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Protecting Rights to Own Movable Property

Protecting Rights to Own Movable Property

Ukraine
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The owner’s rights are guaranteed by the Constitution. However, a person can still be restricted or stripped of enjoying its title to the property if so provided by the statutory law passed by Verkhovna Rada. Mandatory transfer of property for the needs of defence or other public emergencies is called requisition and such transfer must be subject to prior and fair compensation, except “where extraordinary circumstances require otherwise”.

Requisition

The statutes on the extraordinary periods and respective regulations direct the executive branch of the government to create a plan for enabling responses to the national security threats. The plan adopted by Ukraine’s Cabinet of Ministers on 24 February 2022 stipulates possibility of requisition in the form of mandatory (a) divestment by private and municipal owners and (b) disposal (in use, lease, consignment etc.) of the property owned by state enterprises, public business organizations may be seized for public needs. 

The decision to requisition – sell or otherwise dispose - the assets must be made by a respective authorized body: the defense council at a corresponding district or military administrations (if any), military brass, intendants.  

The owner is entitled to request: 

  • a certificate signed by the requisitioning officer and by the body that approved the transfer. Please note: property can be requisitioned without approval in the war zone or threatened by the war conflict. Given RF invasion tactics of deliberate rocket and airplane strikes anywhere in Ukraine, there seem to be no clear line between a war zone and safer territory (unlike 2014-2021 period, where localities for intensive fighting or imminent threats could have been defined with more precision). As an entrepreneur or an officer of the company, one should be prepared for requisition by developing the certificate templates and the updated list of inventory and fixed assets. Unfortunately, the tax law does not comprise favorable regime for donation of the assets to the defense sector even as it often were the only ratinal way to use or dispose of it in the war zone;   

  • an appraiser’s report on the value of the requisitioned assets – to be issued by independent certified appraiser or state (local) authority, which should guarantee unbiased approach to the price of compensation to the owner. However, it is easy to foresee disputes about true value and valuation methods, therefore, both transferor and the transferee can contest the report in the court.  

The compensation to the owner must be made as follows: 

  • Prior compensation in full can be paid by the state treasury prior to signing of the transfer certificate. Obviously, a requisitor has limited funds. Moreover, the owner is unlikely to check or even have the access to the data on whether the funds are sufficient or available at all – due to lack of time, fluid situation and secrecy of the subject. Since detailed criteria are not set in the law, the rationale for the refusal to compensate immediately for the transferred property will have to be tested by the court; 

  • subsequent compensation in full is paid within 5 years after the cancellation of a martial law. To receive the subsequent full compensation, a former owner should file an application supported by the transfer certificate and the appraiser’s report to a local center for [military] recruitment and [veteran’s] social support. Considering that anyone would not have a slight idea when the aggression, ongoing as of 2014 will end, it may prove elusive to rely on the subsequent compensation or return of property at a fair price;  

  • return of assets - a former owner may request the replacement, where available, or return their property (if it was preserved) by applying to court. However, they will be required to give back the money paid to them as consideration for such property. It is unclear, how the owner will be compensated for damage, wear and tear; or whether owner will have to pay for any difference in price (in case of replacement with better asset), upgrades and retrofitting (in case of return).  

In addition, Directive no. 186-р of the Cabinet of Ministers of Ukraine dated 26 February 2022 ordered transfer in care of Ukraine’s Ministry of Defense of all the previously confiscated, abandoned and abeyant property (where title is already passed to the state).  

Property of the Aggressor State(s)

Bill "On Fundamentals of Compulsory Seizure of the Russian Federation and the RF Residents’ Property in Ukraine" provides that any assets owned by the Russian State or its residents on the territory of Ukraine must be seized (confiscated) without consideration or compensation. Decision to seize the assets will be made by the National Security and Defence Council of Ukraine; under the Constitution, all decisions of that body are made effective through a Decree of the President of Ukraine. No hostile action has yet been made with respect to Republic Belarus or its resident business and natural entities.  

Protection of the Title Marketability

Besides the requisition, martial law may be limiting the possession, use or disposal of property – e.g., military or its stock may be stationed in the real estate, transport vehicles used part-time for defence supplies or intelligence tasks, the equipment used for production of the emergency needs. However, lawful limitations are strictly regulated: property may be requisitioned only by designated authorities. And, if the owner does not receive the compensation or has other claims, they can appeal to judiciary.  

Nevertheless, the wars and other military conflicts had been famously showing unlawful limitations and deprivation of property. Therefore, when someone misappropriated or swindled a property of a person or company, or does not respect the owners’ rights, standard rules for disputes apply regardless: vindication (claiming for unlawfully owned property), negation (recognizing the transaction concluded under pressure or due to difficult circumstances invalid or applying such consequences to a void transaction) or negatory claim (eliminating obstacles to exercise property rights). Under the martial law, judiciary are not terminated, suspended or restricted, just as well as the constitutional right to seek protection in the courts. However, the office hours of each court are based on the ongoing situation – the hearings at or correspondence with the court may be scheduled in other location or another day to ensure safety and due process of the people involved. It is worth noting that so far a few owners succeeded in defending their rights, and usually after several years – based on the cases related to the property located in the annexed territory of the Autonomous Republic of Crimea and occupied districts in Donetska region and Luhanska region.  

Resources: Plan for introducing and ensuring measures to implement the legal regime prescribed by the martial law in Ukraine: approved by Cabinet of Ministers of Ukraine Resolution no.181-р dated 24 February 2022.

By Oleh Zahnitko, Partner, Integrites

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