The lease of state-owned and municipal land is an important aspect of land relations that affects the economic stability and development of both local municipalities and lessees.
Among the key factors affecting the amount of rent is the regulatory monetary value of a land plot. This indicator is used when calculating the tax base and determining the amount of rent.
However, the practice of using regulatory monetary value in the context of land lease raises a number of questions and contradictions. Frequent revisions of this value, as well as changes in legislation, contribute to instability in leased land relations, affecting the local budget revenues and renters’ businesses.
Let’s take a look at the legal nature of rent for state-owned and municipal land
They might be able to help us clear up the issue.
The Civil Code of Ukraine defines the general provisions of the lease (rent) agreements, in particular regarding the lease of land plots.
Pursuant to the Land Code of Ukraine, the right to lease land means contract-based, fixed-term paid tenancy and use of a land plot and this type of relations is regulated by law.
Thus, the Civil and Land Codes of Ukraine only establish general principles regarding the above category of legal relations. The specifics are regulated by the Law of Ukraine “On Land Lease”, a designated law stating that a land lease agreement is an agreement whereunder one party (the lessor) is obliged to transfer to the other party (the lessee) a certain plot of land for tenancy and use for a certain period, and the second party (tenant) is obliged to use the land plot in accordance with the agreement and the law.
That is, by its very nature, the lease of land, including state-owned and municipal land, falls under contractual — and, therefore, civil — legal relations.
However, should you approach the above agreement from another perspective, it does not come off as so unambiguous. Considering the issue of rent in detail, keep in mind Article 21 of the Law of Ukraine “On Land Lease”, which defines land rent as “a payment that the lessee makes to the lessor in consideration for the use of the land plot under the land lease agreement. The amount of, conditions and terms for paying lease charges for the land are established by the parties in the lease agreement (except for terms for paying lease charges for state-owned and municipal lands established by the Tax Code of Ukraine).”
According to the Tax Code of Ukraine, “land tax is a mandatory payment as part of property tax, which shall be paid as land tax or rent for state-owned and municipal land plots”.
Based solely on the Tax Code of Ukraine, it can be argued that the rent for state and municipally-owned land is a type of land fee and, accordingly, is a tax rather than consideration under an agreement.
Important! Although the agreement for the lease of a plot of state-owned or municipal land is a civil law contract, a number of conditions regarding the payment of rent are mandatory, which is not typically inherent in civil legal relations. Moreover, the question of determining the amount of rent is related more to tax legislation than to civil law.
In accordance with the Tax Code of Ukraine and the Law of Ukraine “On Land Valuation”, the regulatory monetary value of land is a mandatory indicator used to determine the rent when renting municipal and state-owned lands, and its adjustment therefore directly affects the determination of the amount of rent.
Note! Keep in mind that the amount of the regulatory monetary value may change over time due to changes in the characteristics of the land plot (assignment to a certain territory, changes in purpose, composition of land, etc.), changes in the status of the territory or changes in the procedure of regulatory monetary valuation of land plots.
Therefore, the problem is how to make changes to the current lease agreements of land plots of state-owned and municipal property whenever the regulatory monetary value changes.
This legal ambiguity resulted in many contradictions in practice, which, in turn, led to a large number of court cases. The Supreme Court repeatedly changed its position on this issue, creating uncertainty for the participants of this type of legal relations.
Until recently, the judicial practice regarding the change of the rent for the lease of municipal or state-owned land depending on the change in the regulatory monetary value of the land plot was described by the Decision of the Grand Chamber of the Supreme Court in case No. 635/4233/19 dated 9 November 2021.
Following the review, the Grand Chamber of the Supreme Court ruled that “agreements are typically concluded by the parties to civil legal relations, including legal relations arising from land lease agreements, on the principles of equality of parties and freedom of contract and in compliance with the mandatory requirements for of this type of agreement; they should indicate their essential terms and should be made in proper form”.
Decisions of local self-government bodies “can be the basis for amending the land lease agreement if the parties thereto expressly provided for such a basis for adjusting the rent in the agreement, which is consistent with the principle of freedom of contract”.
Thus, the above position was based on the Civil Code of Ukraine; therefore, if the parties wanted to amend the agreement to adjust rent, they had to either do so voluntarily or to apply to court with a claim to amend the agreement.
However, on 5 June 2024, in its Decision in case No. 914/2848/22, the Grand Chamber of the Supreme Court ruled to derogate from the above decision and concluded that “upon application of the adjusted regulatory monetary value of state-owned or municipal land plots in accordance with para. 271.2 of Article 271 of the Tax Code of Ukraine, the rights and obligations of the parties to the lease agreement shall be automatically adjusted in terms of the amount of the rent determined as a percentage of the regulatory monetary value. Said legal relations do not require the parties to amend the lease agreement by entering into an additional agreement, since the obligation to pay the rent in accordance with the adjusted regulatory monetary value of the land plot arises upon application of such regulatory monetary value.”
Summarising the above, while a change in the regulatory monetary value of the land plot used to require entering into an additional agreement or amending the existing agreement to change the amount of rent, the landlord can now immediately demand the collection of a new amount of rent from the lessee or apply to the court with a claim for collection of rent under the agreement.
Note that the above decisions of the Supreme Court were not unanimous, and in both cases, some judges expressed their separate opinion on the issue. This indicates that this issue is not settled in the current legal landscape.
It is yet difficult to say whether the new position is correct. On the one hand, this procedure enables local self-government bodies to quickly and efficiently raise additional revenues for local budgets.
On the other hand, this position significantly narrows the scope of lessees’ rights, since their consent is currently not required to change the amount of rent.
Conclusions
A lease agreement for a municipal or state-owned land plot is a specific type of lease (rent) agreement of a complex legal nature. The general provisions of such agreements are rooted in civil law, while the terms and conditions related to rent are governed by tax law.
The Supreme Court’s new position favours local self-government but limits the rights of lessees. This can lead to contradictions and requires further improvement of the applicable legislation.
