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Partner, Attorney, PhD in Law, ADER HABER
Key specialization: real estate, construction, agribusiness, land law
Senior Associate, ADER HABER
Key specializations: real estate and land disputes, antitrust and competition proceedings
Four Influential Trends in Construction — 2021
Development of the construction sector is not possible without transparent regulation. Recent global trends show a revival of the construction sector and recovery from crisis caused by lockdown restrictions.
Ukraine has been trying to improve its investment climate for a long time now, and that includes the construction sphere. This article deals with the main developments that have taken place and those which are in the pipeline for implementation shortly. So, what has changed recently in the regulation of urban planning and what opportunities do they provide?
Reform of Governing Authorities in Construction
Thus, in mid-March 2020, the Cabinet of Ministers of Ukraine (the CMU) liquidated the State Architectural and Construction Inspection of Ukraine (the SACI), an authority that exercised government control over compliance with urban planning law, and established separate authorities in its place, which should cover its functions, in particular: 1) the State Service of Ukraine for Urban Planning (Urban Planning Service), which shall register documents entitling the performance of construction works, as well as documents for commissioning of facilities; 2) the State Urban Planning Inspection of Ukraine (Urban Planning Inspection), which shall perform control and supervisory functions, and 3) the State Agency for Technical Regulation in Urban Planning.
At the same time, the Procedure for State Architecture and Construction Control was terminated, which led to blocking the possibility of carrying out control in construction.
It was only on 30 December 2020 that the Procedure for the State Architecture and Construction Control was renewed and it was made public that SACI inspections were resumed. However, only at the end of March 2021 was control renewed after the nesessary changes had been adopted by the CMU.
The fact that the CMU, by its Resolution No. 1340 On Some Issues of the Functioning of Architectural and Construction Control and Supervision Authorities of 23 December 2020 decided to liquidate the Urban Planning Service, Urban Planning Inspection and to establish the State Inspaction of Architecture and Urban Planning of Ukraine on their basis, causes even more uncertainty. A draft bill in respect of the final liquidation of the SACI will be submitted to the Verkhovna Rada of Ukraine in a few weeks. The SACI will proceed with control function till the State Inspection of Architecture and Urban Planning of Ukraine start its work.
Therefore, the reform continues, and what about construction permits?
Permits and registration in urban planning are possible, for the transition period, via the Unified State Electronic System in the Field of Construction (the Electronic System), whose operation is currently incomplete.
Until 1 January 2021 a developer in Ukraine was obliged (with certain exceptions) to pay a share contribution for the development of infrastructure in the amount determined by the municipal authority (not exceeding 10% of the total estimated cost of the construction for non-residential buildings and structures, and 4% of the total estimated cost of the construction for residential buildings and structures).
These funds should have been provided for the development of infrastructure in settlements where the construction was to take place (roads, schools, kindergartens, etc.). Unfortunately, there were frequent incidents when developers not only paid these contributions, but also repaired / built roads and other infrastructure facilities at their own cost.
So share contributions were cancelled on 1 January 2021. The share contribution will also be cancelled for developers which began construction in 2019 or 2020, but will continue construction works in 2021. Agreements made before 1 January 2020 are valid and remain effective until the full performance thereof.
As was mentioned, the fixed amounts of share contributions were established by the municipal authority, and now not all such decisions are withdrawn. For example, this procedure is still valid in Kyiv. Municipal authorities are not excited about the prospect of cancelling such contributions, as they formed a sizable part of local budgets.
Therefore, the possibility of court disputes arising in this sphere remains possible, at least in 2021.
Change of Land Plot Purpose by Application and Geospatial Data Law
Law of Ukraine No. 711-IX On Amendments to Certain Regulations of Ukraine in Respect of Land Use Planning (the 711 Law) was published on 24 July 2020. The 711 Law amended the range of regulations aimed at facilitating the change of designated use and functional purpose of a land plot. This Law shall come into effect on 24 June 2021 (with certain exceptions). The transition period lasts from 24 July 2021 to 1 January 2025.
A reminder that Ukraine currently has a principle whereby the development of a land plot is possible only in accordance with the designated use of such a land plot, which shall be determined by land survey documents, as developed, agreed and approved in accordance with land legislation. In its turn, development shall also comply with the town planning documents available in a particular settlement. This issue is also regulated by the other range of regulations in respect of urban planning. There are cases quite often when the designated use of a land plot does not match with its functional purpose according to urban planning documents.
The 711 Law aims to rectify this situation. Thus, a new type of document — a comprehensive plan of spatial development of the territorial community (the Comprehensive Plan) — has been introduced, which shall determine planning organization, functional purpose of the area, boundaries of the functional zones, road network, engineering and transport infrastructure, etc. within a particular territorial community. The provisions of other local urban planning documents shall be aligned with the Comprehensive Plan.
The Comprehensive Plan shall be developed during the transition period. Functional zones established by the Comprehensive Plan shall list the permitted types of designated use of the land plots. The classifier of types of designated use of areas and the types of designated use of land plots permitted within their boundaries shall be approved by the CMU by 24 January 2021. All this data will be recorded with the State Land Cadastre. Accordingly, the designated use will be changed not in accordance with the land management project, whose development and approval requires considerable time and funds now, but by submitting an application to the cadastral registrar.
It is worth noting that the Law of Ukraine On National Infrastructure of Geospatial Data of Ukraine was enacted on 1 January 2021. This Law aims to unify data recorded with the different registries and information databases in one system. That will enable any developer to save time and costs required to find information about a land plot and the real estate underlying it.
Improvements of Circulation of Incomplete Construction
In this block of issues, we would like to draw your attention to the fact that currently enacted Draft Law No. 0850 On Amendments to Certain Regulations of Ukraine (in Respect of a Single Legal Share of the Land Plot and the Real Estate Underlying it) dated 29 August 2019, inter alia, stipulates that with the sale of an incomplete construction facility the buyer shall acquire title or right to use (lease, superficies, etc.) in respect of the land plot where such facility is located, to the extent and under conditions set for the previous owner. In such a case, the will of a landowner shall not be required, and the transfer of title or right to use in respect of the land plot to the buyer, in particular, of the incomplete construction facility, shall be registered under the sale and purchase agreement.
What is the point of such changes? Such changes, in particular, shall provide for the opportunity to alienate an incomplete construction facility that is under construction on the leased land plot, without passing all the bureaucratic stages required to re-register the lease agreement. Basically, the right of lease can be registered on the same day as the title to the purchased incomplete construction facility.
In the past the sale of an incomplete construction facility did not cause, in particular, automatic transfer of the right of lease to the land plot. The buyer should have entered into a new lease agreement and the seller to terminate his agreement. In many cases the land fee was “doubled”, since the tax authorities required the seller to pay a lease payment and the buyer to pay the land tax. In addition, an incomplete construction facility was not always considered an immovable property and, therefore, the buyer of an incomplete construction facility did not always have an opportunity to enter into the lease agreement in respect of the land plot, where such facility is located, without the necessity to take part in a land auction.
Draft Law No. 5091 On Guaranteeing Proprietary Rights to Future Immovable Property is also currently registered. Its aim is to fight fraud in respect of circulation of individual apartments and non-residential premises in facilities which are under construction. It proposes to introduce registration of the rights to such facilities that will prevent their double or treble sale and to simplify the procedure for creating a mortgage over such facilities.
Reform of the construction sector is ongoing. Please note the following key recent developments:
1. The regulatory authorities had been deactivated for the period of one year. This could lead to an increase in the number of illegal developments and court disputes arising in this sphere. In addition, the Unified State Electronic System in the Field of Construction has been introduced, which will enable the receipt of construction permits and registration of documents for the commissioning of facilities.
2. The share contribution has been cancelled. This means developers will save from 4% to 10% of the total estimated cost of construction.
3. Unification of land and urban planning legislation with respect to determination of designated use of land plot will be implemented from mid-July 2021. This will make it possible to determine such purpose by filing an application to the cadaster registrar and will significantly facilitate the preparation procedure in respect of construction.
4. At present the procedure on re-registration of the right to use a land plot in the event of acquisition of an incomplete construction facility is greatly simplified. In addition, it is planned to introduce registration of proprietary rights to immovable property to be built in the future. This will enable the protection of the rights of investors in construction and facilitate the possibility to conclude mortgage agreements regarding such facilities.