CONSTRUCTION OF HOUSING FOR THE NEEDS OF IDPs: THE INTERACTION BETWEEN THE STATE, UTC AND PRIVATE INVESTORS

Oleksandra FEDOTOVA, рartner, head of  real estate and construction practice ADER HABER

On February 24, 2022, the Russian Federation launched military aggression against Ukraine. Since then, the life of every Ukrainian has been divided into before and after. Many people were forced to leave, and many lost their homes. All this set new goals and tasks for Ukraine — in particular, the accommodation of internally displaced persons (IDPs) and the reconstruction of Ukraine.

Surely, no one in Ukraine was ready for this. The current legislation is not adapted to solve the challenges we face. One of them is the combining of community, state and private sector resources to build housing for IDPs. However, many mechanisms that have been developed in peacetime can be adapted for this purpose.

I want to focus on some of them. Obviously, this is not yet a ready road map, but just the tip of the iceberg, which needs to be elaborated and adapted to the present time.

I would like to point out that there are currently two tasks: rebuilding destroyed settlements (including housing) and building housing for IDPs in their current places of residence (in western and central Ukraine).

The main regulatory legal acts that can be used for the outlined tasks are:

• the Law of Ukraine “On Regulation of Urban Development”
• the Law of Ukraine “On Public-Private Partnership”
• the Law of Ukraine “On Alienation of Land Plots, Other Objects Of Immovable Property Located on Them, Which Are Privately Owned, for Public Needs or for Reasons of Social Necessity”
• the Law of Ukraine “On Transfer of Objects of State and Communal Ownership”
• the Law of Ukraine “On Management of State Property Objects”
• the Land Code of Ukraine
• the Law of Ukraine “On Public Procurement”
• the Law of Ukraine “On Industrial Parks”

It is also need to be considered:

• the draft Law of Ukraine “On Compensation for Damage and Destruction of Certain Categories of Real Estate Objects as a Result of Hostilities, Acts of Terrorism, Diversion, Caused by the Military Aggression of the Russian Federation” No. 7198 (hereinafter – Draft Law No. 7198)
• the draft Law of Ukraine “On State Registration of Damages Caused as a Result of the Armed Aggression of the Russian Federation Against Ukraine” No. 7193
• the draft Law of Ukraine “On Amendments to Certain Laws of Ukraine Regarding Priority Measures to Reform the Sphere of Urban Development” No. 7282 (hereinafter – Draft Law No. 7282)

It is important to understand that the Draft Law No. 7198 is intended to resolve the task of rebuilding housing in destroyed settlements. However, it does not resolve the task of creating housing for IDPs in the place of their actual displacement (in western and central Ukraine).

Draft Law No. 7198 provides for monetary compensation to investors of unfinished constructions. In such a case, it is advisable to pay compensation to the developers with the obligation of the latter to complete the objects within the established period. In case of payment of funds to the investor, the latter is not obliged to direct these funds to the reconstruction of the object, and the developer will not have funds for such reconstruction. In addition, compensation provides for the restoration of what was destroyed. The investment object at the beginning of the war could have been unfinished, so the compensation will exceed the real losses.

All options for building housing for IDPs can be conditionally divided into the following groups:

• development of a free land plot;
• completion of the object of unfinished construction;
• reconstruction/repair of real estate that can be adapted for the needs of IDPs;
• temporary placement of small architectural forms on a free land plot – temporary housing for IDPs.

At the same time, at the initial stage of the project, free land plots, objects of unfinished construction, as well as objects that can be adapted housing for IDPs, can be in communal, state and private ownership.

Next, we will consider what mechanisms can be used to transfer objects of state ownership, private ownership to communal ownership. A similar procedure concerns the transfer of objects of communal ownership, private ownership to state ownership, therefore it is not considered separately. We will also consider what mechanisms exist for combining communal and private property in order to achieve the stated goals. Since, again, these mechanisms are also relevant for the combining of state and private ownership.

The transfer of free land plots from state to communal ownership is defined in Art. 117 of the Land Code of Ukraine. It can be used and does not require changes.

The transfer of Objects of unfinished construction and objects put into operation can be carried out in accordance with the Law of Ukraine “On the Transfer of Objects of State and Communal Ownership” (hereinafter – the Law).

What are the main problems of applying this law? It is a limited list of objects that can be transferred to communal ownership free of charge. Other objects can be transferred if they were offered for privatization at least twice in a competitive way, but were not sold. In addition, there is an obligation to use the transferred objects according to their intended purpose, while the purpose of non-residential objects must be changed.

Therefore, the application of this mechanism requires amendments to the law.

How can a private person transfer an object he owns to communal ownership?

A person can:

• relinquish ownership of the object in favor of united territorial community, or
• the object can be transferred for public use in accordance with the Law of Ukraine “On Alienation of Land Plots, Other Objects Of Immovable Property Located on Them, Which Are Privately Owned, for Public Needs or for Reasons of Social Necessity”.

However, there is a problem. The Law of Ukraine “On Alienation of Land Plots, Other Objects Of Immovable Property Located on Them, Which Are Privately Owned, for Public Needs or for Reasons of Social Necessity” among the needs for which objects can be purchased, does not include the need to build housing for IDPs. Therefore, it is necessary to amend the law.

What are the options for implementing projects by combining communal and private property?

а) It is considered that the mechanisms of public-private partnership within the framework of the Law of Ukraine “On Public-Private Partnership” can be used for the implementation of housing for IDPs projects.

Problem: Currently, the procedure is quite lengthy. The proposal is to shorten the terms (at the level of the Cabinet of Ministers of Ukraine).

b) If we are talking about the placement of temporary housing, which is not immovable property, then the implementation of such a project is possible according to the procedure of placement of the small architectural forms. In this case, the purchase of such housing may take place in accordance with the Law of Ukraine “On Public Procurement”. In its turn, the Draft Law No. 7282 is aimed at defining a simplified procedure for such placement.

c) Construction of housing can also be carried out within industrial parks.

The problem is that the Law of Ukraine “On Industrial Parks” is not elaborated for the construction of housing, and in order to use this law for the purposes of building housing for IDPs, it is necessary to make changes to it. But it is necessary to be cautions when using this mechanism, since the law is specifically aimed at the development of industrial zones.

d) Another construction option is to provide the developer with a land plot for the construction of housing for IDPs on a lease basis without holding an auction with the relevant obligations. The current the Land Code of Ukraine does not provide for such a possibility, and it is necessary to make changes to the Land Code of Ukraine. However, again, these changes should make it impossible to misuse this mechanism.