Local Self-Government Body vs Territorial Community. Right or Lawlessness?

Alla Lesko

Candidate of Legal Sciences, retired judge of the Supreme Court, lawyer

On June 5, 2024, the Grand Chamber of the Supreme Court adopted a landmark judicial decision – a ruling in a dispute arising from land lease relations (case No. 914/2848/22). In a number of later rulings, it supported the legal conclusions expressed in this case, thus they are stable.

In this case, the Grand Chamber formulated a legal conclusion according to which "the norms regulating the size, form, and procedure for paying rent for lands of state and communal ownership are characterized by a higher degree of imperative regulation compared to lands of private ownership" (para. 91).

As noted by the Grand Chamber in para. 97 of the mentioned ruling, "According to Article 18 of the Law of Ukraine 'On Land Valuation', the normative monetary valuation of land plots is carried out in accordance with norms, rules, and other regulatory legal acts on lands of all categories and forms of ownership".

The procedure for approving technical documentation on land valuation is defined by Article 23 of the Law of Ukraine 'On Land Valuation'. Parts one, three, and four of this article provide that technical documentation on soil bonitation and normative monetary valuation of land plots is approved by the respective village, settlement, or city council (para. 98 of the ruling).

Thus, according to the Grand Chamber's conclusion, the normative monetary valuation of lands is established by approving technical documentation on normative monetary valuation of land plots, which is carried out by the respective village, settlement, or city council. This imperative regulation excludes establishing the normative monetary valuation of land plots by contract, including contracts between local self-government bodies and lessees (para. 101).

In paragraph 103 of the mentioned ruling, the Grand Chamber of the Supreme Court concluded that from the moment of applying, according to paragraph 271.2 of Article 271 of the Tax Code of Ukraine, the new size of the normative monetary valuation of lands of state and communal ownership, the rights and obligations of the parties to the lease agreement automatically change regarding the rent amount if it is defined as a percentage of the normative monetary valuation.

Since the lessee, who referred to the illegitimacy of the normative monetary valuation as the basis for calculating rent, cannot be deprived of access to justice, the Grand Chamber rightly noted in paragraph 114 that "in disputes concerning the determination of the rent amount for using lands of state and communal ownership, including in connection with changes in the normative monetary valuation of land, the arguments of the parties regarding the legitimacy/illegitimacy of the determined normative monetary valuation of land as the basis for calculating rent are subject to mandatory verification in light of the provisions of part two of Article 21 of the Law of Ukraine 'On Land Lease' and Articles 5, 13 of the Law of Ukraine 'On Land Valuation'."

Summarizing, the Grand Chamber in paragraph 115 of the ruling indicated: "From the content of the contested decisions, it is established that the courts of previous instances did not examine the technical documentation on the normative monetary valuation of the land plot provided by the plaintiff and did not evaluate the defendant's arguments about the impossibility of applying the normative monetary valuation of the land plot provided by the plaintiff, which indicates a violation by the courts of previous instances of the norm of part five of Article 5 of the Law of Ukraine 'On Land Valuation', according to which the normative monetary valuation of land plots is used to determine the rent amount for lands of state and communal ownership, which is grounds for canceling the court decisions."

Thus, in case No. 914/2848/22, the Grand Chamber formulated absolutely clear legal conclusions, which also align with the ruling of November 23, 2021, in case No. 359/3373/16-c, where the Grand Chamber again emphasized that "a decision of a state authority or local self-government body, if it does not comply with the law, does not entail the legal consequences it aims for. Therefore, when considering a case where the assessment of the legality or illegality of a decision of a state authority or local self-government body may affect the dispute resolution, refusal of the claim on the grounds that the decision of the state authority or local self-government body has not been declared invalid by the court or has not been appealed, and the corresponding claim has not been filed, is not allowed. The court should proceed from the principle jura novit curia – 'the court knows the law.' Therefore, regardless of whether the respective decision is appealed or not, the court must independently give a legal assessment of the decision of the state authority or local self-government body and set it out in the reasoning part of the court decision." (paras. 109, 142 of the ruling).

According to these legal conclusions of the Grand Chamber of the Supreme Court in case No. 914/2848/22, the technical documentation on the normative monetary valuation of the land plot, approved by the city council decision, must be subject to court assessment, as required by Article 124 of the Constitution of Ukraine.

(For convenience, the short name "Technical Documentation" is also used below)

Otherwise, a formal check by the administrative jurisdiction court of only the procedure of adopting the decision by the local self-government body on approving the technical documentation on normative monetary valuation of lands of the settlement and compliance with it would lead to the possibility of applying, although procedurally correctly approved, but unlawful (developed in violation of established norms, rules, and standards) Technical Documentation, which according to paragraph 289.1 of Article 289 of the Tax Code of Ukraine serves as the basis for taxation and rent payment by residents of the territorial community.

However, such a state of affairs is unacceptable because the obligation of land users to pay land tax or rent corresponds to their right to establish mandatory taxes and payments to the respective budgets in strict accordance with the law.

A similar approach was applied by the Supreme Court in the ruling of March 10, 2020, in case No. 160/1088/19.

Article 18 of Law No. 1378-IV "On Land Valuation" establishes that the normative monetary valuation of land plots is carried out according to state standards, norms, rules, and other regulatory legal acts on lands of all categories and forms of ownership.

Therefore, the normative monetary valuation of land plots is not exclusively a set of scientific and technical calculations accessible only to a narrow circle of specialized experts, but a document that at the time of its approval by the local self-government body decision must comply with state standards, norms, rules, and other regulatory legal acts regulating its development and approval procedure.

At various times, regulatory legal acts to which the technical documentation on normative monetary valuation of lands must comply have undergone certain relevant changes, so let us recall, for example, several of them: Methodology for normative monetary valuation of agricultural lands and settlements, approved by the Cabinet of Ministers of Ukraine resolution dated March 23, 1995, No. 213; Procedure for monetary valuation of agricultural lands and settlements No. 18/15/21/11 dated 25.01.2006; Sectoral standard SOU DKZR 00032632-012:2009 "Land valuation. Rules for developing technical documentation on normative monetary valuation of lands of settlements," approved by the order of the State Land Committee dated 24.06.2009 No. 335 and registered by the Ukrainian Scientific Research Institute of Standardization, Certification and Informatics of the State Consumer Standard of Ukraine on 10.09.2009 under No. 32595752/1927 (hereinafter – the Standard)

These subordinate normative acts contain clear norms, and checking the Technical Documentation for their compliance does not always require special technical knowledge.

For example, paragraph 3.2.9 of the Standard provides that the collection of initial data for calculating costs for land development and improvement is carried out according to the forms in Appendix B. Appendices B1-B24 must be signed by an official and sealed by the enterprise, institution, or organization on whose balance the objects provided for in these appendices are located.

And if the initial data in the Technical Documentation for normative monetary valuation of lands regarding engineering networks (dams, drainage, land reclamation, shore protection); water supply (pumping stations, treatment facilities, main network); sewage (water intakes, pumping, etc.); external lighting (networks, poles, electrical cabinets); stormwater drainage; telephone communication (telephone exchanges, linear structures); cable television (stations with equipment, television network); street-road network, are provided not by officials of institutions or organizations on whose balance the objects provided for in these appendices are located, but by a structural unit created by the local council?

Are special technical skills needed to verify such a fact? Obviously, no.

Or are special technical skills needed to assess the statement in the Technical Documentation: "for the vast majority of the provided indicators of individual elements of the city's engineering-transport and environmental infrastructure, the value given is not the full replacement cost but the balance value, i.e., without considering the indexation of fixed assets carried out in recent years. Therefore, for calculating the full replacement cost of infrastructure elements, natural indicators were used. Their replacement cost calculation was based on "Collection of aggregated costs for construction, engineering equipment, landscaping, and greening of cities of various sizes and national economic profiles for all natural-climatic zones of the country" (Moscow, 1986)"

The calculation of the replacement cost of city infrastructure elements based on this "Collection" was made after the beginning of the Russian armed aggression against Ukraine and the annexation of Crimea.

Obviously, no special technical knowledge is required for the court to verify the party's arguments about violations during the development of technical documentation by the local self-government body of paragraph "v" of part 3 of Article 27 of the Law of Ukraine "On Land Management" dated May 22, 2003, No. 858-IV, which obliges the city council as the customer of land management documentation to select developers of land management documentation on a competitive basis, not at the discretion of an official, since the technical documentation is developed at the expense of local budget funds.

Of course, discussing the legality or illegality of such normative monetary valuation approved by the local council decision will have to be done in the language of court decisions, and the basis on which court decisions must be grounded is Article 19 of the Constitution of Ukraine, according to which state authorities and local self-government bodies, their officials are obliged to act only on the basis, within the powers, and in the manner provided by the Constitution and laws of Ukraine.

It is clear that in disputes concerning the assessment of the legality/illegality of technical documentation on normative monetary valuation of city lands approved by the city council decision, several more questions may arise.

In particular, the court's conclusion regarding the technical documentation on normative monetary valuation of city lands as illegal results in the non-receipt by the local budget of a certain part of payments from rent calculated based on such normative monetary valuation. So what about the lessee's obligation to pay rent?

The answer can be found in the Supreme Court ruling of the chamber for land relations and property rights of the Cassation Commercial Court dated April 28, 2020, in case No. 904/164/19, which concluded that "Imposing the mentioned obligation on the Defendant would violate the principle of good governance, the mandatory observance of which has been repeatedly emphasized by the European Court of Human Rights. The European Court of Human Rights consistently stated that 'errors of public authorities should benefit the affected persons, especially in the absence of other private interest. In other words, the risk of any error by a public authority should be borne by the state itself, and errors cannot be corrected at the expense of the persons they concern"

Thus, imposing on the lessee the obligation to comply with the city council decision approving unlawful technical documentation on normative monetary valuation of city lands would mean correcting the city council's errors made when adopting such decisions at the expense of the defendants, which contradicts the principle of good governance" (para. 63 of the ruling).

Moreover, usually, lessees still pay rent established based on the previous normative monetary valuation of land, regarding which there is no dispute between the parties.

Also, the question may arise whether the technical documentation on normative monetary valuation of city lands is a regulatory act – a normative legal act adopted by an authorized regulatory body?

Since according to paragraph 289.1 of Article 289 of the Tax Code of Ukraine, the normative monetary valuation of land plots is used to determine the amount of tax and rent considering the indexation coefficient defined by law, the technical documentation on normative monetary valuation of lands of the settlement, approved by the city council decision, together with the city council decision constitutes the regulatory normative legal act that determines the amount of tax and rent.

Here one can draw an analogy with the city council decision approving the city's general plan. After all, no one currently considers the city council decision on approval alone, without its integral part – the General Plan of the city, as a regulatory normative legal act.

The Law "On the Principles of State Regulatory Policy in the Field of Economic Activity" No. 1160-IV dated 11.09.2003 provides the right of individuals and legal entities, their associations to submit comments and proposals on the draft regulatory act, which logically cannot be only the text of the city council decision on approval, without the materials of the Technical Documentation.

Article 9 of Law No. 1160-IV establishes that each draft regulatory act is published for the purpose of receiving comments and proposals from individuals and legal entities, their associations.

Publishing the draft regulatory act – the city council decision with its integral part Technical Documentation makes it possible for individuals and legal entities to submit comments and proposals, including regarding the non-compliance of the initial data provided for the development of the Technical Documentation, already at this stage.

This would help avoid numerous court disputes regarding rent collection in the context of the illegitimacy of the normative monetary valuation of the land plot as the basis for calculating land tax and rent.

Article 4 of the Law of Ukraine "On Local Self-Government in Ukraine" dated May 21, 1997, No. 280/97-VR establishes the main principles of local self-government, among which are: legality; publicity; accountability and responsibility to territorial communities of their bodies and officials.

     Residents (citizens, business entities) are the foundation of the territorial community, not hostages of the local self-government body. Neither the general city plan, nor detailed territorial plans, nor technical documentation on normative monetary valuation of city lands automatically become lawful just because the city council adopted a decision approving them.

At the same time, the volume of actual publication of the Technical Documentation materials as a draft regulatory act cannot depend on the subjective opinion of local self-government officials regarding their sufficiency for informing taxpayers and lessees.

Applying Technical Documentation that was not published in the appropriate volume at the approval stage and is based on incorrect calculations, inaccurate initial data, obvious arithmetic errors, and does not comply with a number of subordinate normative acts regulating its development procedure, undoubtedly leads to violations of the rights of individuals and legal entities.

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