Over the holidays, there was an article on Moscow real estate in the New York Times that I found completely amazing (no, not because the author used my stats or that I have a phone call to Moscow on my phone bill) but because it discussed some of the quirks of Moscow real estate.

I was on hiatus from Matrix for the last week of the year when this story ran and it was extremely difficult not to stop shopping for my loved ones (and of course, me) as well as blog about the story. Too much time has elapsed so only a preview is available for A Price Run-Up For Run-Down Communes, unless you have the NYT Select subscription but the last paragraph of the article is what peaked my interest.

Apparently it is considered a wise practice in Moscow to have a doctor’s verification for both the buyer and seller of a property that they were not intoxicated at the time they agreed to the transaction. In other words, a buyer of a property could be approached a few years later by a seller and claim that they were drunk at the time of the sale and get the property back.

Residential real estate deals are often accompanied by a peculiarly Russian type of due diligence, where buyers ask doctors to certify, at the time of signing, that the seller is sober. It is not an empty precaution: Former owners returned years later and persuaded judges to void deals on the grounds they were on a bender at the time of the closing. This protection for the inebriated is written into Russian law.

In these cases, Yulia Matygina, a Moscow real estate lawyer, said, ”The buyer loses the apartment.”

I was always taught to believe that alcohol reduces inhibitions and to sit through a real estate closing without remembering what you signed or agreed to should appear pretty obvious to the other people there. I find it amazing that witnesses couldn’t be used to vouch for the soberness of the parties while at the closing or that lawyers there were not on the hook somehow.

Its a sad statement on legitimising alcoholism in Moscow as a legal excuse for irresponsible behavior and seems to indicate that alcoholism is a pervasive problem in Moscow and deeply rooted in their culture to have it made part of real estate law. I see property rights as fundamental to a civil society and the Moscow example goes way over the line.

Its also reminded me (yes, I really am sober) of the writings of economist Hernando de Soto and his interview by the Federal Reserve Bank of Minneapolis.
He argues that a structured property laws are a powerful economic framework for a country to be built on. Its a great interview – highly worth reading.

Economist Hernando de Soto argues that

five-sixths of the world’s population holds the answer to its poverty in its own hands—its property—if only this property were recognized by government and legal authorities.

The question of why these different countries are more prosperous than the others has always been in the back of my mind. I find it one of the most intriguing questions to consider.

In other words, if property rights were consistent and recognized by governments, it is his position that much of the world’s poverty would not be as severe and by inference, in the case of Moscow, not as inebriated.



One Response to “Real Estate, For The Love Of Vodka And Property Rights”

  1. Norm Fisher says:

    Interesting post. In all common law jurisdictions “capacity” is an essential element of a contract. Someone who is incapacitated by alcohol to the extent that they can’t appreciate the contract they’re entering into can seek to have the contract nullified. I think that the courts would expect you to get around to that as soon as you sobered up rather than several years later.