LAND LAW: UKRAINE SEPTEMBER 2009 - MARCH 2010

Salans News, Salans law firm, Kyiv, Ukraine, Thu, April 22, 2010

KYIV - In this issue of Salans News is found information about the important topic "Land Law: Ukraine September 2009 through March 2010."

PART A. Basic regulatory acts governing legal relations with respect to land adopted between September 2009 and March 2010
PART B. VAT paid from operations relating to purchase and sale of land plots if residential houses and structures located thereon are purchased

PART A. Basic regulatory acts governing legal relations with respect to land adopted between September 2009 and March 2010:

1. Law No. 1702 of 5 November 2009 of Ukraine “On amendment of certain Ukrainian legislative acts to streamline the procedure governing the acquisition of land rights” (“Law No. 1702”);
2. Law No. 1559 of 17 November 2009 of Ukraine “On disposal of privately owned land plots and other immovable property located thereon for public use or to satisfy public requirements” (“Law No. 1559”);
3. Law No. 1783 of 19 January 2010 of Ukraine “On amendment of Paragraphs 14 and 15 of Section Х ‘Transitional provisions’ of the Land Code of Ukraine” (“Law No. 1783”);
4. Law No. 1708 of 5 November 2009 of Ukraine “On amendment of certain Ukrainian legislative acts governing responsibility for environmental offences” (“Law No. 1708”);
5. Law No. 1814-VI of 20 January 2010 of Ukraine “On amendment of certain Ukrainian laws governing government support to the aircraft building industry in Ukraine” (“Law No. 1814-VI”);
6. Decree No. 1021 of 9 September 2009 of the Cabinet of Ministers of Ukraine “On approval of the procedures for maintenance of Land Registers (Pozemelna knyha) and the Register of entries for state registration of state acts on ownership rights to land plots and rights of permanent use of land plots, and land lease agreements” (“Decree No. 1021”);
7. Decree No. 1420 of 23 December 2009 of the Cabinet of Ministers of Ukraine “On specific issues of implementation of Article 186-1 of the Land Code of Ukraine” (“Decree No. 1420”);
8. Order No. 168 of 15 February 2010 of the State Committee of Ukraine for Land Resources “On approval of the procedure for assigning cadastre numbers to land plots” (“Order No. 168”);
9. Letter No. 641/22/6-10 of 11 January 2010 of the State Committee of Ukraine for Land Resources “On indexation of normative monetary land valuations” (“Land Resources Committee Letter”).

1. Basic provisions of Law No. 1702
Law No. 1702 made amendments to Article 120 of the Land Code of Ukraine and the Civil Code of Ukraine so that if ownership rights are acquired to a residential building or structure owned or used by another person, then the rights to own or use the land plot accommodating such building or structure are terminated.

The person acquiring the ownership rights to the residential building or structure located on the land plot owned by another person also acquires title to the respective land plot or portion thereof accommodating such building or structure, without any alteration of the designated purpose for such land plot.

Moreover, Law No. 1702 provides that new essential terms in agreements for the acquisition of title to a building or structure (except for apartment buildings) are the area and cadastre number of the land plot subject to such title transfer in connection with the respective transfer of ownership rights to the building.

2. Basic provisions of Law No. 1559
This law establishes the legal, organisational, procedural and fiscal issues governing the procedure for the alienation of land plots and other immovable properties located thereon and owned by individuals or legal entities for public use or to satisfy public requirements.

In particular, Law No. 1559 stipulates that executive authorities and local government bodies have the right to repurchase land plots and other immovable properties located thereon owned by individuals or legal entities for public use for the following purposes:

(1). National security and defence;
(2). Construction, capital repairs, modernisation and maintenance of line facilities and properties for transport and energy supply infrastructure (e.g. roads, bridges, elevated roads, oil pipelines, gas pipelines and water pipelines, electricity supply lines, communication lines, airports, oil and gas terminals and electrical power plants) and properties necessary for their operations;
(3). Accommodation of foreign diplomatic missions, consulate institutions and representatives of international organisations in Ukraine, pursuant to the international agreements executed by Ukraine approved as being mandatory by the Verkhovna Rada of Ukraine (the Parliament);
(4). Accommodation and maintenance of facilities connected with mining operations;
(5). Construction of protective water control structures;
(6). Construction and maintenance of oil and gas wells and the production facilities necessary to operate them, facilities for sub-surface storage of oil, gas and other substances and materials, disposal of harmful substances and production waste;
(7). Establishment of city parks, construction of pre-school educational institutions, recreational grounds, stadia and cemeteries; and
(8). Accommodation of natural reserves and environmental protection areas.

In addition, the provisions of Law No. 1559 stipulate that in the event of alienation of land plots and other immovable properties located thereon, owned by individuals or legal entities, for public use or to satisfy public needs, the owner of such real estate is entitled to payment of a repurchase sum, to include:

(1) the cost of the land plot (or portion thereof), residential house or other structures; (2) the cost of perennial vegetation located on the respective land plot; and (3) the loss incurred by the owner as a result of the land plot repurchase, including the loss suffered by the owner in connection with the early termination of its/his/her obligations to third parties, in particular the total lost profit.
The repurchase price is to be determined by expert valuation.

Under Law No. 1559, in the event of repurchase of a land plot and other immovable properties located thereon for public requirements, the owner(s) of such property may receive compensation for the value of such properties in monetary form or may acquire ownership of a similar land plot or item of real estate, the value of which will be taken into account during calculation of the repurchase price.

Subject to consent of the owner(s), such owner(s) may be granted ownership to another land plot/real estate with a value higher (and a difference in values (as established by expert valuation) of land plot/real estate being repurchased and a land plot/real estate offered as replacement may not exceed 10%). Such difference is to be then covered by owner(s) of the land plot/real estate being repurchased.

Law No. 1559 also governs the situation where a land plot owner, or owner of other immovable properties located thereon, whose land plot or properties is/are designated for public use may disagree with the calculated repurchase value. In this case he/she/it may bring such issue to court.

3. Basic provisions of Law No. 1783
Law No. 1783 creates a prohibition on adding the title to a plot of land (share) to the charter fund of a company until the Ukrainian laws on state land cadastres and on the land market become effective, but in any case no earlier than 1 January 2012.

Moreover, Law No. 1783 stated that until the laws of Ukraine on land cadastres and the land market become effective, but in any case until 1 January 2012, it is not permitted to: (1) purchase or sell agricultural land plots under government or communal ownership, except for in cases of withdrawal (repurchase) thereof for public use; or (2) purchase or sell or otherwise dispose of land plots or change the designated purpose (use) of land plots owned by individuals or legal entities intended for commercial agriculture, land plots allocated on-site (at a specific location) to owners of land interests (shares) used for personal agricultural activities, and also land interests (shares), except for hereditary transfer, exchange of one land plot for another land plot according to law or the withdrawal (repurchase) of land plots for public use.

Actually, Law No. 1783 established additional limitations with respect to the moratorium. Presently, even when the laws on state land cadastres and on the land market become effective, the moratorium covering agricultural designation will remain effective until 1 January 2012.

Although Law No. 1783 “took into account” that the Verkhovna Rada of Ukraine adopted Law No. 1559, and in order to eliminate the conflict between the provisions of the Land Code imposing a prohibition on disposal of certain types of agricultural land and the provisions of newly adopted Law No. 1783, an option was devised making the disposal of agricultural land possible if such land is withdrawn for public use.

4. Basic provisions of Law No. 1708
Law No. 1708 introduces administrative responsibility for: (1) violation of existing regulations on the protection of mineral resources; and (2) destruction or damage caused to vegetation (destruction or damage to forest areas, planted areas adjacent to residential centres or located along railway lines, and also stubble fields, dry wild grasses, foliage or residual foliage on agricultural land caused by fire or other rudimentary or dangerous method).

In addition, administrative and criminal responsibility is introduced for: (1) illegitimate acquisition of surface soil (ground soil coating); and (2) illegitimate acquisition of surface (ground) soil on land belonging to the water resources fund in unusually large amounts. 

Unfortunately, the provisions of Law No. 1708 do not give any definition of what specific actions may qualify as “acquisition of surface soil” or “illegitimate acquisition of surface (ground) soil on land belonging to the water resources fund in unusually large amounts”. It is clear that the above provisions will need further clarification.

It is worthwhile noting that under the provisions of the applicable laws individuals will be brought to responsibility, when they breach the legislation, and officials of relevant enterprises and organisations will also be brought to responsibility when enterprises and organisations breach the legislation.

5. Basic provisions of Law No. 1814-VI
Law No. 1814-VI introduced amendments to Part One Article 12 of the law of Ukraine “On land fees”. In particular, the amendments exempt from land tax aircraft building entities until 1 January 2016, when such entities will fall within the effect of the provisions of Article 2 of the law of Ukraine “On development of the aircraft building industry”.

The tax exempt status only covers land plots directly used for manufacturing end products, specifically: aircraft, aircraft bodies and engines, including areas designated for parking aircraft (warehouses, hangars and parking areas), runways, sites of fuelling stations for aircraft and flight control points.

6. Basic provisions of Decree No. 1021
Decree No. 1021 establishes the form for the Land Register, the procedure for entering records in it and the procedure governing maintenance of the Register of entries for state registration of state acts on ownership rights to land plots and rights of permanent use of land plots, and land lease agreements.

In accordance with Decree No. 1021, the Land Register is an integral part of the State Land Register and contains information about a land plot, limitations on use of the land plot, holders of rights to the land plot and title documents, data about the normative monetary valuation of the land plot, its designated purpose and the composition of land. N.B.: Decree No. 1021 will become effective on 1 January 2011.

The above regulatory document is the document regulating technical issues relating to the use of the Land Register and the procedure for keeping the State Land Register, and is to be used by land resources bodies as a textbook for the registration of land titles. We expect that the document will be partly amended, due to the approval of a new method for state registration of rights to immovable property and its limitations.

7. Basic provisions of Decree No. 1420
Decree No. 1420 approves the model regulations for the committee dealing with the commission of property, issues in connection with the approval of land use, planning and control documents (the “Committee”). Such Committees must be established under Law No. 1702.

The authority of the Committees includes organisation of land use, planning and approval of regulatory documents by the relevant executive authorities and local government bodies in the areas where such Committees are established. Under Decree No. 1420, ‘rayon’ and city state administrations will establish the above Committees in ‘rayons’ and in Kyiv and Sevastopol, or city councils will establish the Committees in oblast cities.

The Committees are permanent bodies. They include representatives of regional bodies of the State Committee of Ukraine for Land Resources duly authorised to sign and seal the respective reports (the Committee chairperson); bodies for city planning and architecture; the Ministry of Environmental Protection; the Sanitary and Epidemiological Service; and the service for the protection of cultural heritage.

The purpose of the regulatory act is to facilitate and streamline the procedure for the allocation of land plots as such decisions are to be adopted by a collective body rather than by each individual government authority as was the case before. It is expected that, as a result of the effect of Decree No. 1420, the procedure for land plot allocation will be fast and inexpensive, and other land management issues will be promptly resolved. 

8. Basic provisions of Order No. 168
Order No. 168 approved the procedure for the assignment of cadastre numbers to land plots and established the procedure for entering such data in the State Land Register.

9. Basic provisions of Land Resources Committee Letter
The Land Resources Committee Letter stipulates that the normative monetary land valuation for 2009 is subject to readjustment from 1 January 2010 by a factor of 1.059; the factor has been calculated based on the average annual inflation index for 2009 – 115.9 %. N.B.: Under Ukrainian laws the normative monetary land valuation is subject to annual adjustment if the average annual inflation index exceeds 1 (one). The normative monetary land valuation is used to calculate the amounts of land tax and rent, state duty paid in barter transactions, inheritance and for the giving of land plots as gifts.

PART B. VAT paid from operations relating to purchase and sale of land plots if residential houses and structures located thereon are purchased

As stated above, Law No. 1702 introduced amendments to the Land Code of Ukraine and the Civil Code of Ukraine. Following such amendments, any disposal of a residential house (structure) and the respective land plot (or portion thereof) owned by the person disposing may be executed as a single agreement.

Therefore, the land laws have removed the option to execute a purchase of real estate and the land plot accommodating it with two separate agreements. In connection with the above, after acquiring title to the aforementioned properties, taxpayers may not register such properties separately, i.e. they may not enjoy a VAT exempt status with respect to the sale of a land plot as under paragraph 5.1.17 of Law No. 168/97-ВР of 3 April 1997 of Ukraine “On value added tax”.

For further information, please contact: Myron Rabij, Partner, Head of Real Estate Group in Ukraine, E: mrabij@salans.com; Anzhelika Shtukaturova,
Associate, E: ashtukaturova@salans.com.

USUBC FOOTNOTE: Salans is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.