02.04.2021
The decision to acquire a land plot for commercial real estate is quite difficult for a potential investor. Just like every business project, choosing the right land plot comes with risks that one must not only identify and predict, but also carefully analyze and try to find an opportunity to eliminate or at least minimize them. The main risks for the developer are the possibilities of losing a land plot title, as well as the impossibility of implementing the construction project. In this regard, before acquisition of a land plot, its legal due diligence should be carried out, the scope of which always depends on the goals and objectives of the investor.
Initially, the choice for the acquisition a specific land plot is based on the analysis of various documents and information to comprehensively assess the existing legal title. Within the framework of this important part of the audit, one must focus on the study of a land plot’s title documents, constituent documents (in the case of the sale of a land plot by a legal entity), documents on the land plot’s management, as well as information from public registers (State Land Cadastre, Public Cadastral Map, State Register of Proprietary Rights to Immovable Property, Unified State Register of Court Decisions).
A comprehensive study of these documents and information from the registers will allow the investor to conclude on the compliance with the legislative procedure for the land plot At the same time, the opportunity for litigation in relation to a land plot is also assessed, in particular, the previous owner’s ability to reclaim a land plot by, challenging the sale and purchase agreement, appealing the decisions of the authorized state authorities and local authorities on transferring land ownership. etc.
In accordance with Part 3 of Art. 375 of the Civil Code of Ukraine, the owner exercises the right to build, subject to the observance of architectural, construction, sanitary, environmental and other rules and regulations, as well as the use of the land plot for its intended purpose. The need to maintain the limits on its designated use is also mentioned in Part 2 of Art. 24 of the Law of Ukraine “On Regulation of Urban Planning Activities”. In the case of the construction of a real estate object on a land plot, that is not allotted for this purpose, there is a risk that this construction will be found unauthorized, as a result of which the developer will not have ownership rights, and the object itself may be forcibly demolished at the expense of the developer. In this regard, it is important to resolve the issue of compliance between designated use of a land plot and planned use of the construction object in the first stages of due diligence.
After studying of the documents for the presence of risks regarding the possible loss of the legal title, it is advisable to carefully analyze the investor’s prospects to achieve their main goal – the construction of a commercial real estate object. At this stage of the audit, one should focus on studying the existing town planning documentation, the content of which must be consistent with designated use of a land plot. In such a way, in accordance with Art. 39 of the Land Code of Ukraine, the use of residential and public buildings is carried out in accordance with the general plan of the settlement, other urban planning documentation, land management plan in compliance with construction rules. At the same time, Part 4 of Art. 24 of the Law of Ukraine “On Regulation of Urban Planning Activities”, it is prohibited to change the designated use of a land plot that does not correspond to the zoning plan of the territory and/or the detailed plan of the territory. The Supreme Court confirmed the illegality of local self-government bodies’ decisions to grant permission to develop a management project for a land plot’s designated use in the event of a discrepancy between the designated use and the requirements of general urban planning scheme (Resolution of the Supreme Court of August 14, 2020 in case No. 809/1602/16).
The Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine Land Use Planning” dated 17.06.2020 will come into force on July 24, which is supposed to overcome the contradictions between designated use and functional use of a land plot. The Cabinet of Ministers of Ukraine must approve the classifier of the types of designated use of a land plot, types of functional use of territories and the relationship between them, as well as the rules for its application with the definition of categories of a land plot and types of designated use of a land plot that can be provided within the relevant functional zone. In addition, the procedure for changing the use of a land plot is simplified. Such changes are positive signals from the legislator for potential tenant builders. We hope that the new legislative provisions will be effectively implemented.