The Mongolian legal regime recognizes private ownership of real estate, including land and buildings. Mongolia's 1992 Constitutional Law, together with the Civil Code, (2002), the Law on Property Ownership Right and Other Related Property Rights (2003) and other laws uphold and protect the right to own private property. Publicly-owned property (property owned by the State or Local State Authorities) is subject to special regulation, the main source of law being the Law on State and Local Property (1996).

 

The 1992 Constitutional Law, Article 5.2 laid the foundation for private property ownership. The Civil Code (2002) regulates property ownership rights and governs the creation, termination and transfer of property rights, further regulating its possession, contractual and inheritance issues. Moreover, the Civil Code is also the framework for possession, use and disposal of property and mortgage of immovable property.

 

The Law on Property Ownership Right and Other Related Property Rights (2003) regulates the registration procedures and legal protection of immovable properties. The registration of a property grants legal protection to the rightful owner. Except for the land, the right to own private real estate and its legal protection, and registration procedure are available for all individuals, including foreign citizen and organizations.

 

Other major laws related to real estate in Mongolia are:

The General Law on Taxation;

The Law on Personal Income Tax;

The Law on Immovable Property Tax;

The Law on Investment;

The Land Law;

The Law on Land Fees;

The Housing Law;

The Law on Home Ownership Association and Floating Freehold Title;

The Law on Urban Planning; and

The Company Law.

 

Standard purchase terms and its mechanism

 

As was stated above, the Civil Code governs the procedure of creation, termination and transfer of property rights, and its contractual issues. The Civil Code, Articles 109 and 243 regulates the main procedure of purchasing or selling the immovable property. Pursuant to the Civil Code, Article 109.2, a purchase and sales contract of immovable property is required to be written and needs to be notarized by a certified notary in Mongolia. The main terms which need to be stated in a written contract for the purchase and sale of immovable property has not been identified in the Civil Code, however, pursuant to the Law on Property Ownership Right and Other Related Property Rights, Article 26.1, the following terms need to be stated in a written contract for the purchase and sale of immovable property, in order to be notarized and registered:

   - the name of buyer and seller, their official addresses and registration numbers;

   - parties' rights and obligations;

   - immovable property and its definition and specifications;

   - price as fixed under the agreement;

   - agreement terms;

   - payment condition; and

   - grounds for termination of agreement.

 

Notarization procedures for transferring immovable property

 

After consummating the written agreement, the parties should notarize the contract at a certified notary in the local area. Pursuant to the Law on Notary, Article 7.3, contracts for transferring immovable property shall be notarized only by the notary public, who operates within the district where the immovable property is located.

 

In order to notarize a contract for transferring immovable property, parties to the agreement must visit the notary office in person. If it is not possible to visit the notary office in person, a legally concluded power of attorney must be presented to the notary as provided in the Law on Notary, Article 46.4.

 

Pursuant to the Law on Notary, Article 46.7, a notary shall confirm the following documents in order to notarize the contracts for transferring immovable property:

   - documents proving that the property right is in the legal ownership of such person (previous certificates of immovable property, identification cards of owner);

   - if it is a legal entity, the registration certificate, charter and authorized person’s written approval of transferring the immovable property; and

   - in case of transferring shared immovable property, the permission of citizen, legal entity, organization of   which legal interest and rights may be directly affected.

 

Registration procedures for transferring immovable property

 

The Law on Property Ownership Right and Other Related Property Rights states that the right to own immovable property takes force immediately upon registration at the RORP. The registration process is initiated when an individual, legal entity or associated agent provides the RORP with the following documents:

   - application form (standard form provided by RORP)；

   - a notarized copy of contract certifying the applicant’s ownership of the immovable property;

   - an original copy of registration certificate of immovable property;

   - a bank receipt which proves the tax payment;

   - power of attorney if it is necessary; and

   - a receipt of stamp duty fee.

 

Generally, the Registration Office of Rights of Property (“RORP”) will process the application for transferring the immovable property within 5 business days. In rush delivery, the registration process can take roughly 8 hours. The State Registrar will issue the resulting certificate.

 

Standard lease terms and its mechanism

 

The Civil Code that regulates the procedure for possession of immovable property includes the procedures of renting and leasing the immovable property. The Civil Code, Articles 287 and 302 regulates the main procedures of renting an apartment and the Civil Code, Articles 287 and 318 regulates the renting of office buildings or other buildings except for housing purposes. The Law on Property Ownership Right and Other Related Property Rights regulates the registration procedures for renting apartments or office buildings.

 

As for tenancy agreement for housing purpose, pursuant to the Civil Code, Article 302, it can be done either orally or in writing. There are no specific requirements for concluding an agreement such as a notary or registration. Moreover, there are no standard terms set out by the Civil Code, so that parties are able to define the terms and conditions of their contract in their preferred ways. The rights and obligations of contracting parties are generally regulated by the Civil Code, Articles 288 and 289. There are other few specific regulations with regard to the rental of an apartment which are as follows:

   - pursuant to the Civil Code, Article 303.1, the tenant who rented the apartment by properly performing its obligations for the last three years, has the prevailing right to conclude a new leasing contract or purchase the property;

   - pursuant to the Civil Code, Article 304.1, regardless of the time specified in the Civil Code, Article 294.3, a tenant may cancel the contract if it becomes disadvantageous to him or her as a result of not transferring all or part of the apartment on time or a tenant loses later rights to use the apartment;

   - pursuant to the Civil Code, Articles 305 and 306, a tenant may sub-lease all or parts of the leased apartment to a third party with the consent of the landlord. However, the landlord has no right to refuse without any good reason; and

   - pursuant to the Civil Code, Article 308.1, regardless of whether the right of ownership of the rented apartment had been transferred to another person, the contract for renting an apartment shall remain in force.

 

As for tenancy agreement for business or office purpose, pursuant to the Civil Code, Article 318, it shall be concluded in writing and should be notarized and registered to the RORP. As for other terms such as rights and obligations of contracting parties, those shall be regulated by the above regulations as stated in the Civil Code, Articles 288, and 289. As for subleasing a building for office purposes, the tenant has the right to sub-lease the rented assets only based on the landlord’s consent.

 

The notarization procedure for tenancy agreements are regulated in the same manner as the procedure for transferring immovable property. As for the registration procedure for tenancy agreements for business purposes, in practice, if the rented building is one whole part as stated in its registration certificate, registration is a mandatory requirement. However, if the rented building is only part of the whole building stated in its registration certificate, then, registration is not required.

 

Termination and cancellation of a tenancy agreement

 

Pursuant to the Civil Code, Article 294.1, a contract for lease of property shall be terminated on the following grounds:

294.1.1  the expiry of a contract；

294.1.2 if a leasing contract is concluded for an indefinite period and the period specified in the contract or law passes after notification on contract cancellation by any party; and

294.1.3 a contract is canceled according to good reasons and grounds stated in the law or contract.

 

Pursuant to the Civil Code, Article 294.2, parties may cancel a contract for renting an apartment of office buildings according to the following good reasons:

294.2.1 if obligations under the leasing contract are not performed or performed improperly by one party, the other party may cancel the contract;

294.2.2 if the landlord or his or her close relatives need a leased apartment;

294.2.3 if the tenant refuses to pay the market based rental fee proposed by the landlord; and

294.2.4 other grounds specified by law.

 

As for section 1 of Article 294.2, the Unofficial Explanation of Civil Code provided by the General Judicial Council of Mongolia, explains when there has been a serious breach of contract. A serious breach of contract means the failure of 3 months’ tenancy payment or more. This means that a failure to pay one or two months’ payment does not result in a serious breach and it is not a good reason to cancel a tenancy agreement. Moreover, damaging the rented apartment or possessing the rented apartment for purposes other than those set out under agreement can also be a serious breach which may result in cancellation of an agreement.

 

Furthermore, for grounds of termination set out under the Civil Code, Article 294.1.2, notification to terminate a contract must be delivered to the other party three months in advance. The Civil Code, Article 294.3 states that unless otherwise provided by contract and no circumstances for cancellation arise, either party may cancel the contract at anytime, but must give three months’ advance notice to other party. Such a period will commence at the day of notification.

 

As for renting immovable property for apartment purposes, the termination notification should be delivered by written notice three months before termination. As for renting immovable property for business purposes, a contract may be terminated after one year or within one month at the end of a one year lease period pursuant to the Civil Code, Article 320.3. However, for renting immovable property for business purposes, if the parties agreed to a definite term for the contract, then the termination procedure will be the former regulation of three month notification.

 

Registration procedures of a tenancy agreement for business purposes

 

The Civil Code, Article 318.4 states that leased immovable property must be registered at a real estate registration agency and if one does not comply with the registration requirement, the tenancy agreement will be deemed void.

 

In order to register a tenancy agreement to the RORP, the following documents are required:

   - the application form (standard form provided by RORP);

   - a notarized copy of tenancy agreement;

   - an identification card or registration certificate of the tenant;

   - an original copy of registration certificate of immovable property;

   - power of attorney, if necessary; and

   - a receipt of stamp duty fee.

 

The RORP will process the application for renting the immovable property within 3 business days. In rush delivery, the registration process can take about 8 hours.

 

Taxation issues related to purchase or rent of the immovable property

 

As for purchasing immovable property, the seller who gains revenue from purchasing his or her immovable property, shall pay tax in the amount equal to two percent of the total amount of purchased immovable property to the relevant taxation office in accordance with the Law on Personal Income Tax, Article 20.1.1 and the Law on Corporate Income Tax, Article 17.2.5.

 

Other expenses occurred during the process of transferring the immovable property, such as notary fees and registration fees shall be paid by the buyer pursuant to the Civil Code, Article 245.2, if there is no other negotiation on expenses between parties. The Civil Code, Article 245.2 states that unless otherwise provided in the contract, the buyer shall be liable for costs related to formulating the sale of immovable property, purchase contract, any required documentation, having the documentation certified by a notary, and registration with the State register.

 

As for renting immovable property, the landlord, who gains revenue from rental fees, shall pay tax in the amount equal to ten percent of the total amount of one year’s revenue based on the rental fee to the relevant taxation office in accordance with the Law on Personal Income Tax, Article 19.1.1. Also, for legal entities, the landlord shall pay tax in the amount equal to twenty percent of the total amount of one year’s revenue based on the rental fee to the relevant taxation office pursuant to the Law on Corporate Income Tax, Article 17.2.9. (c).

 

Other expenses for renting immovable property, such as management fees, can be paid by the tenant if the parties agreed in their concluded tenancy agreement pursuant to the Civil Code, 292.3. The Civil Code, 292.3 states that if agreed by parties, additional expenses must be paid.

 

As for deposits, it can be paid by the tenant as a guarantee of its obligation under the tenancy agreement, if the parties agreed to the payment of deposit under their tenancy agreement. The Civil Code, Article 233.1 allows one party to a contract to pay money in advance to the other party, as proof that a contract had been consummated, and this money shall be deemed as a deposit. Moreover, pursuant to the Civil Code, Article 234.1, if a contract is canceled or the party offering a deposit does not include the deposit into the performance of obligation, the party who received the deposit shall return it after performance of the obligation.

 

Insurance requirements

 

There are two types of insurance: voluntary insurance and compulsory insurance. Both are regulated by Mongolia’s laws and other relevant regulations. Compulsory insurances are regulated under specific laws; however, voluntary insurances are governed by regulation provided by Financial Regulatory Committee of Mongolia (“FRC”), the State Authority in charge of insurance and other financial activities.

 

Pursuant to the Law on Insurance, Article 6.5, the Financial Regulatory Committee shall specify the types of insurance(voluntary insurance or immovable property insurance) and include the specification to the Property Insurance type, set forth in the Regulation for Voluntary Insurance Types, provided by FRC, Article 1.2. Therefore, the parties to the tenancy agreement can insure their leased building or other properties under this law, based on their decision and negotiation. Other activities relevant to property insurances including terms of contracts and insurance fees are regulated under regulations provided by the FRC.

 

Finally, there is another voluntary type of insurance is the insurance for liability, which can be used for rental contracts or purchasing immovable property. In practice, the liability of a tenant or landlord whose rented building has high value is usually insured by this type of voluntary insurance.