Compensation for losses to land owners and land users is a rather topical issue from a legal point of view, as there is no holistic mechanism for its regulation. Regardless of whether you are the land owner that has suffered losses or you are a party to compensate for those losses, you will not find a single legal position on this issue not only in decisions of local courts, but also in decisions of higher instances. This is due to the fact that today, the Ukrainian lawmakers have adopted the main legislative acts that regulate only the general provisions for such compensation. The legal relations regarding the unlawful use of the land plot are not detailed at the legislative level. In our opinion, this leads to partial insecurity of the rights both of the party that has suffered losses and the party, whom they are trying to oblige to compensate for these losses.
The ownership right and right of permanent use of a land plot arise after the owner or user receives the document certifying the ownership right or the right of permanent use of a land plot, and its state registration. The right to lease a land plot arises after entering into the lease agreement and its state registration.
Using a land plot before establishing its physical layout, obtaining a document certifying the right to it, and its state registration is prohibited.
The Land Code of Ukraine provides that land owners and land users are compensated for losses resulting from, inter alia, temporary occupation of forest lands and non-receipt of income during temporary non-use of a land plot. Loss compensation to land owners and land users is paid by legal entities that use land plots, as well as legal entities the activities of which restrict the rights of owners and land users.
How to determine the amount of compensation for losses to land owners and land users?
The loss amount is calculated according to Methodology of Determining the Amount of Losses Caused as a Result of Unauthorized Occupation of Land Plots, Use of Land Plots Not for Intended Purpose, Removal of Soil (Fertile Soil Layer) Without a Special Permit, approved by the Resolution of the Cabinet of Ministers of Ukraine No. 963 of July 25, 2007, and in accordance with the provisions of the Procedure for the Loss Determination and Compensation to Land Owners and Land Users, approved by the Resolution of the Cabinet of Ministers of Ukraine No. 284 of April 19, 1993.
To choose correctly a regulatory act, according to which to determine the loss amount, is an important moment for the legal relations of both parties.
Loss compensation. Methodology vs Procedure
The Methodology should be used in the following cases: causing damage to the state, territorial communities, legal entities, and individuals in all categories of land as a result of unauthorized occupation of land plots, the use of land plots not for the intended purpose, removal of soil (fertile soil layer) without a special permit.
The Procedure applies to determine the amount of losses caused by withdrawal (buyout) and temporary occupation of land plots, establishment of restrictions on their use, deterioration of the quality of soil and other useful properties of land plots or rendering them unusable, and non-receipt of income in connection with temporary non-use of land plots.
The Managing Partner of the Rezultat law firm Maxim Polishkevych observes, “In practice, there arise controversial issues: the definition of losses for almost identical offenses occurs in accordance with various regulatory acts. Different application of the rules of law by cassation courts leads to confusion in the need to use the Methodology and Procedure.”
In particular, rather indicative is the resolution of the Supreme Economic Court of Ukraine No. 27/29-09 of November 10, 2009, which clearly delineates the scope of application of the Methodology and Procedure. The Commission determined the total loss amount on the basis that the respondent was the actual land plot user and exploited it without the relevant legal documents. The respondent, on the basis of the sales and purchase agreement, used non-residential buildings but without legal documents for the land plot that belonged to the state forest fund lands. When drawing up the act, the Commission was guided by Articles 116, 125, 156, 157, 206 of the Land Code of Ukraine and by the Resolution of the Cabinet of Ministers of Ukraine No. 284 of April 19, 1993, On the Procedure for the Loss Determination and Compensation to Land Owners and Land Users.
In accordance with Article 126 of the Land Code of Ukraine, the ownership right and the right of permanent use of a land plot are certified by state acts. The right to lease land is executed as an agreement, which is registered in accordance with the law.
According to Part 1 of Article 1 of the Law of Ukraine On State Control over the Use and Protection of Lands No. 963-IV of June 19, 2003, any actions that indicate the actual use of the land plot in the absence of a corresponding decision of the executive body or local self-government body on its transfer to the possession or provision for use (lease) or, in the absence of the closed deal regarding this land plot, are the unauthorized occupation of the land plot. According to Article 156 of the Land Code of Ukraine, land owners and land users are compensated for losses resulting from, inter alia, non-receipt of income during temporary non-use of a land plot.
According to Article 157 of the Land Code of Ukraine, loss compensation to land owners and land users is paid by legal entities that use land plots, as well as legal entities the activities of which restrict the rights of owners and land users.
Furthermore, the amount of losses caused as a result of unauthorized occupation of land plots, use of land plots not for intended purpose, removal of soil (fertile soil layer) without a special permit, is calculated according to a special methodology approved by the Cabinet of Ministers of Ukraine On Approval of Methodology of Determining the Amount of Losses Caused as a Result of Unauthorized Occupation of Land Plots, Use of Land Plots Not for Intended Purpose, Removal of Soil (Fertile Soil Layer) Without a Special Permit No. 963 of July 25, 2007. The court decided to dismiss the prosecutor’s claim and to leave the appellate instance’s decision unchanged.
At the same time, the study of judicial practice provides grounds for arguing that the Methodology’s use is often simply ignored. In the identical situations (the person purchased real estate but did not complete the registration of the land plot used), cassation courts take into account calculations made on the basis of the Procedure.
The decision of the Supreme Court of Ukraine No. 703/5377/214-TS of September 14, 2016, is rather interesting.
The complainant appealed to the Supreme Court of Ukraine on the grounds of the unequal use by cassation courts of the same norms of substantive law. The appellate court dismissed the claim for compensation for losses caused by the use of land without legal documents, and the ruling of the High Specialized Court of Ukraine for Civil and Criminal Cases did not overturn the decision on the appeal. The Supreme Court established that the courts of the previous instances proceeded from the fact that among the grounds for the occurrence of civil liability in the form of compensation for losses to land owners and land users, set forth in Article 156 of the Land Code of Ukraine, there was no such ground as the unexecuted legal document (a lease agreement) in accordance with the procedure and deadlines determined by the local self-government body, due to which the complainant’s claim to impose on the respondent an obligation to compensate the local self-government body for damage caused as a result of using land without legal documents was unjustified.
Furthermore, pursuant to Article 623 of the Civil Code of Ukraine, in determining the loss of revenue (lost profit), the measures taken by the creditor in relation to its receipt are taken into account. Neither did the complainant provide any objective evidence that he was taking measures to induce the respondent to enter into a lease agreement, nor did the complainant appeal to the court with the relevant claim.
Instead, the SCU came to the conclusion that the decisions of the appellate and cassation courts should be overturned on the basis of the following. The complainant was informed about the necessity to execute a land lease agreement in accordance with the legislation. The calculation of losses was carried out by the Commission which drew up a record later approved by the district state administration’s order. Also, a systematic analysis of the rules of substantive law governing the legal relations concerning loss compensation to land owners and land users, makes it possible to conclude that in the case of non-signature of a land lease agreement, superficies, or other transactions as legal grounds for using the land plot due to the user’s fault there arise legal consequences, stipulated by Article 157 of the Land Code of Ukraine and the Procedure.
The Executive Committee’s decision to approve the commission’s act on the loss determination and compensation to land owners and land users does not infringe the individual’s rights and interests.
The panel of judges of the Judicial Chamber for Administrative Cases of the Supreme Court of Ukraine in case No. 500/2776/14-A, having examined in the written proceedings the action brought by the individual entrepreneur against the Executive Committee of Izmail City Council, the Executive Committee represented by the Commission for the loss determination and compensation to land owners and land users seeking declaration of the actions unlawful and invalidity of the decisions and their annulment, reached the following conclusions:
– The powers assigned to the Executive Committee include determination, in the prescribed manner, of the amount of losses incurred by the local self-government body.
– The Executive Committees’ powers are limited only to the calculation of the amount of losses in the prescribed manner. As for the compensation for the detected losses, they cannot be compulsorily compensated for on the basis of the city council’s decision. Such losses are compensated for on a voluntary basis or by way of appeal to a court with a corresponding claim.
– The Executive Committee’s decision on the approval of the Act of the Commission for the loss determination and compensation to land owners and land users does not infringe the complainant’s rights, obligations, or interests, and therefore, in the opinion of the panel of judges of the Judicial Chamber for Administrative Cases of the Supreme Court of Ukraine, it is necessary to dismiss the claim, since it is unjustified.
Loss compensation. The Civil Code of Ukraine (CCU) / Commercial Code of Ukraine (CCU) vs the Land Code of Ukraine (LCU)
Another interesting decision, but now of the Judicial Chamber for Commercial Cases of the Supreme Court of Ukraine is the resolution of June 14, 2017, in case No. 923/2075/15.
According to the conclusion of the first-instance court, the complainant calculated the losses on the basis of the actual data which he substantiated by the accounting data and reporting information, that in accordance with the requirements of Article 22 of the CC, was missed profit. The complainant referred neither to the Procedure nor to the Methodology, neither did he carry out the loss calculation on their basis.
The appellate court, with the conclusions of which the cassation court agreed as well, noted that the calculation of the amount of losses should be made solely on the basis of the Methodology. The complainant didn’t adhere to the specified norms, the materials of the case didn’t contain the correct calculation of the amount of losses incurred, so the respondent’s actions lacked elements of the civil offense, which, in turn, made it impossible to impose on the respondent an obligation to compensate for losses. However, there is no unity of judicial practice in the application of norms. In particular, this is evidenced by the decisions:
– In case No. 12/5026/339/2012, in which the cassation court came to the conclusion that the basis for the satisfaction of a claim was the existence of a causal connection between such behavior of the respondent and the losses suffered by the complainant in the form of the lost revenue.
– In case No. 922/2838/13 the court reached a conclusion on the proof and validity of claims for recovery of the amount of the lost revenue in connection with the unauthorized occupation by the respondent of the land plots received by the complainant for lease.
In order to ensure the unity of judicial practice, the Supreme Court resolved the following. According to Articles 15 and 16 of the Civil Code of Ukraine, one of the remedies is loss compensation and other ways of property damage compensation.
According to Article 22 of the Civil Code of Ukraine, a person who has suffered losses as a result of infringing his/her civil right has the right to compensation. Losses, in particular, are revenues that a person could actually receive under normal circumstances, if his/her right were not infringed (missed profit).
The said norm corresponds to the provisions of Articles 224 and 225 of the Commercial Code, according to which a participant in commercial relations, who has infringed a commercial obligation or established requirements for the implementation of commercial activities, shall compensate for the losses caused to an entity whose rights or legitimate interests are infringed.
The Court’s analysis of the statutory regulations gives grounds for the conclusion that the loss compensation (missed profit) is a type of civil liability, the application of which requires the presence of a set of all elements of a civil offense which are: unlawful conduct, a negative result of this conduct (losses), causality between the unlawful conduct and the losses, the fault of the offender.
The appellate court erroneously confined itself to citing the fact that the complainant failed to adhere to the provisions of the Methodology as the exclusive basis for the calculation of the amount of losses, that was, according to that court’s conclusion, a consequence of the absence of a set of elements of a civil offense in the respondent’s actions and the impossibility of imposing on the latter the duty to compensate for losses suffered by the complainant.
Indeed, in accordance with the provisions of Part three of Article 157 of the Land Code, the procedure for loss determination and compensation to land owners and land users shall be established by the Cabinet of Ministers of Ukraine. However, the rules of substantive law governing the controversial legal relations do not require the complainant to confirm his/her claims exclusively by calculations made in accordance with the Methodology (part two of the Code of Commercial Procedure of Ukraine).