Ruling of the Commercial Cassation Court of the Supreme Court of Ukraine dated May 22, 2024, in case No. 922/436/22 – on the excessiveness of the demand for demolition of unauthorized construction in the event the landowner consents to the construction by entering into a settlement agreement.
The demolition of an unauthorized real estate object is an extreme measure against the developer and is permissible only when all legal remedies to eliminate the violations have been exhausted, and reconstruction of the object is either impossible or refused by the person concerned. In this case, the prosecutor did not request reconstruction or any other means of bringing the disputed legal relationship into compliance with the law, except for the demolition of the real estate object.
📌 Dismantling or Demolition? Which Decision May Be Made by a Local Council, and Which – by a Court?
The claims were based on the assertion that the construction of a multi-storey residential complex was being carried out on a land plot that had not been properly formed (no cadastral number assigned), the land plot had been unlawfully occupied, and the data entered into the State Register of Property Rights to Immovable Property regarding the objects located on that plot were entered unlawfully on the basis of improper documentation.
In other words, the prosecutor argued before the court that the defendant was undertaking construction unlawfully, due to the complete absence of any legal title to the land plot under the development. At the same time, the prosecutor filed the claim in the interests of the landowner, and through the expressed will of the city council when concluding a settlement agreement, the council agreed to the defendant’s construction of the residential complex on the land plot and to the subsequent formalization of rights to the land in accordance with the law.
Under such circumstances, and in view of Articles 375 and 376 of the Civil Code of Ukraine, the prosecutor’s demand for demolition of the unauthorized construction is considered excessive, taking into account the legal consequences of the landowner’s consent to the land’s use and the possibility of future recognition of ownership rights to such property.
CASE CIRCUMSTANCES
The court of first instance granted the prosecutor’s claim in full. It held that the unauthorized construction of a real estate object without the appropriate permits and on a land plot not designated for such purposes substantially violated the rights and interests of the state.
The commercial court of appeal approved a settlement agreement between the claimant and the defendant, incorporating its text into the operative part of the ruling. The decision of the local commercial court was declared invalid, and the proceedings were closed.
According to the terms of the settlement agreement, the defendant undertook to carry out, within 12 months from the date the settlement was approved by the appellate court, all mandatory actions required of a developer under the applicable land and urban planning legislation—namely, the Laws of Ukraine “On the Regulation of Urban Development,” “On Architectural Activity,” the Civil Code of Ukraine, and the Land Code of Ukraine—to properly formalize all necessary documentation regarding the completed construction (or reconstruction) of the residential complex in the city of Kharkiv.
At the same time, the claimant, taking into account the general timeframe for the defendant’s obligations, undertook to initiate within a reasonable period, but no more than nine months from the date of the settlement’s approval by the court, the necessary procedures to approve the defendant’s land management documentation. This includes determining the category and designated use of the land plot, formalizing the right to use the land, and concluding a lease agreement for the construction and maintenance of the residential complex. Furthermore, the State Register of Property Rights to Immovable Property shall be updated to reflect the leasehold right to the land plot.
In its cassation appeal, the prosecutor requested the annulment of the ruling of the court of appeal and the return of the case for further consideration. The appeal was substantiated by the argument that certain conditions of the court-approved settlement agreement were clearly unenforceable, given that it is no longer possible to obtain the required permits for reconstruction after the building has already been constructed.
Additionally, the prosecutor referred to the defendant’s failure to comply with the urban planning conditions and restrictions, as well as violations of the procedures for carrying out preparatory and construction works.
COURT’S ASSESSMENT
The Commercial Cassation Court of the Supreme Court (CCC SC) stated that a settlement agreement constitutes an expression of the parties’ mutual intent aimed at resolving the dispute between them on the basis of compromise and terminating further judicial proceedings. Such an agreement may address matters solely related to the rights and obligations of the parties. Prior to rendering a judgment based on the settlement agreement, the court must clarify the consequences of such a decision to the parties and verify that the representatives are not restricted from entering into such agreement (part 3 of Article 192 of the Commercial Procedural Code of Ukraine).
The CCC SC emphasized that entering into a settlement agreement is a procedural right of the party, which, however, may not be exercised if such actions contradict the law or result in a violation of the rights and legally protected interests of others.
The CCC SC concluded that for newly constructed property to be considered a subject of civil legal relations, the following three conditions must be met:
- completion of construction;
- commissioning (official acceptance into operation);
- state registration.
Without the fulfillment of these conditions, the person is deemed only the owner of materials, equipment, etc., used during the construction (creation of the property).
The legal consequences of unauthorized construction carried out by an owner on their land plot are set out in Article 376 of the Civil Code of Ukraine. According to this article, a residential building, structure, facility, or other immovable property is considered unauthorized construction if it is built or is being built on land that was not designated for that purpose, or without the proper authorization to perform construction works, or without an approved project, or with significant violations of building regulations.
A person who has carried out or is carrying out unauthorized construction does not acquire ownership rights to such property. Ownership rights to such unauthorizedly constructed immovable property may be recognized by a court in favor of the person who carried out the construction, provided that the land is properly allocated for the already constructed property in accordance with the established procedure.
Thus, the existence of at least one of the three criteria specified in Part 1 of Article 376 of the Civil Code of Ukraine indicates that a real estate object constitutes unauthorized construction. A person who has carried out or is carrying out unauthorized construction of real estate does not acquire ownership rights to it.
The Commercial Cassation Court of the Supreme Court (CCC SC) noted that in resolving a claim for the recognition of ownership rights to unauthorizedly constructed real estate, the court must proceed from the fact that the right to perform construction work arises for a developer only if they possess documents granting the right to carry out construction works, as provided for by Articles 27 and 29–31 of the Law of Ukraine “On Regulation of Urban Development Activities,” and, in cases established by law, have obtained a permit to perform such works (Articles 34, 37 of the same Law). Ownership rights to unauthorizedly constructed real estate may be recognized by a court in favor of a person who carried out the construction on a land plot that was not allocated to them for this purpose, provided that the land plot is subsequently allocated in the prescribed manner for the already constructed property.
In the event of a significant deviation from the project that contradicts public interests or violates the rights of other persons, or in case of a material breach of building codes and regulations, the court — upon a claim by the relevant public authority or local self-government body — may issue a decision obligating the person who carried out (or is carrying out) the construction to perform the necessary reconstruction. If such reconstruction is impossible or the person refuses to perform it, the property shall be demolished pursuant to a court decision at the expense of the person who carried out (or is carrying out) the construction. That person is also obliged to reimburse the expenses associated with restoring the land plot to its previous condition.
At the same time, it must be taken into account that the demolition of an unauthorized real estate object is an extreme measure of influence on the developer and is permissible only when all legally prescribed remedies to eliminate the violations have been exhausted, and either reconstruction of the real estate object is impossible or the person refuses to carry it out.
The Commercial Cassation Court of the Supreme Court (CCC SC) emphasized that the prosecutor did not request reconstruction or any alternative means to bring the disputed legal relationship into compliance with the law, other than demolition of the real estate object. The claims were substantiated by the argument that a multi-storey residential complex was being constructed on a land plot that had not been properly formed (no cadastral number assigned), was unlawfully occupied, and the entries in the State Register of Property Rights to Real Estate regarding the objects located on it were made on the basis of improper documentation. In other words, the prosecutor asserted that the construction was being carried out by the defendant without any legal rights to the land in question. The claim was brought in the interest of the rightful owner of the land plot, but in the course of concluding a settlement agreement, the city council, through its expressed intent, agreed to the defendant’s construction of the residential complex on the plot and to the subsequent formalization of rights to that land in accordance with the law.
📌 In light of Articles 375 and 376 of the Civil Code of Ukraine, the CCC SC held that the prosecutor’s arguments in favor of demolition were excessive, given the legal consequences of the landowner’s consent to the use of the land and the possibility of recognizing ownership of the constructed object in the future. The cassation appeal was dismissed, and the ruling of the appellate court was upheld without changes.
This ruling of the Supreme Court may be discussed in the group Urban Planning in Ukraine.
Ⓒ 2024