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Draft Law No. 2459а, if Enacted, Will Seriously Complicate the Procedure of Obtaining a Permit for Performance of Construction Works for Small- and Medium-Sized Business Entities in the Construction Sphere


Oleksandr Denysenko, Attorney at Law at Ilyashev & Partners Law Firm
Source: The Yurydychna Praktyka

The Parliament has registered a Draft Law No. 2459а “On introduction of amendments to the Article 37 of the Law “On regulation of town-planning activities” (regarding confirmation of availability of funds for keeping up with budget estimates of construction objects).

To the terms of obtaining a construction permit the Draft Law invites to add the documents confirming availability of assets at settlement accounts of the developer or primary contractor or contractor in the volume required to ensure keeping up with budget estimates of construction object(s).

Oleksandr Denysenko, Attorney at Ilyashev & Partners Law Firm, gave a highlight of possible implications of introduction of amendments to Article 37 of the Law “On regulation of town-planning activities”:

“I believe that a requirement to keep certain assets at the bank accounts of developers/contractors engaged into construction of objects of IV-th and V-th category of difficulty in the volume required to ensure keeping up with budget estimates of construction object as of the moment of performance of construction works will only complicate life to diligent contractors. In practice the estimate of construction of an object having IV-th and V-th difficulty category constitutes tens and hundreds of millions, which is why certain customers/contractors may go without attracting investor’s money or bank loans.

In case of construction of residential property investors usually are individual persons who do not rush to invest into future apartments until the moment when house “case” has become clearly visible.

In the process of attracting banking loans and with consideration for high level of loan interest rates the borrowed assets are transferred to the account of the customer/contractor not entirely, but when the need arises, allowing to save considerable amounts. Thus, as of the moment of receipt of the permit for performance of construction works a diligent developer/contractor does not have at its disposal the whole amount of assets required for construction of a construction object.

At the same time the proposed amendments do not stipulate that, even if the developer/contractor has the necessary sum at its accounts, such sums in the future will not be used for other purposes than construction of a certain projected facility in relation to which the permit is issued. Consequently, major construction companies simultaneously engaged into several projects may easily bypass the requirement to keep monetary assets in the volume sufficient to keep up with budget estimates of construction objects by accumulating assets available for construction of several facilities at a certain account. In this respect the aim of the Draft Law to make performance of construction activities by unreliable developers inadmissible, as well as to protect investors’ interests, will unlikely be achieved.

On the other hand this Draft Law, if passed, will seriously complicate the procedure of obtaining a construction permit for small- and medium-sized business entities which will negatively influence the whole market”.

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