You Must Enter into the Share Participation Agreement Even after Your Property Has Been Accepted for Operation

This conclusion has been reached by the Judicial Chamber on Commercial Cases of the Supreme Court of Ukraine after considering the petition submitted by the Department of Economy and Communal Property of the Kharkiv City Council to the Supreme Court of Ukraine for review of the resolution of the Supreme Economic Court of Ukraine of 3 August 2016 in case No. 922/6409/15. The case was initially initiated by the Department of Economy and Communal Property of the Kharkiv City Council against Kapital K LLC. The Supreme Court’s resolution was made on 30 November 2016 in case No. 3-1323гс16.

Specifically, it was found that, as per paragraphs 2 and 3 of Article 40 of the Law No. 3038-VI, the construction customer intending to build up a land plot in a particular community, must participate in creating and developing the local utility and transport infrastructure, as well as social infrastructure, except for the cases stipulated by paragraph 4 of the above article. Share participation in the local infrastructure development means transferring money by the construction customer to the community’s budget before the respective construction object is accepted for operation, as to provide for creating and developing of the said infrastructure.

Paragraph 9 of Article 40 of the Law No. 3038-VI enshrines the time period within which such share participation agreements must be signed – not later than within 15 business days from the date when the construction customer’s application for concluding the agreement is registered, but before the respective construction object is accepted for operation.

As implied by paragraph 1 of Article 40 of the Law No. 3038-VI, the procedure for raising, calculating the amount, and using the funds contributed as share participation for the development of a local community’s infrastructure, is to be determined by local self-government authorities in compliance with the above Law.

Analysis of paragraphs 2, 3, 9 of Article 40 of the Law No. 3038-VI suggests that the obligation to initiate conclusion of the share participation agreement rests with the construction customer because this obligation is connected with the customer’s application to a local self-government body.

As determined by paragraph 9 of Article 40 of the Law No. 3038-VI and clause 2.8 of the Procedure, the time limit (within 15 business days, but before the acceptance of the construction object for operation) is fixed for entering into the share participation agreement upon voluntary performance of this obligation by the respective party and the construction customer’s application to a local self-government authority for concluding such agreement.

The customer’s attempts to evade entering into the share participation agreement until the acceptance of its real estate into service constitute a breach of the obligation expressly stated by applicable laws.

Non-compliance with the above obligation does not exempt the construction customer from the responsibility to sign the share participation agreement, including after the respective object’s acceptance.

In addition, as the resolution indicates, the conclusions made by the Supreme Economic Court of Ukraine, the Kharkiv Commercial Court of Appeal and the Commercial Court of Kharkiv Region and stating that paragraph 9 Article 40 of the Law No. 3038-VI establishes the time limits for signing the said agreement, and the expiration of such time period releases the parties from the need to enter into the agreement, must be considered as erroneous.

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