The lease agreement of state property may be declared invalid due to inaccurate information: the position of the Supreme Court
The lease agreement of state property is subject to being declared invalid as concluded under the influence of an error regarding essential properties of the property (Article 229 of the Civil Code of Ukraine), if the lessor, violating part 5 of Article 2 of the Law of Ukraine "On the Lease of State and Communal Property," did not provide the potential lessee with complete and accurate information about the actual condition of the leased object, which directly affects the possibility of using the leased property for its intended purpose according to the terms of the agreement. Imposing negative consequences on the lessee caused by the lessor’s improper fulfillment of the obligation to disclose such information contradicts the principles of good faith, reasonableness, and fairness, as well as the legal nature of the relevant procedure for transferring property for lease. This conclusion was made by the Commercial Cassation Court of the Supreme Court in case No. 916/3317/23.
The Commercial Cassation Court of the Supreme Court reviewed the cassation appeal of the State Enterprise and LLC in the lawsuit of LLC against the regional branch of the State Property Fund of Ukraine and the State Enterprise regarding the invalidation of the electronic auction results, invalidation of the lease agreement, and recovery of paid funds in the bidding procedure.
LLC participated in an electronic auction for the lease of state real estate — a warehouse site with buildings and structures, which was on the balance sheet of the State Enterprise. As a result of the auction, the plaintiff was declared the winner, after which it paid the guarantee and advance payments and concluded a lease agreement with the State Property Fund of Ukraine and the balance holder.
Subsequently, the plaintiff applied to the court with claims to invalidate the electronic auction results and the lease agreement, as well as to recover the paid funds from the state budget. The claim was motivated by the fact that during the electronic auction, the lessor published inaccurate and incomplete information about the actual condition of the leased object, as a result of which after concluding the agreement it became clear that the property, due to the presence of landslide processes, cannot be used for its intended purpose without carrying out a set of engineering measures.
The courts considered the case repeatedly. After a new appeal review, the appellate court changed the decision of the first instance court to satisfy the claim. The appellate court re-examined the evidence regarding the accuracy of the information about the leased object, changed the reasons for satisfying the claims about the invalidity of the agreement, leaving the relevant conclusion on the merits unchanged.
COURT’S ASSESSMENT
According to part 5 of Article 2 of the Law of Ukraine "On the Lease of State and Communal Property," leasing is carried out, in particular, based on the principle of full, timely, and accurate information about the leased objects and the procedure for their transfer for lease.
Thus, this provision establishes not only a general declaration of the principle of transparency of leasing procedures but also imposes on persons ensuring the transfer of property for lease the obligation to provide such information about the object that is essential for making a decision to participate in the auction, conclude a lease agreement, and further use the property according to its intended purpose.
The Commercial Cassation Court of the Supreme Court noted that the mere fact that LLC did not sign the acceptance-transfer act of the property cannot indicate bad faith behavior of the plaintiff or its evasion from proper fulfillment of contractual obligations.
At the same time, considering the circumstances established by the courts, the behavior of LLC corresponds to the standard of good faith and reasonable behavior of a participant in civil turnover, while the failure of the State Property Fund of Ukraine to provide complete and accurate information about the actual condition of the leased object significantly influenced the plaintiff’s will and the possibility of using the leased property for its intended purpose according to the terms of the lease agreement.
The Commercial Cassation Court of the Supreme Court agreed with the conclusions of the lower courts that when transferring state property for lease, the lessor is obliged to ensure disclosure of complete, accurate, and precise information about the leased object. If the announcement of the electronic auction lacks information about essential characteristics of the property that affect the possibility of its use for the defined contractual intended purpose, the negative consequences of such improper informing cannot be imposed on a good faith auction participant.
The panel of judges noted that the appellate court properly fulfilled the instructions set out in the Supreme Court’s ruling, re-examined the evidence, evaluated the technical report and the conclusion of the judicial land-technical expertise, and reasonably established that the expert’s conclusion confirms the impossibility of using the leased property for its intended purpose without carrying out a set of engineering protection measures for the territory.
The panel of judges also rejected the arguments of the cassation appeal regarding the inadmissibility of the expert’s conclusion, noting that the defendants' objections were mainly based on an act unilaterally drawn up by them, which cannot be considered sufficient and objective evidence to refute the expert’s conclusions.
At the same time, the Commercial Cassation Court of the Supreme Court concluded that in this case, given the payment by LLC of the guarantee and advance payments, an effective way to protect rights is to recognize the lease agreement as invalid with a simultaneous claim for recovery of the paid amounts in accordance with Article 1212 of the Civil Code of Ukraine, and the mere omission by the lower courts to mention this article during the legal qualification of the disputed legal relations does not indicate an incorrect resolution of the dispute on the merits and cannot be an independent ground for canceling the challenged court decisions.
In view of the above, the Commercial Cassation Court of the Supreme Court sees no grounds for forming a legal conclusion regarding the application of part 10 of Article 13 of the Law of Ukraine "On the Lease of State and Communal Property" and paragraph 110 of the Procedure for the Transfer of State and Communal Property for Lease, approved by the Cabinet of Ministers of Ukraine Resolution No. 483 dated 03.06.2020, concerning the return of guarantee and advance payments in the case when an electronic auction participant has acquired the status of winner, the auction has not been declared invalid, the lease agreement has been concluded, but the winner refused to sign the acceptance-transfer act of the property.
This issue is not decisive for resolving this dispute, since the lower courts established the invalidity of the lease agreement and the circumstances of the lessor’s failure to provide the plaintiff with complete and accurate information about the leased object. Moreover, the courts did not find bad faith behavior of LLC related to the refusal to sign the acceptance-transfer act.
As a result of the review, the Commercial Cassation Court of the Supreme Court dismissed the cassation appeal and left the appellate court’s ruling unchanged and restored its enforcement.
More details and the text of the Commercial Cassation Court of the Supreme Court ruling dated 03.06.2026 in case No. 916/3317/23 can be found at this link.
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