Many municipalities have roads that are actually in use but are not legally registered by anyone. This creates problems with their maintenance, repair and financing, as without a specific owner, a road cannot be legally repaired or included in development programmes. Therefore, it is important for municipalities to learn the steps to be taken to determine the status of such a road, who should become its balance holder, and how to go through the procedure of bringing it under municipal ownership in compliance with the law.
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Key regulatory definitions
According to Article 1 of the Law of Ukraine “On Motor Roads”, a motor road is a linear system of engineering structures designed for the continuous, safe and convenient movement of vehicles.
The Traffic Rules, approved by Resolution of the Cabinet of Ministers of Ukraine No. 1306 dated 10 October 2001, define a motor road, street (road) as a part of the territory, particularly in a populated area, with all structures located thereon (bridges, overpasses, flyovers, above-ground and underground pedestrian crossings) and traffic control means, intended for the movement of vehicles and pedestrians and limited in width by the outer edge of the pavements or the edge of the right-of-way. This term also includes specially constructed temporary roads, in addition to arbitrarily rolled roads (tracks).
Types of motor roads and forms of ownership
According to Article 5 of the Law of Ukraine “On Motor Roads”, motor roads are classified as:
- public roads;
- streets and roads in cities and other populated areas;
- utility (industrial) motor roads;
- and motor roads on private land.
Public motor roads are state-owned (Article 7 of Law 1306). Utility (industrial) roads are owned by legal entities or individuals (Article 22 of Law 1306).
Meanwhile, streets and roads in cities and other settlements are under the purview of local self-government bodies and are municipal property (Article 15 of Law 1306). In addition, roads on private territories may be transferred to municipal property.
Identification of potential asset holder
Thus, if a road is unaccounted for, it is first necessary to determine its type under Law 1306, ascertain what form of ownership it may fall under and analyse which entity should assume responsibility for it.
When establishing the circle of potential motor road asset holders, it is also essential to obtain information from the oblast military administration responsible for managing public roads of local importance, an extract from the State Land Cadastre (SLC) and/or the State Register of Real Property Rights.
If there is no owner: procedure for abandoned property
Where there is no information about the owner/asset holder of the motor road, and if it is located within a populated area, it is advisable to apply the procedure for bringing abandoned property under municipal ownership provided for in Article 335 of the Civil Code of Ukraine (hereinafter the CCU) in order to bring it under municipal ownership.
According to this article, abandoned property must be registered by the body carrying out state registration of real property rights upon application by the local self-government body within whose territory the property is located. An announcement must be made in the print media regarding the registration of abandoned real property.
Once a year has passed since the date of registration of abandoned real property, it may be transferred to municipal ownership by court decision upon application by the body authorised to manage the property of the relevant municipality.
Steps for bringing a road under municipal ownership
- Record the discovery of abandoned property by drawing up a property inspection report. The report should detail the specifications and condition of all elements of the road.
- Collect information about the absence of the owner or the absence of information about the owner (a certificate from the State Register of Real Property Rights, letters/certificates from the competent authorities such as a bureau of technical inventory, an oblast military administration, local road services, information from the State Land Cadastre on ownership and property rights to land plots).
- Prepare technical documentation.
- Contact the state registrar regarding registration of the abandoned property.
- Publish an announcement in print media.
- Apply to the court with a request to transfer the abandoned motor road to municipal ownership.
Once the court decision has come into effect, the relevant council must decide at its session to transfer the motor road to the municipal property of the municipality and take steps to include it in the balance sheet.
In order to put the road on the balance sheet, it must meet the criteria for recognising fixed assets (Clause 2, Section II of National Regulation (Standard) of Accounting in the Public Sector NP(S)BODS 121 (Fixed Assets)). A fixed asset is recognised when a public sector entity is likely to derive future economic benefits associated with its use, and/or it has the potential to be useful to society; and the cost of the fixed asset can be determined.
Road valuation
If no documents confirming the value are available, an independent valuation should be conducted by an appraisal entity in accordance with the Law of Ukraine “On Property Valuation, Property Rights and Professional Appraisal Activities in Ukraine” No. 2658-III dated 12 July 2001. Following the valuation, a Property Valuation Report is drawn up with an opinion on its value.
In accordance with the Procedure for the Implementation of the Chart of Accounts in the Public Sector, approved by Order of the Ministry of Finance of Ukraine No. 1219 dated 29 December 2015, such roads are recorded in sub-account 1013 “Buildings, facilities and transmission devices”, which accounts for buildings, facilities, their structural components and transmission devices, as well as residential buildings.
When recording such property (roads), income should be recognised in the amount of their determined value in accordance with the Property Valuation Report. To reflect this income, sub-account 7112 “Income from the recognition of assets not previously recognised in the balance sheet” is used.
Submission of a certificate to the Treasury
Recording property (roads) on the balance sheet involves reflecting the in-kind transfer. Accordingly, no later than on the last working day of the reporting month, a Certificate of receipt in kind must be submitted to the State Treasury Service in accordance with the Procedure for Treasury Services for Local Budgets, approved by Order of the Ministry of Finance of Ukraine No. 938 dated 23 August 2012.
Note that the initial cost of a fixed asset consists of expenses directly related to bringing the fixed asset to a condition in which it is suitable for use for its intended purpose (Clause 5, Section II of NP(S)BODS 121 (Fixed Assets)). Thus, expenses directly related to bringing the road to a condition in which it will be suitable for use for its intended purpose, including expenses for preparing the Road Valuation Report, should be included in the initial cost of the road and accumulated in capital investments (sub-account 1311 “Capital investments in fixed assets”).
Summary of the procedure
In short, recognising a road that wasn’t on any organisation’s balance sheet before or is considered abandoned calls for comprehensive legal, technical and accounting formalities. The local self-government body (city council) must establish the legal status of the road and, if it falls under the category of streets and roads in populated areas of the municipality and exhibits signs of being abandoned, take steps to transfer it to municipal ownership as abandoned property in accordance with Article 335 of the CCU.
After recognition of ownership and determination of value (based on primary documents or independent valuation), the road will be recognised as a fixed asset if all recognition criteria are met and will be recorded on the balance sheet. The determined value is recognised as income from the recognition of assets not previously included on the balance sheet, and the costs associated with bringing the road to a usable condition are included in its initial cost. Upon registration on the balance sheet, the agency must submit a Certificate of Receipt in Kind to the Treasury.
