Securing Land Rights for Subsoil Users in Mining Projects: Key Insights

Dmytro Hruba, Attorney

Source: Interfax-Ukraine

Investments in mining are traditionally viewed as capital-intensive and long-term. In Ukraine, mineral extraction is a complex process because it involves the simultaneous use of two distinct natural resources: the land and the subsoil.

In Ukraine, even after obtaining a special permit for subsoil use, project launches are often delayed for years. One reason is land-related issues, which investors sometimes underestimate at the initial stage or fail to address in advance.

The core issue is that Ukrainian legislation clearly separates the right to use subsoil from the right to use a land plot. In other words, even with a permit to develop a deposit, a company has no right to commence extraction without properly registered land rights.

Why a Subsoil License Does Not Guarantee Land Rights?

The right to use subsoil is granted through a special permit for subsoil use. When entering into Production Sharing Agreements (PSA), subsoil is provided for use based on the PSA and the issuance of a special permit for subsoil use.

According to Article 16 of the Subsoil Code of Ukraine, subsoil use is carried out based on special permits issued by the authorized state body. Such a permit defines:

• the type of subsoil use (geological exploration, pilot-industrial development, extraction);
• the boundaries of the subsoil plot;
• the validity period of the permit, etc.

The first step for a company planning mineral extraction in Ukraine is obtaining the subsoil for use. For minerals of strategic and/or critical importance (titanium, lithium, nickel, and many others), this can be achieved by winning an auction (electronic bidding) for the sale of a special permit or by winning a tender for a Production Sharing Agreement.

The list of subsoil plots (mineral deposits) of strategic and/or critical importance, to be granted for use through either method, is determined by the Cabinet of Ministers of Ukraine.

At the same time, the law does not provide for the automatic granting of any land rights to the subsoil user along with the special permit. Moreover, the law explicitly states that such land rights must be secured by subsoil users separately after obtaining the subsoil use permits.

Legal Restrictions: What is Prohibited Before Securing Land Rights?

Under Article 79 of the Land Code of Ukraine, a land plot is a distinct object of civil rights. It has clearly defined boundaries, a cadastral number, an owner, etc. Article 125 of the Land Code of Ukraine stipulates that the right of ownership or use of a land plot arises only from the moment of state registration of such a right.

Consequently, even if a subsoil user holds a special permit to develop a deposit, they do not have the right to do the following until land rights are properly secured:

• establish an open-pit mine;
• construct production facilities;
• lay engineering networks, etc.

Mechanisms for Acquiring Land Rights for Subsoil Users

In the practice of the mining industry, several basic mechanisms are used to obtain rights to land plots.

Land Easement (Servitude)

Sometimes a subsoil user does not require the entire plot, but only the ability to use a part of it – for example, to lay a road, power lines, or place structures necessary for extraction. In such cases, a land easement may be established:

• land plots of all forms of ownership and categories may be provided to special permit holders through land easements within the boundaries of subsoil plots and for the duration of the respective special permits;
• the law allows for the establishment of an easement even outside such subsoil plots for the construction and placement of structures/objects related to the specified activity.

The establishment of land easements for these purposes is carried out without changing the designated purpose of such land plots (excluding nature reserves, health-improving, recreational, and historical-cultural lands), and the term of the easement is automatically extended if the term of the corresponding special permit is extended.

Generally, a land easement is established by an agreement between the person requesting it (the subsoil user) and the owner (user) of the land plot. If an agreement cannot be reached, the dispute may be resolved by a court upon the subsoil user’s claim.

Note: Land easements have certain drawbacks. For instance, they usually do not allow for the construction of permanent real estate objects and are not transferable.

Land Lease

Entering into a lease agreement is the most common way to organize land relations. According to Article 93 of the Land Code of Ukraine, a lease is the fixed-term, paid use of a land plot based on a contract. Leases are most frequently used for quarries, industrial deposits, and the construction of infrastructure for mining enterprises.

If the land is state or municipally owned, the decision to transfer it is made by the relevant government or local authorities. If the land is privately owned, the agreement is concluded directly with the owner.

Obtaining leases for state or municipal lands for subsoil use needs (based on obtained special permits) is carried out without an auction (non-competitive basis).

Leasing privately owned land is resolved based on a lease agreement concluded with the owner.

Land Acquisition (Purchase)

In some cases, purchasing the land is advisable. If the deposit is located on private land, the investor can acquire the plot through a sale and purchase agreement on terms agreed with the owner.

Under certain conditions, the procedure for the expropriation of land for public needs may apply, as provided by Article 146 of the Land Code of Ukraine and the Law of Ukraine “On Alienation of Privately Owned Land Plots and Other Real Estate Objects Located Thereon for Public Needs or on Grounds of Public Necessity.”

If the deposit is located on state or municipal land, the decision to sell is made by the relevant land administrator (state or local authority). In this case, several lengthy bureaucratic procedures must be completed:

• development and approval of land management documentation;
• assignment of a cadastral number (if missing);
• registration of the plot in the State Land Cadastre;
• conducting and approving an expert monetary appraisal, etc.

In some instances, for both purchase and lease, it may be necessary to terminate the rights of current land users (lease, permanent use). In the absence of consent from such users, judicial remedies to terminate their rights may be required.

Only after completing these procedures and executing the sale and purchase agreement does the subsoil user obtain the legal right to use the land plot.

Note: The purchase of land, which generally occurs through land auctions, is conducted in this case without such auctions (on a non-competitive basis).

Challenges in Securing Land Plots for Subsoil Users

In practice, securing land rights is often one of the most difficult stages of a mining project. Typical problems include:

• inconsistency between the boundaries of the deposit and the boundaries of land plots;
• a large number of individual land owners;
• the need to change the designated purpose of the land and associated complexities;
• lengthy and bureaucratic procedures for developing and approving documents;
• the need to terminate the rights of other land users, etc.

Ilyashev & Partners’ practice shows that most of these problems can be resolved before the investment stage begins. Without proper attention to land issues, even with a special permit, a project launch can be delayed for years. All issues should be addressed during the planning stage through a detailed due diligence of the land and related matters in the context of future extraction and the business project as a whole.

Note: Subsoil use rights may be temporarily prohibited (suspended) if mineral extraction is carried out without documents certifying the right of ownership or use of the land plot.

The Importance of Considering Land Law in Subsoil Use

The right to use subsoil and the right to use land are distinct legal concepts. Therefore, obtaining a special permit for subsoil use does not exempt the user from the obligation to formalize land relations properly.

Legalizing land rights –  through lease, easement, or purchase – is a key prerequisite for commencing mineral extraction. Proper preparation for land procedures and compliance with land and subsoil legislation allow for the mitigation of legal risks and ensure the stable implementation of investment projects in the mining sector.