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Reaching Reallocation

20.05.2019

Dmytro Hrybov, Attorney at Law

Source: Yuridicheskaya praktika

The amount of rent for land is fixed by the land owner, and may be reviewed on the grounds of legislative changes to its minimum or maximum amounts and with the mutual consent of the parties only.

It is commonly known that Ukraine has extended the moratorium on the sale of agricultural lands. Notwithstanding the position of the European Court of Human Rights presented in its Judgment in the case Zelenchuk and Tsytsyura v. Ukraine (applications Nos. 846/16 and 1075/16), the Law of Ukraine No. 2666-VIII, adopted by the Verkhovna Rada of Ukraine on 20 December 2018 and subsequently signed by the President on 4 February 2019, extended the moratorium on the sale of agricultural lands in Ukraine till 2020.

A Number of Restrictions

It is worth noting that in terms of land acquisition the legislator also establishes a number of other restrictions, which today are subject to additional review and, probably, further elaboration. For example, the Land Code of Ukraine stipulates that foreign citizens and stateless persons can acquire the right of ownership to non-agricultural land plots only within the boundaries of settled areas and non-agricultural land plots outside the boundaries of settled areas on which the real estate objects are located, and foreign legal entities may acquire the right of ownership to land plots within the boundaries of settled areas in the case of acquisition of real estate objects and for the construction of objects related to their business activities in the territory of Ukraine, as well as outside the boundaries of settled areas in case of purchase of real estate objects. In other words, the foreign nationals as well as stateless persons and foreign legal entities are effectively deprived of the right to purchase land outside the boundaries of settled areas for the construction of real estate on it, although this does not in any way deprive them of the right to rent such land, build real estate object thereon and then buy it, which in the light of the above sounds a bit confusing and illogical.

This is exactly the reason why the rent of land became so widespread. And if in the case of privately owned land plots the lessor and the lessee relationships are quite transparent and regulated, the use of the state-owned and communal land plots still involves a number of typical difficulties.

One of the most common categories of land related disputes is the disputes related to the fixing, calculation and change of the amount of rent for the use of state-owned and communal land plots.

Pursuant to Article 21(2) of the Law of Ukraine On Land Lease (“Law”), the size and terms and conditions of the rent payment for land are determined by agreement of the parties in the lease agreement, and the terms and conditions of the rent payment for the state-owned and communal land shall be in accordance with the requirements of the Tax Code of Ukraine. In turn, Article 30 of the said Law stipulates that the amendment of the terms and conditions of the land lease shall be carried out only upon the mutual consent of the parties.

In 2013-2014, the administrative courts adhered to a position that was largely based on the land lease terms determined by the parties in the land lease agreement, noting that a change in the amount of land tax was the basis for reviewing the fixed amount of rent by amending the lease agreement by the parties involved. Yet it does not entail an automatic change in the terms of the land lease agreement as regards the change in the amount of rent (Resolution of the Higher Administrative Court of Ukraine (HACU) dated 16 April 2014 in the case No. 2a-8412/12/2070, Ruling of the HACU dated 1 September 2015 in the case No. 818/7110/13).

Practice is Changing

In 2014, the HACU decided to dramatically change its position as to the disputes related to the accrual of rent, referring to the fact that the rent for the use of state-owned and communal land plots is a regulated price with certain minimum and maximum limits, and an annual amount of rent shall not be less than the amount specified in Article 288(5)(1) of the Tax Code of Ukraine. Moreover, the Supreme Court of Ukraine, taking into account the ambiguous application by the Higher Administrative Court of the same substantive rules in similar legal relations, expressed its legal position according to which the amount of rent should be determined based on the provisions of the Tax Code of Ukraine, but not the terms of the lease agreement (Resolutions of the Supreme Court of Ukraine dated 2 December 2014 in the case No. 21-274a14, and dated 7 April 2015 in the case No. 21-117a15, etc.).

Thus, the Supreme Court of Ukraine has actually found that the amount of rent is normatively regulated, and the opportunity to refer to its decisions in this category of cases provided an instrument for lessors (as well as to the local governments and state administrations) to unilaterally amend the lease agreements for state-owned and municipal lands in terms of changes to the amount of rent, which in many cases does not fully complies with the provisions of Article 21 of the Law of Ukraine On Land Lease, Article 56.21 of the Tax Code of Ukraine and Article 58 of the Constitution of Ukraine.

The Supreme Court, including its Grand Chamber, began its work at the end of 2017.

In its Resolution dated 16 April 2018 in the case No. 910/7905/17 the Supreme Court stated that a change in the amount of rent (as a percentage of the regulatory and monetary assessment), formalized in the decision of the local self-government body, cannot be considered a legal basis for amending the land lease agreement in terms of the amount of rent, since this decision does not set forth the limits (minimum and maximum) of rent for the communal land plots. At the same time, the decision of the local self-government body may serve the basis for amending the land lease agreement if the parties thereto have determined such a basis for reviewing the rent amount in the agreement itself, which is consistent with the freedom-of-contract principle provided for in Articles 3, 6, 627 of the Civil Code (CC) of Ukraine.

Moreover, reaffirming the civil legal nature of the rent when regulating the land relations, including those related to the leasing of the state-owned and communal lands, on 17 April 2019 the Supreme Court in its Resolution in the case No. 927/430/17 stated that “in the absence of any breach expressly specified in the land lease agreement on the part of the lessee, when reviewing the amount of rent as a ground for unilateral termination of the lease agreement at the initiative of the lessor, the general rule provided for in Article 651(1) of the CC of Ukraine applies, which envisages a possibility of making changes to the lease agreement (including as related to the amount of rent) only with the mutual consent of the parties. In this regard, the defendant’s disagreement with the claimant’s proposal to increase the rent does not itself violate the terms and conditions of the lease agreement and, accordingly, cannot serve the grounds for termination thereof on the initiative of the lessor with reference to Article 651(2) of the CC of Ukraine.

Today the Supreme Court takes a consistent and logical position: a legislative change in the rent maximum and minimum amounts serves the grounds for amending the lease agreement for communal and state-owned lands in terms of changing the amount of rent, but the amount of such rent should only be established upon agreement by the parties to the lease agreement, unless otherwise provided for in the agreement itself.

It should be noted that when agreeing the terms and conditions of the land lease agreement, including when establishing the amount of rent for the use of state-owned and communal lands, in cases where the conclusion of such agreement is binding under the law (under Article 187(1) of the Economic Code of Ukraine, for example, in connection with the acquisition of real estate property), the question of application of the freedom-of-contract principle yet remains open – sometimes reaching absurd lengths – since the established order of conclusion of such agreements not only deprives the lessee of any opportunity to participate in the process of agreeing the rent amount or certain terms and conditions of the agreement, but also makes it dependent on the unilaterally made decisions of the local self-government bodies as regards the lease of communal land plots or of the heads of state administrations as regards the lease of state-owned lands.

 
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