Blog. Less investor conditions: how to get rid of unfinished projects

  • 27/02/2017

The Parliament offered to Verkhovna Rada to adopt the mechanism, which would help to eliminate the unfinished objects. Currently there are about 10,000 objects of incomplete construction in Ukraine, and every tenth of such objects is in the capital city. Some of the most attractive objects are being purchased by big construction companies; however, the most of such buildings remain abandoned and is a common urban eyesore posing a threat to inhabitants.

Draft act No.6033 describing the mechanism for completion of construction on unfinished residential objects intends to address the problem. Under the document it is proposed to establish the small amount of duties when applying to the court concerning the unfinished objects. According to the draft, unfinished objects are not included into the insolvency estate in the event of the developer’s bankruptcy. Construction companies which are ready to complete the works on the sites will be excused from the payment of equity contributions. Investors of the construction will be able to establish housing cooperatives.

However, there are plenty of innovations under the draft constituting the grave miscarriage of a good idea. One of the striking examples is the legal notion of the unfinished object. According to drafters, protracted construction is an unfinished housing object being built legally. In other words, certain construction company should have obtained all the permits, and more than ten people should have purchased their flats there. What do the investors who put their money into illegal construction sites do? And there are plenty of such instances throughout the country.

There are many other concerns too. For instance, what to do when the documentation to evidence the construction expenses is not available? Drafters didn’t specify what is meant by the document permitting the construction. Is it a declaration, permit or anything else? Thus, the document is not sufficiently developed, since there is possibility for manipulations.

But even if the developer built the house legally with all the supporting documents, the process of completion of the object could be complicated by the contract with the buyers. The list of contracts, which according to the drafters might attest the transfer of ownership rights, fails to cover all essential cases, in particular, the investors, who had purchased the derivatives or entered into investment agreements, despite they are banned by the laws.

Innovations under the draft act envisage the establishment of the new regulatory authority, namely, special temporary commission for completion of construction. At that, the drafters offered the heads of appropriate village or city councils to lead such an authority. Such proposal would complicate rather than simplify all the procedures related to the completion of construction. Practice shows that establishment of such an authority would place an additional bureaucratic burden on the entire process of entering into the contract with investor.

As a rule, the main challenge for the investor is to settle the problems with land users, as well as with the usage of a land plot. They don’t say a word about it. At that, protracted construction objects include those built in violation of their intended use or even in the lack of entitlement for the use of land plots underlying such objects. Will those building remain unfinished? Perhaps, in case all these norms will be adopted, this wouldn’t significantly decrease the number of protracted construction objects, since only very few of the them comply with the requirements of this draft.

Yevgeniy Yermolenko, Head of Law Department of Intergal-Bud