Is a notary needed? Some specifics of construction work on leased state-owned immovable property

The electronic publication “Yurist & Zakon” (Lawyer and Law) (https://uz.ligazakon.ua/) published an article by Dmytro Kolodiazhnyi, Head of the Infrastructure Projects Practice at Law Firm “ANK” on the issue of notarization of the owners’ consent to the performance of construction work at the objects of state-owned real estate leased.

Read the full article below.

Is a notary needed? Some specifics of construction work on leased state-owned immovable property

Dmytro Kolodiazhnyi

Head of the Infrastructure Projects Practice at Law Firm “ANK”, Attorney-at-law

One of the “sensitive points” of our domestic legal system is that legislative acts regulating different areas of social relations are usually not harmonized with each other, which is why there are often conflicts and gaps at the “intersections” of the legislative regulation of such branches, which do not contribute to the effectiveness of law enforcement.

A prime example of the problem raised is the procedure for carrying out construction work (e.g. renovation or major repairs) on leased state-owned immovable property.

Thus, the said procedure is regulated by two sectoral blocks of legislation: legislation on the lease of state and municipal property and legislation on the regulation of urban planning activities.

As for the block of lease legislation, in particular the Law of Ukraine “On Lease of State and Municipal Property” No. 157-IX of 03.10.2019 and the Procedure for Lease of State and Municipal Property, approved by Cabinet of Ministers Resolution No. 483 of 3 June 2020, they stipulate that in order to obtain the right to carry out construction work on leased property (in particular, inalienable improvements to the leased property), the lessee, depending on the status and nature of such work, must obtain the consent of the balance-holder (the relevant state enterprise which holds the lease) and the lessor (the territorial body of the State Property Fund of Ukraine), and, in cases expressly provided for in the balance-holder’s charter, additionally the consent of the central executive authority to whose area of management the balance-holder belongs (hereinafter – «the management body»).

In turn, legislation on the regulation of urban planning provides that in order to obtain a permit from the state architectural and construction control authorities for the reconstruction / major renovation of immovable property (building or structure), which is carried out by a person other than the owner of such property, the owner’s consent to carry out such work shall be required.

In this regard, by March last year, everything was working more or less smoothly – the above-mentioned approvals provided by the legislation on the lease of state and municipal property were submitted to the State Land Committee as the owner’s consent to carry out construction work (in particular the approval of the balance holder / lessor / management body).

However, on March 18, 2020, as part of another reform in the sphere of town planning, the Decree of the Cabinet of Ministers No. 218 dated 13.03.2020 came into force, which introduced significant changes to the procedure of preparatory and construction works.

These amendments stipulate, inter alia, that the consent of the owner of a property to its reconstruction / major repairs carried out by another person must be notarized.

At first glance, the logic and purpose of such innovations are quite obvious and in line with domestic realities – to avoid abuses by unscrupulous construction clients and to minimize the risk of infringement of the rights of building and structure owners.

However, these legislative amendments did not take into account the specifics of relations related to the lease of state property in Ukraine, in particular the specifics of obtaining statutory approvals for the improvement of such property.

Thus, the above consent of the balance-holder / lessor / management body to carry out improvements to the object of the lease, stipulated by the legislation on the lease of state and municipal property, is traditionally provided by these bodies in the form of respective letters signed by the authorized heads of the said bodies (in particular, signed by the director of the relevant state enterprise – balance-holder / head of the relevant territorial body of the State Property Fund of Ukraine / relevant minister or deputy minister or head of another central authority).

The obvious question arises – how and in what way should the lessee ensure that the signatures of the above officials are notarized?

It is clear to anyone who is even slightly familiar with the realities of the workings of domestic government agencies that addressing this issue is a daunting task.

Let us examine the problem described with a specific example.

A company located in, say, Odessa leases certain publicly owned buildings and structures located at, say, the Odessa Sea Port and intends to carry out reconstruction or major renovation of such leased objects. The said state property is under the management of the relevant central executive authority located in Kiev, e.g., the Ministry of Infrastructure of Ukraine.

What specific steps should the said lessee take, while in Odessa, to arrange for the relevant minister’s signature to be notarized in Kiev? In particular, who and how should select the notary, pay for their services, agree with the minister on a specific date, time and place for this notarial act, etc.?

There are no legal answers to all of these questions.

However, it is also impossible not to comply with the aforesaid requirement to notarize the consent of the owner of the leased property, as in accordance with the Procedure for Preparatory and Construction Work, the said notarial consent is included in the checklist for accepting documents at the Administrative Services Centre (ASC) to obtain a permit to start construction work, and there are no exceptions allowing the construction client not to submit such a document to the ASC.

In today’s Ukrainian reality, the described situation creates grounds for corruptive abuses. As a result, instead of creating transparent conditions for obtaining state authorities’ consent to improve leased state property, we get even more “shadowing” of the procedure for granting such consent.

This problem becomes even more absurd in light of the fact that, under the new legislation on the lease of state and municipal property, in particular the Procedure for Leasing State and Municipal Property approved by Resolution No. 483 of the Cabinet of Ministers of Ukraine dated 3 June 2020, all relations between private individuals (in particular, lessees) and the state (in particular, lessors represented by the relevant territorial bodies of the State Property Fund of Ukraine) regarding the lease of state and municipal property are built through an electronic trading system, which started to be applied from 01.10.2020. The functioning of the electronic trading system is ensured by the state enterprise “Prozorro.Sale”.

In particular, all decisions of the authorized public authorities on granting consent to carry out the relevant construction work on the rental property must be published in the electronic trading system.

However, all information that is published in the electronic trading system is open and accessible to the public, which automatically obviates the need for additional verification through notarization of the consent of the relevant authority.

The way out of the situation described is to amend the Procedure for Preparatory and Construction Work to provide for exceptions to the general rule, namely, remove the need to notarize the consent of the owner of the leased state property for reconstruction / major repairs of such property by its lessee.

We would like to hope that, in the near future, the need for these changes will be recognized by the central government, which will solve the conflict problem described in this article.