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Construction In A New Way: Lawmakers’ Initiatives


Vladyslav Uryvskyi, lawyer at Ilyashev & Partners Law Firm

Advantages and disadvantages of the cancellation of construction difficulty categories

On January 17, 2017 the Ukrainian Members of Parliament are starting their session after the Christmas holidays. This plenary week shall conclude the fifth session of the Parliament’s eighth convocation. One of the documents to be considered in the second reading at this session is the Draft Law No. 4733-1 «On Amendment of Certain Laws of Ukraine on the Improvement of Urban Planning».

This Draft Law proposes the amendments to the Ukrainian Code of Administrative Offences and the Laws of Ukraine on “Basics of Urban Planning”, “On Architectural Activities, “On Land Planning”, “On Financial and Credit Mechanism and Property Management in Housing Construction and Real Estate Operations”, “On Community Redevelopment”, “On Urban Planning Regulation”, “On the Liability for Urban Planning Infringement”, “On Licensing of Commercial Activities Types”. As stated in the Explanation Notice all changes shall be implemented in order to “harmonize the legal regulations with the best European licensing practices in construction sector”.

It is worth to mention that the Draft Law was approved in the first reading on July 12 of the last year. In case the document is approved as it is, the construction sector of Ukraine shall be subject to a significant revision of work conditions. And taking into consideration the activization of domestic developers observed for the last several years, any legislative novelties in this sector shall influence the market immensely.

The cancellation of the difficulty categories of construction projects shall become the main novelty. Currently all construction projects in Ukraine are divided into I, II, III, IV and V categories of difficulty as envisaged by article 32 of the Law of Ukraine “On Urban Planning Regulation”. The assignment of either category to each project is due to “the conscious” of project organization and construction owner. Therewith, the assignment of categories of the highest difficulty degree – IV and V – is regulated by the appropriate regulation approved by the Cabinet of Ministers on April 27, 2011 (Resolution No. 557).

In addition, the difficulty category of construction project is designated according to the public construction standards based on the consequences (liabilities) class of such construction project taking into account the recommendations and requirements of DSTU-N B V.1.2-16: 2013 “Designation of Consequences (Liabilities) Class and Category of Difficulty of Construction Projects”. The consequences (liabilities) class represents the possible consequences of the demolition or shutdown of the constructed project, and therefore – potential degree of liability of entities participating in the construction thereof.

The Draft Law No. 4733-1 reverses this model. Thus, under this draft the construction projects:
• I and II categories of difficulties fall into the project with low (СС1) consequences;
• III and IV categories of difficulties fall into the project with medium (СС2) consequences;
• V category of difficulties – project with high (СС3) consequences.

Exactly the designated category of difficulty of the construction project shall influence the elaboration of project documentation, whether it shall be subject to expert assessment, which licensing and commissioning procedures shall apply. Therefore, at the moment the designation of the category of difficulty may be regarded as the cornerstone of any construction activity.

At the same time, according to recent numbers, only 0.8% of construction sites in Ukraine are developed based on the approvals to conduct construction works for the IV and V categories of difficulties. Whereas, 53.2 % of constructions are developed based on the registered declaration and another 46% – based on the notification on the beginning of construction works.

In the course of the round table “Reformation of licensing system in construction sector as a mean of effective counteraction to illegal constructions”, organized by the Ukrainian Building Community in October, 2016, such situation arises out of the artificial lowering of construction difficulty to the III category by the developers.

For example, in order not to obtain the authorization, the developers divide big residential complexes into separate buildings and commence the construction under the declaration principle, registering the declaration as for the projects of the III category of difficulty. In such a way unfair developers knowingly avoid the validity checks of their documents indicated in such declarations. This consequently deprives the state architectural and construction inspection of the opportunities to prevent unauthorized construction. As a result, each fifth project of the III category of difficulty is reported to contain an invalid data in the declaration and lowered category of difficulty.

Therefore, pursuant to the explanatory note to the abovementioned Draft Law, the categories of construction difficulty should be cancelled, the licensing procedures within one class of consequences should be combined, and the authorization system should be changed from three-tire (notification, declaration and approval) to two-tire (notification and approval) system.

Now it is time to consider the details of main novelties of the proposed Draft Law.

Amendment of licensing procedures for the construction

According to currently applicable procedure the interested entity is entitled to construction works upon:
• The submission of the notification on the commencement of construction works for the projects to be built based on construction passport;
• The registration by the state architectural and construction inspection of the declaration on the commencement of construction works – for the projects relating to I-III categories of difficulty;
• The issuing by the state architectural and construction inspection of the license for construction works – for the projects relating to IV and V categories of difficulty.

The Draft Law No. 4733-1 sets forth that the projects with medium and high consequences are allowed for construction only upon the obtainment of the construction license by the project owner. Therefore, for the construction of project with the III category of difficulty the obtainment of license will be obligatory.

For those willing to invest into the “square meters” of Kiev this is definitely a positive novelty: there were a lot of cases for the past years when the construction sites in the capital were recognized as unauthorized, the regulatory authorities terminated the construction works that caused losses to the investors. The abovementioned adjustment shall provide for the control of apartment complexes building and for timely prevention of unauthorized construction.

However, for the development companies this shall complicate the conduct of their commercial activities. Moreover, the construction projects with medium and high consequences shall be subject to obligatory expertise. In other words, the large developers shall experience additional cost load.

At the same time, the provided by the Draft Law procedure shall improve the situation for small and medium entrepreneurs and small development companies. Based on the notification it will be allowed to construct the buildings not higher that two floors (excluding the attic) with the floor-space up to 300 square meters. Pursuant to the Draft Law, starting from the next day after the notification submission it will be possible to build private, small apartment complexes, administrative buildings for small, medium business, and residence housing up to four floors with the space more than 300 square meters.

The positive innovation is that the law designates the requirements for assigning that or another project to certain class of consequences (liabilities). For example, the projects with the high consequences (СС3) shall be the following:
1. Cultural property designated under the Law of Ukraine “On the Protection of Cultural Heritage”.
2. High-risk projects according to the Law of Ukraine “On High-Risk Projects”.
3. Residential, social or multi-purpose buildings higher that 100 meters and/or with the high-risk level for health and life of more than 400 persons that are constantly present at the site.

Thus, the liquidation of the difficulty categories will lead to the liquidation of the registration of declarations on construction commencement. However, the declarations on construction commencement that have already been registered shall be valid until the conclusion of construction works, unless otherwise terminated. Such norm is included into Transitional and Final Provisions of the Draft Law.

Liability for urban planning infringement

The Draft Law enhances the liability for the infringements in urban planning sector during the construction of projects of the III category of difficulty.

Under currently applicable Law “On the Liability for Urban Planning Infringement” for the construction works without the registration of the declaration on such construction commencement, as well as for the invalid data in the declaration, the urban planning entities are liable to penalty in the amount of 90 minimum wages.

After the enforcement of the amendments the construction without the relevant license of the projects of medium consequences (III and IV difficulty category) shall be subject to penalty in the amount of 370 minimum wages. Considering the recent increase of the minimum wage up to UAH 3200, the penalty shall amount to UAH 1,184 million.

Having analyzed all abovementioned, the logical question arises: may the discussed Draft Law be considered as positive in terms of investment climate in Ukraine? The developers constructing projects of the III difficulty category will be obliged to carry out an expertise of project documentation, to obtain construction licenses, and in case of violations – to pay penalties higher than ever. Despite the attempt to restructure the state architectural and construction inspection and to decentralize its responsibilities, the corruption element still remains in its operations. Therefore, there is the risk of endless unscheduled inspections of construction sites based on the provisions envisaged by the Draft Law. All these factors may deter responsible investors from the urban planning of the Ukrainian cities.

Nevertheless, it is worth to mention that the new Daft Law completely changes the approaches to the conduct of construction works. The Law of Ukraine “On Urban Planning Regulation” adopted on February 02, 2011, implemented the declarative principle of construction, which sufficiently simplified the licensing procedures.

But in the course of few years it became evident that the simplification of the procedures practically brought the construction projects of III category out of the control of the state architectural and construction inspection and led to the abusive practices of unfair developers. Therefore, the necessity has arisen to draw the line between the construction projects requiring simple notification or the licensing of construction works.

The new Draft Law sets strict rules for the construction works: the list of grounds for unscheduled revisions by the architectural and construction inspection, grounds for the cancellation of urban planning requirements and restrictions, as well as the amendment thereto. Therefore, on the whole, this Draft Law shall have positive effects for construction sector and developers. Although, the documents still requires improvement.

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