In 2021, the law firm ADER HABER became the exclusive legal partner of URE Club.Property Times talked to a partner, lawyer, Ph.D., head of real estate and construction practice ADER HABER Oleksandra Fedotova about legislative changes in the field of construction and land law. The expert outlined the main stumbling blocks and identified what changes are needed in Ukrainian legislation in the field of real estate and construction.
– Oleksandra, you have 20 years of experience in the field of construction and real estate, land law. How did the legislation change during this time, was it a progressive movement forward to European norms, were there any slips or even kickbacks?
– I think that the answer to this question can be divided into two blocks: urban planning and land legislation.
As for urban planning legislation, in my opinion, there have been many positive changes, of which, among other things, we can note the following.
Thus, with the adoption in 2011 of the Law of Ukraine “On Regulation of Urban Development” a significant number of “non-transparent” approvals of project documentation and permits were abolished.
The procedure for conducting examinations of construction projects was simplified, the subject composition was expanded at the expense of the private sector, and the scope of mandatory examination of projects was narrowed.
The possibility to limit (reduce) the validity of the original data (for example, a period of two to three years, etc.) was abolished, instead it was declared that the original data are currently valid throughout the construction period. Previously, as a rule, the validity period, in particular, of the technical conditions for design, was greatly reduced, and this required developers to extend their validity at least several times, which led to significant corruption in this area. The abolition of this opportunity has reduced the corruption component, but there is another problem – irresponsible developers who can get the original data and not build for years, depriving other developers of the opportunity to obtain technical conditions due to the limited resource of existing capacity.
It should be noted that earlier for the beginning of construction works, irrespective of complexity of object, it was necessary to receive the permission for performance of construction works. Currently, a completely different approach to the start of construction work has been introduced. Thus, the facilities are divided, depending on certain criteria, into classes of consequences (CC1, CC2, CC3) and the procedure for starting construction work for facilities with minor consequences is simplified. In addition, a procedure was introduced according to which it is allowed to carry out reconstruction, restoration, overhaul of existing buildings and structures without changing the external geometric dimensions of their foundations in the plan, which greatly simplifies construction work with such facilities.
Also, since the beginning of this year, equity participation has been abolished, and last year the Unified State Electronic System in the Field of Construction (EDESSB) was introduced, which is currently only partially operational.
The abolition of the so-called historical and town-planning substantiation, which gave the developers a “moral” (but by no means legal) right to build the relevant objects with the height they wanted. Obtaining IMO was one of the most corrupt components in the construction in the center of Kyiv.
These are not all the positive changes that have taken place over such a long period. The reform is still ongoing, many short stories are planned for this year, so lawyers still have something to work with.
As for the block of land legislation, unfortunately, the main problem of inconsistency between urban planning and land legislation regarding the definition of possible development of the site has not yet been resolved. In July this year, the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine on Land Use Planning” of June 17, 2020 № 711-IX, which aims to address this issue, as well as to simplify the procedure for changing the purpose of land . Currently, this is one of the significant obstacles to the development of the construction industry.
– Outline the main stumbling blocks in modern Ukrainian legislation in the field of construction and real estate. How to overcome them?
– In part, I have already begun to answer this question.
One of the obstacles is the inconsistency of town-planning and land legislation. The market has high hopes for changes in legislation that will take effect in July this year. In my opinion, the definition of possible types of land use for construction purposes should be based on urban planning documentation, and the institution of land use should be abolished. This institution is a rudiment that we inherited from Soviet times.
Another is the ongoing and inconsistent reform of the DABI. For almost a year now, the market has been living in an era of “change and uncertainty.” At the same time, no inspections were conducted for almost the entire year 2020, as there was no legal mechanism for conducting such inspections.
A separate problem is the selective disregard of urban planning documentation by regulatory authorities. In particular, in Kyiv, when issuing town-planning conditions and restrictions, as well as permits for construction works, the Master Plan is often ignored (in particular, in terms of building height, functional purpose of land plots, etc.). Needless to say, if detailed plans of the territory in Kyiv in many cases are developed contrary to the Master Plan (in practice, they are developed in accordance with the never adopted draft Master Plan until 2025).
Another problem is the lack of a holistic concept of city development in many cities due to lack of funds for the development of new urban planning documentation. Developers often abuse the fact that they develop detailed plans of the territory only for their “piece” of land without taking into account the broader perspective.
These issues, in my opinion, can be solved through the introduction of a transparent system for issuing source data, permits, etc., which will be discussed later.
In addition, there are currently issues with the change of the customer of construction of objects of class SS1: the possibility is provided, and the procedure is absent. This is a purely technical issue that is solved quite easily.
Also significant is the problem with the inconsistency of monument protection and urban planning legislation, which, in particular, causes the impossibility of transparent approval of project documentation for construction in historic areas. In particular, the Supreme Court has repeatedly pointed out that in Kyiv there are no boundaries of the Central Historical Area, which is used by developers. Regarding some cultural monuments, there is no scientific and technical documentation, which allows developers to refer to the fact that the relevant monument, in fact, does not exist. Moreover, the legislation on the protection of cultural heritage requires the receipt of permits, the procedure for obtaining which is not provided in principle. This issue needs to be addressed both at the legislative and law enforcement levels. First of all, there should be a meaningful, not a formal approach to solving specific problems.
– How do you assess the prospects of the land market? What are the current risks at the legislative level?
– I really hope for its opening. Of course, at the legislative level there are shortcomings in regulation. In particular, software has not yet been developed that will ensure the interaction of all necessary registers, as well as that will allow the calculation of areas that may be owned by one person (individual, legal entity). Moreover, the procedure of inventory of state and communal lands is still ongoing. However, this should not stop the market from opening.
– The main legislative novelties of 2020. What positive and negative consequences will they bring?
– Among the novelties of 2020 can be highlighted, in particular, the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine on Land Use Planning” of June 17, 2020 № 711-IX, aimed at harmonizing land and urban planning legislation in the context of purpose and function land.
On the positive side, as noted above, the concept of determining the purpose on the basis of urban planning documentation and the possibility of changing such purpose on the basis of an application submitted to the cadastral registrar should be introduced. On the negative side, the new system will operate subject to the development and implementation of appropriate urban planning documentation, in particular, a comprehensive plan for spatial development of the territorial community and / or master plan. This requires funding, which may simply not be available. In addition, the Cabinet of Ministers should develop and approve a classifier of types of land use, types of functional purpose of territories and the relationship between them, as well as the rules of its application. Here a lot depends on the approach of the Cabinet of Ministers to solving this problem. If the Cabinet of Ministers simply duplicates the existing classifier of types of purpose and / or the State Classifier of Buildings and Structures, then a good idea will become a significant barrier for the work of developers. The classifier should enable developers to implement modern concepts and approaches to construction, without violating the interests of communities and respecting existing historical and architectural monuments.
Also, the ongoing reform of the DABI and the launch of the Unified State Electronic System in the Field of Construction (EDESSB) cannot be ignored. Of course, the reform of the DABI is necessary, but what happened in 2020 can hardly be called a successful attempt to carry out such a reform. In my opinion, the transfer of functions from one body to three bodies, the abolition of the procedure for conducting inspections, will not fundamentally change the situation.
Among the novelties is also the abolition of equity participation in infrastructure development (despite the fact that the law came into force at the end of 2019, in 2020 there was a transition period). The law has been fully operational only since the beginning of this year.
– Your assessment of the DABI reform. Which of the reform scenarios would you really help to overcome corruption in this area, in your opinion?
– So far, my assessment of the events that took place in 2020 is negative, both in terms of the strategic approach and the methods of implementation, as I mentioned earlier. Regarding the scenario that, in my opinion, would help, I will note the following.
I believe that the first is maximum transparency and operations via the Internet. At the same time, the grounds for refusal to carry out certain actions must be voiced once and be substantiated. Eliminating the human factor, in my subjective opinion, eliminates corruption, or at least complicates it. The vector that currently exists – in the form of the introduction of the EDSSB, as well as the creation of a database of geospatial data, in my opinion, is correct. Extraterritoriality has also proved itself well on the example of examination of land management documentation.
With regard to the legislative initiative to transfer registration and permitting powers to professional market players (Bill 5071), as well as to increase fines (Bill 5072), I agree with colleagues in the market that this approach is unacceptable in terms of duplication of control and supervisory functions, and the transfer of some functions to the private sector, the introduction of phased control, and a significant increase in accountability.
In part, this may be appropriate, but it should be as well thought out, transparent and taking into account the interests of all participants. In particular, I am not sure that it is a good idea to transfer some of the functions of the DABI to the private sector, as this is a matter of responsibility to a large number of third parties. Who will be responsible to investors in case of revocation of construction permits in court and at what stage is this even possible? The private sector may simply not have the financial capacity to cover all losses.
– What changes do Ukrainian legislation in the field of real estate and construction need? What changes is your company lobbying for?
– Among the main changes that are objectively ripe, we should highlight the following:
– adoption of legislation to protect the rights of construction investors. In fact, at present the developer has absolutely no restrictions in imposing his conditions on investors, and he does not bear any responsibility for non-compliance with “promises” during construction. By signing a contract of sale of property rights, the developer can actually use the money as he pleases, and the investor has no leverage;
– complete updating of the legislation on protection of cultural and architectural heritage, clear definition of administrative services provided by the Ministry of Culture and the Departments of Protection of Cultural Heritage on the ground. At the same time, such updating of the legislation should take place together with technical maintenance of definition of borders and modes of objects of cultural heritage;
– maximum digitalization of the urban sphere. For example, the urban cadastre of the city of Kyiv should be constantly updated with relevant information in order to enable the developer to determine the feasibility and legality of construction of the site;
– updating the legislation in terms of ensuring maximum freedom of the contract to the parties when concluding previous lease agreements in the case of construction of new facilities (for example, in the construction of shopping malls, office centers, etc.);
– decentralization of control and supervisory functions and their transfer to local governments.
– Is it worth buying property at PROZORRO and SETAM online auctions? Should I turn to specialists for help when buying property at auctions?
– I think it’s worth it, but do not save money on professional help. I would like to draw your attention to the fact that when selling an asset at online auctions, a situation is possible in which the building is sold separately, and the land on which it is located is sold separately. The case with the same facts is currently pending before the Grand Chamber of the Supreme Court.
It is also possible to violate the rights of another co-owner of property sold at online auctions (for example, if during the divorce the property was divided, but the ownership of the other spouse was not registered in the register of property rights). The dominant case law is based on the fact that the rights of the co-owner are protected, not the bona fide purchaser.
– In Ukraine, it will be possible to register the ownership of unfinished construction projects (the bill is submitted). Pros and cons of this initiative. Your opinion.
– My opinion is that such an initiative is positive. This will protect the rights of investors, greatly simplify the turnover of such facilities, their mortgage, and thus – will revive lending.
– Does your law firm occupy leading positions in profile rankings, which helps you keep such a high bar? And also projects of what sphere of real estate prevail in practice of your firm?
– Professional approach to each case in the work. We comprehensively analyze and solve our tasks. Our portfolio is dominated by projects related to office and commercial real estate, as well as production (including agricultural). We have housing projects, but their percentage is insignificant compared to others.