Ukraine: Enhancing the Protection of Bona Fide Owners' Rights

Highlights

• A 10-year time limit has been established for certain types of property, after which the state and local authorities will no longer be able to reclaim such property from its bona fide owner.
• A mechanism has been introduced to ensure that a bona fide owner, whose property is reclaimed by the state or local authorities, is compensated for the property's value based on the assessment effective as of the date the reclamation lawsuit is filed.
  In more detail

Ukrainian laws on bona fide owners

A bona fide owner is a person who, at the time of acquiring property, neither knew nor could have reasonably known that another person had no right to alienate this property. The rights of a bona fide owner who acquired property under a non-gratuitous agreement are protected, among other things, by:

• ensuring that the bona fide owner retains all income generated from the property before they knew or could have reasonably known about the illegal nature of their possession, or from the moment they were served with a summons in a case based on the owner's lawsuit for reclamation of the property;
• defining an exhaustive list of cases in which property may be reclaimed from a bona fide owner who acquired it under a non-gratuitous agreement, such as:
  • loss of property;
  • theft of property;
  • loss of property possession by the owner or the person to whom the property was transferred against their will (for instance, but not limited to, due to the property alienation using forged powers of attorney authorizing the property disposal, and other documents).

A claim for reclamation of property from a bona fide owner must be filed within the statute of limitations calculated from the date when the person knew or could have reasonably known of the violation of their right or the identity of the violator.

Upon entry into force, the Law has introduced additional protection for bona fide owners of real estate previously owned by the state or local authorities by establishing a time limit after which the state or local authority will no longer be able to reclaim such property.

Therefore, even if the state or local authority becomes aware of the violation of their right and may file a claim for property reclamation within the statute of limitations, they will not be able to reclaim certain types of property from a bona fide owner if the time limit established by the Law has expired.

10-year time limit for the state or local authority to reclaim certain types of property

Real estate transferred from state or municipal ownership to private ownership cannot be reclaimed by the state or local authority from a bona fide owner if a 10-year period has passed

• since the registration of the first owner's ownership in the State Register of Real Property Rights for real estate transferred from state or municipal ownership to private ownership; or
• from the date of transfer to the first owner from state or municipal ownership to private ownership of real estate, in respect of which, at the time of such transfer, the laws did not provide for state registration of the transaction or registration of ownership.

The change of the first and subsequent owners does not affect the time limit for reclaiming property.

The above time limit rules do not apply if, at the time of loss of property possession by the state or municipal authority, the property was classified as

• critical infrastructure facilities;
• state-owned items of strategic importance for the economy and security of the state (as listed in CMU Resolution No. 83 dated 4 March 2015, primarily including enterprises and business companies);
• defense facilities and land;
• objects or territories within the nature reserve fund (provided there were supporting documents confirming their status at the time of loss of property possession);
• hydraulic structures (provided there were supporting documents confirming their status at the time of loss of property possession);
• cultural heritage monuments that were not subject to privatization.

It should be noted that the scope of these time limit rules for property reclamation specifically applies to vindication lawsuit (i.e., lawsuits for reclaiming property from someone else's illegal possession or from a bona fide owner).

A vindication claim is possible if there is no binding (contractual) relationship between the owner of the property whose rights have been violated and the formal owner of the property who is in unlawful possession of the property, which gave rise to the loss of property possession by the former owner. If such a relationship exists, reclamation lawsuit is not filed. Instead, the property owner whose rights have been violated must file a lawsuit to invalidate the relevant agreement and seek the return of the property transferred under the invalid agreement. The Law does not provide for time limit for such claims.

Ensuring that a bona fide owner whose property is reclaimed by the state or local authorities receives compensation for the value of the property

The law establishes a mechanism to ensure that a bona fide owner whose property is reclaimed by the state or local authorities receives compensation for the property's value.

Compensation is provided by requiring the state, local authorities, or prosecutor to deposit an amount equal to the property's value into the court's deposit account before filing a lawsuit. The property's value is determined based on its valuation as of the date the lawsuit is filed. Documents confirming the deposit of the required amount into the court's deposit account shall be attached to the lawsuit.

Simultaneously with deciding on whether to satisfy a claim for the reclamation of real estate from a bona fide owner in favor of the state or a territorial community, the court shall decide whether the state or local authority shall compensate the bona fide owner for the property's value. Compensation for the value of real estate from the court's deposit account is transferred without the need for the bona fide owner to file a separate lawsuit against the state or territorial community.

Effect of changes over time

The time limit rules also apply to the reclamation by the state or territorial community of real estate, the ownership of which arose before the Law became effective.

The rules for compensating a bona fide owner whose property is reclaimed by the state or local authorities also apply to cases where the court of first instance had not made a decision to reclaim property from a bona fide owner as of the date the Law became effective. However, the Law does not provide for the procedure for the state, territorial community, or prosecutor to deposit the relevant funds into the court's deposit account for cases already pending in the courts of first instance.

By Serhiy Piontkovsky, and Lina Nemchenko, Partners, Baker McKenzie