The Contract for the Purchase and Sale of a Land Plot with an Unauthorized Construction Object, Concluded Without Compliance with the Principles of Competition, Is Null and Void - SC Grand Chamber

The village council sold a land plot of communal property to the “Tabiti” LLC without conducting land tenders. The reason was that there was allegedly an object of real estate located on this site, the right of ownership of which was registered by the company. Having acquired the land plot, the buyer divided it into six others and assigned them cadastral numbers. Soon the village council learned about the illegality of this facility construction, because neither the construction contractor nor the defendant company had a corresponding proprietary right to the land. Taking this into account, the State Architectural and Construction Inspection of Ukraine cancelled the registration of the declaration on the start of construction work. The legality of this decision was confirmed by the courts in another case.

The village council went to court. It asked to invalidate the contract for the sale and purchase of a land plot concluded with the “Tabiti” LLC and to return the land plots formed as a result of the division. The court of first instance upheld the claim. The court of appeal upheld the decision of the court of first instance during the new examination of the case. The Grand Chamber of the Supreme Court, considering the defendant's cassation appeal, had, in particular, to decide whether there were grounds to invalidate the disputed contract and apply restitution.

According to the content of para. 2, part 2, Art. 134 of the Land Code of Ukraine, if a person does not have the right of ownership on the object located on a land plot, there are no grounds for applying non-competitive bases for the sale of this land plot. At the same time, it does not matter whether it is an object of construction in progress or a completed real estate object put into operation in accordance with the law.

The company, whose manager acted in bad faith, knowing with certainty that there were no legal grounds to start construction, should have known that there was no reason to purchase the primary plot of land on non-competitive terms (without land tendering).

The defendant did not obtain ownership of the construction in progress. This object is an unauthorized construction, because the primary land plot was not allocated for the corresponding purpose. Neither the legal entity that started construction on this site, nor the defendant, who registered the right of ownership to the object of construction in progress as a contribution to the authorized capital, had any proprietary right to the primary land plot.

State registration of ownership of real estate is one of the legal facts in the legal composition necessary to confirm this right, and has no independent significance for the emergence of ownership. Such registration determines only the time at which the state recognizes and confirms the right of ownership in the presence of other legal facts provided by law as necessary for the emergence of this right. Registration of the right of ownership for unauthorized construction does not change the legal regime of such construction as unauthorized.

Therefore, this right did not arise for the bad faith defendant who registered ownership of the construction in progress. The above excluded the possibility of acquiring the primary land plot by him in a non-competitive way. In such a case, there should be applied the general rules of Art. 135 of the Land Code of Ukraine on holding land sales in the form of an auction in the result of which an appropriate agreement is concluded.

Since the disputed sale and purchase agreement was concluded without observing competitive principles, that is, it was aimed at the illegal acquisition of a land plot of communal property, such an agreement, in accordance with parts 1, 2 of Art. 228 of the Civil Code of Ukraine is void. Consequently, the courts of the previous instances mistakenly satisfied the demand to invalidate the void contract. Given the circumstances of the case, the conduct of the parties and the nullity of the contract, the Grand Chamber of the Supreme Court believes that the only effective way to protect the rights of the plaintiff is for the defendant to return the land to him.

If the transaction is invalid, the reciprocal return by the parties of what was received according to it (bilateral restitution) is a legal obligation arising from the law and the legal fact of the invalidity of the transaction. Such restoration of the parties to their previous position may only apply if the property transferred under the relevant transaction remains with the party. The formation of land plots by their owner, in particular as a result of division, does not affect the possibility of protecting property rights in a way determined by civil law.

The fact that the defendant divided the primary land plot into six, under the circumstances of the case, the court assesses as a lack of intention to complete the started construction on the entire area of the plot. As a buyer under a void disputed sale and purchase agreement, the defendant has a legal obligation to return to the plaintiff, who is a seller under this agreement acting in the interests of a territorial community, all disputed land plots in communal ownership.

The Grand Chamber of the Supreme Court overturned the judgments of the courts of previous instances and decided to grant the claim for the return of the disputed land plots to the village council, and refused to grant the claim for invalidation of the disputed sale and purchase agreement.

The Resolution of the Grand Chamber of the Supreme Court of July 20, 2022, in case No. 923/196/20 (proceedings No. 12-58гс21)– https://reyestr.court.gov.ua/Review/105852862.

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