Who is more important?
Depending on the cornerstone provision of law, the following positions may be adopted:
• a position of equal protection of rights of each owner. This position rests upon the provision, which stipulates equal conditions for the exercise of ownership as described in Articles 13 and 41 of the Constitution of Ukraine and in Article 319 of the Civil Code of Ukraine;
• a position of the first priority ownership of a land plot and second priority (derivative) ownership of a real estate. The supporters of this position deem it important that “ownership of the land plot applies to a surface (soil) layer within the boundaries of the land plot concerned, to water bodies, forests, perennial plantings growing thereon and to space over and under the land plot surface, in height and in depth required to build residential, industrial and other buildings and constructions” (Article 373 of the Civil Code of Ukraine, and similar provision is contained in Article 79 of the Land Code). Therefore, in the event of a conflict of interest, ownership of the real estate located on the land plot may be claimed by the owner of such land plot. Furthermore, one cannot deny that the land plot owner may demand removal of any third-party assets from the land plot (in our case – removal of the real estate) due to the fact that this prevents the owner from exercising his/her ownership of the land plot (Article 391 of the Civil Code of Ukraine); and
• a position of the first priority ownership of the real estate located on the land plot.
By July 2007, the latter position was most unconvincing but amendments to Article 120 of the Land Code regarding automatic accrual of land plot ownership in the event of real estate ownership gave additional arguments in its favour. It should be reminded that the above Article now says that “A person purchasing a dwelling house, building or construction acquires ownership of the land plot where the foregoing is located, without any change in its intended purpose and to the extent contemplated by the agreement. If the agreement for alienation of the dwelling house, building or construction does not determine the land plot area, the acquirer shall acquire ownership of that part of the land plot, which is under the dwelling house, building or construction, or of that part of the land plot, which is required for maintenance of the same.” Furthermore: “If the dwelling house, building or construction is located on the land plot made available for use, then, if they are alienated, the acquirer shall acquire the right to use that part of the land plot where they are located and that part of the land plot, which is required for maintenance of the same.” It should be highlighted that such provision existed before the above-mentioned date and was laid down in Article 377 of the Civil Code of Ukraine.
Automatically? Only if on paper…
Although automatic accrual of the land plot ownership in the event of real estate ownership is quite logical, it is disputable in content and application.
First, ”automatic accrual“ is only possible if purchasing a dwelling house, building, or construction on the basis of an alienation contract.
The fact that the foregoing provision makes reference to the alienation contract restricts the scope of its application to contractual options of real estate ownership acquisition and rules out the options of real estate acquisition on the basis of other title documents set forth in Procedure No. 7/5 . Acquisition requires compensation, which rules out a possibility of applying this provision to the transactions involving free-of-charge acquisition of real estate ownership.
Second, the land plot ownership is only accrued in the event of acquisition of a particular real estate such as dwelling house, building or construction.
Here, interested parties face another restriction since the real estate properties recognized and registered in Ukraine are not reduced to dwelling houses, building and constructions.
A dwelling house is understood to be a property constructed in compliance with the requirements of laws and regulations and intended for permanent residence (Article 380 of the Civil Code of Ukraine). The dwelling house is defined by the State Building Standards ДБН В.2.2-15-2005 as a single-family dwelling house with a household plot, which has no more than three floors. Thus, the “dwelling house” category shall no include a multifamily dwelling house, which is considered to be a complex of apartments, non-residential premises, auxiliary premises and operating equipment, rather than a separate real estate property (Article 382 of the Civil Code of Ukraine). Therefore, even if we assume that an interested party purchases all the apartments and non-residential premises (e.g., in a semi-detached dwelling house), the fact whether such person will automatically acquire ownership of the land plot is doubted. In support of such doubts, we may refer to Article 42 of the Land Code, which stipulates that land plots under privatized multifamily dwelling houses are transferred free-of-charge into ownership or provided for use to a condominium of multifamily house co-owners, rather than to apartment owners.
Definition of buildings and constructions recognized in Ukraine and of their types can be found in the State Classifier of Buildings and Constructions ДК 018-2000 . Constructions means construction systems linked to land, which are made from building materials, semi-finished products, and equipment as a result of various construction and assembly works. Buildings means constructions consisting of load-carrying or connecting structures used to build above-ground and under-ground facilities intended for occupation by people, animals, plants and objects.
Thus, land plot ownership shall not be automatically transferred if purchasing:
• an apartment;
• a part of building and construction;
• construction-in-progress, whose ownership is not registered with the Bureau of Technical Inventory;
• temporary facility; and
• perennial plantings.
This fact is supported by opinions of the State Land Resources Committee of Ukraine as stated in its Letter No.14-17-2-Д933/2055, dated July 3, 2007.
Third, formula “area of the land plot acquired together with the real estate property = area of the land plot occupied by the real estate property + area of the land plot required for maintenance of the real estate property” contains an unknown parameter such as area of the land plot intended for maintenance of the real estate property. At first sight, this area can be determined by agreement of the parties as set forth in the contract. However, such answer is unambiguous only if a land plot owner is a real estate seller. If the land plot is used (leased) by the real estate seller, determination of the area of the adjoining land plot falls within the competence of a local or executive authority pursuant to Article 12 of the Transitional Provisions of the Land Code.
Anyway, termination of land ownership by the seller should take place before the land ownership is transferred to the purchaser. Such termination is possible if using two key methods: the land owner should abandon ownership in favor of the territorial community or the State (Article 142 of the Land Code) or should consent to withdrawal of the land plot (Article 149 of the Code). However, abandonment of ownership by the land owner entails the risk that the local or executive authority transfers a part of the land plot adjoining the real estate property to any third party. However, consent to withdrawal of the land plot is given to a certain party, which makes this option safer for the transaction parties.
Fourth, the moment of land ownership transfer shall be either the moment of issuance of the registered state act of land ownership or the moment of state registration of the concluded lease/sublease agreement, rather than the moment of entry into a property alienation contract. Such conclusion can be drawn based on the provisions contained in Articles 125, 126 of the Land Code and Article 18 of the Land Lease Law.
Considering the time gap between the moment of real estate purchase and the moment of land ownership transfer, automatic transfer appears to be quite nominal.
Fifth, issuance of the state act of land ownership and entry into the land lease/sublease agreements take place solely on the basis of a land purchase agreement, court decision or decision (instruction) of a local or executive authority, rather than based on the real estate purchase agreement. Such conclusion is based on the requirements of Instruction No. 43.
Therefore, a person that purchased a dwelling house, building or construction located on the land plot, which is, for instance, communally owned, should enter into a land lease agreement with a local authority. To that end, the interested party should observe the following steps.
Step 1. Apply to a local authority (village, settlement, town council) by filing a motion (application) to the reception room or to a permanent land resources committee for approval of the elaboration of a land allocation plan. The following items must be attached to this plan:
• a copy of a land plot plan from a settlement map where the land plot is the one applied for by the interested party and the land plot plan is at a scale of 1:2000 or 1:500, with tentative land plot boundaries located;
• information on the desired intended purpose of the land plot;
• information on the legal status of buildings or constructions;
• a reference from the department of tow-planning, architecture and urban design of the executive committee of a local council stating that this land plot was not allocated to anybody.
Step 2. Send copies of the set of documents to the land resources department of the executive committee of a local council for drafting an opinion regarding approval of land allocation plan development. Receive a positive opinion of the land resources department within the period set forth in local regulatory documents, e.g. such document for Kyiv is Decision No. 457/1867 of the Kyiv City Council, dated July 15, 2004.
Step 3. Receive the decision of a local council regarding the approval of land allocation plan development. Unfortunately, local collegial bodies of people are not limited in time for rendering their decision, unless otherwise provided for by their regulations.
Step 4. Apply to a land surveyor for elaboration of a land management project for land allocation purposes.
Step 5. Ensure, together with the land surveyor, that the developed land management project for land allocation purposes is approved by the following authorities:
• land resources department of an executive committee;
• department of town-planning, architecture and urban design of an executive committee;
• cultural heritage protection department of an executive committee;
• environmental protection department of an executive committee;
• sanitary and epidemiological station; and
• land user or land plot owner.
Each of the foregoing authorities (persons) should issue a written opinion pursuant to Resolution No. 677 of the Cabinet of Ministers of Ukraine, dated May 26, 2004.
Step 6. Wait for an examination of the land management documents (allocation plan). This examination is carried out by land resources authorities within 20 business days following the provision of documents and an opinion is issued after this examination.
Step 7. Ensure the provision by a land surveyor of land plot allocation plan to the land resources department of an executive committee for the local authority to draft its land plot allocation-related decision.
Step 8. Wait until the draft decision is considered at the plenary session of the local council and until the land plot allocation is decided upon, which is not limited in time. The most important is to make sure that the documents collected are not expired.
Step 9. Apply to a land surveyor for technical documentation development in order to enter into a Lease Agreement pursuant to Instruction No. 43.
Step 10. Sign the Lease Agreement with a local council.
Step 11. Ensure state registration of the Lease Agreement pursuant to Resolution No. 2073 .
Such steps take about a year in general.
Surely, those finding unsuitable such “automatic” transfer of land plot ownership in 11 steps having one year spent may recourse to court based on Article 120 of the Land Code and Article 377 of the Civil Code of Ukraine.
A solution with a court shall be after respective authority declines to issue a state act of land ownership or to execute a land plot lease agreement. After having received from the respective authority a documented refusal or after its failure to act has been recorded, a party concerned may recourse to court claiming to admit its right to own the land plot so automatically acquired (Article 392 of the Civil Code of Ukraine) or to hold a lease agreement as entered into (Article 180 of the Commercial Code of Ukraine, paragraph 2, Article 220, of the Civil Code of Ukraine).
When automatic operation is not desirable
On the one hand, however, there is a situation when it is difficult or impossible to benefit from automatic transmission of rights to the land plot. On the other hand, there is a situation when automatic transmission of rights to the land plot exposes a party concerned to a risk such as the risk of seizing a land plot in whole rather then its part or the risk of seizing a larger part of the land plot than it was intended theretofore, etc.
In order to examine actions aimed at managing the above risks, the following problem, resembling more a legal puzzle, is suggested to be resolved.
Example. A company acts as a construction customer (Developer) with respect to a cottage village consisting of ten dwelling and recreation houses on the land plot allotted for such purposes to be leased. The developer faces a challenge not only to construct, but also to deliver constructed cottages to be owned by purchasers subject to operation of Article 120 of the Land Code of Ukraine and Article 377 of the Civil Code of Ukraine, and taking into consideration that all houses are located on a single land plot.
A solution should be found for delivering each cottage to a specific purchaser so that the latter will not claim the rights to the entire land plot and common use territories.
Once the ownership rights to the cottage are accrued to the purchaser, title to the land plot is vested in it in accordance with Article 120 of the Land Code and Article 377 of the Civil Code of Ukraine. Since former land user (Developer) possesses the land plot as leasehold, then upon notarizing an exchange agreement the purchaser shall be become entitled to use the land plot which conventionally may be divided into two parts:
• right to use the land plot under the cottage;
• right to use the land plot designated for maintaining the cottage.
As it has been already mentioned, the laws give no definition of the land plot area required to maintain the cottage title to which is vested in the purchaser. Therefore, a purchaser intending to benefit from the right to privatize the land plot may claim its right to the land plot which area is larger than it was expected (for example, the area determined as a standard free privatization in Article 121 of the Land Plot).
In our opinion, any actions for reducing Developer’s risks should be taken after commissioning the constructed cottages only. If anything is to be done theretofore, a change in the land user would result in a requisition to re-execute the construction permitting documents.
The following solutions may be suggested for such problem:
• first solution: repurchasing the land plot by the Developer from the communal ownership with further division and delivering either to be leased or owned by the purchasers of the cottages;
• second solution: terminating the Developer's right to a part of the land plot and letting on lease such land to the purchaser of the cottage (sublease);
• second solution: notarized waiver by the purchaser from its right to the land plot in accordance with section 142 of the Land Code.
The most harmless in financial terms and attractive solution among those listed above both for the Developer and purchasers is the second solution (sublease). If so, an action plan for the Developer may be the following.
Step 1. Developer obtaining the certificate evidencing the ownership right to the cottages.
Step 2. Ensuring mapping and survey operations to be carried out. Such operations shall result in boundaries demarcating parts of the land plot under each of the cottage and drafting a cadastre plan showing potential servitudes for passages/transit through the land plot in accordance with Article 55 of the Land Management Law and recording the same in land plot demarcation certificates.
Step 3. Obtaining consent from the lessor to sublease the land plot. If within a month after the Developer has applied to the local government or executive power authority such consent is given or neither such consent nor objection is given, a sublease agreement may be entered into in pursuance of Article 8 of the Land Lease Law.
Step 4. Ensuring technical documents to be prepared for drafting the sublease agreements in accordance with Article 56 of the Land Management Law.
We note that an allotment project for a part of the land plot is not required to be drafted, agreed upon and approved, if the intended purpose of such land plot part to be delivered (section 2, Procedure No. 677 ) is not changed. We assume that the designated purpose of the land plot will not be changed upon delivering a part thereof.
Step 5. Developer entering into the following agreements with the purchasers:
• agreement establishing servitude (for transit or passage through land plots of common use);
• sublease agreement for the land plots under each of the cottages.
Step 6. Recording the agreements establishing servitudes and sublease agreements in the Book of Entries for State Registration of Land Lease Agreements according to Resolution No. 2073.
Step 7. Indicating in the agreement to be entered into between the Developer and purchaser upon selling a cottage to the purchaser, a specific area of the land plot (consisting of land plot under the cottage and land plot for maintaining the cottage), which right to use shall be vested in the purchaser. The same agreement should indicate encumbrances over the land plot such as servitudes. The land plot area shall be indicated according to the sublease agreements made in relation to a part of the land plot. The agreement establishing the servitude as entered into with the purchaser may be re-executed on a condition precedent regarding its effectiveness, i.e. effective upon obtaining the right to the land plot.
Step 8. Applying to a local or executive authority for consent to withdraw the land plot for the purpose of its use by the purchaser. The lease agreement then in effect (if the Developer still possesses the land plot for maintaining the infrastructure) should be amended to shown an increase in the land plot area.
So, as you see all is not gold that glitters. For certain, the same all is not “automatic” transmission of the title to land plot that is declared in Article 120 of the Land Code and Article 377 of the Civil Code of Ukraine.