within the city, or a privatization program specially drafted for Moscow in the '90s, readily come to mind.

But Tolkachyov said politics has nothing to do with the current issue.

"We intend to shift all conflicts on this issue from the political to the economic plane," he said, adding, "City Hall is in the process of working out a new cooperation framework with the federal government on the issue."

The Kremlin has yet to react to City Hall's stand.

Property consultants have always rated the city's real-estate assets as the most highly demanded in the country, a situation heavily fanned by the desire of most corporations, even those with operations in far-flung areas, to have their head offices in Moscow.

This trend is reflected in City Hall's earnings last year of 7.3 billion rubles from its real-estate assets, compared with revenue of 3.7 billion rubles obtained from the rest of the country's real-estate sector during the same period.