REALWorld Law

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

Construction issues in Ukraine are regulated by a number of laws, subordinate legislation (on state and local levels) as well as by different construction regulations which are not legally binding, but are widely used in practice.

At state level, the main sources of construction law are as follows:

• The Civil Code of Ukraine No. 435-IV, dated 16 January 2003 and Commercial Code of Ukraine No. 436-IV, dated 16 January 2003
• The Law of Ukraine ‘On the Regulation of Town Planning Activity’ No. 3038-VI, dated 17 February 2011
• The Law of Ukraine ‘On Basics of Town Planning’ No. 2780-XII, dated 16 November 1992
• The Law of Ukraine ‘On Architectural Activity’ No. 687-XIV, dated 20 May 1999, and
• ‘General Conditions for Conclusion and Execution of Contractor's Agreements in Capital Construction’ approved by the Resolution of the Cabinet of Ministers of Ukraine No. 668, dated 1 August 2005

Following Ukraine's ratification of the EU Association Agreement, on 16 September 2014, current legislative initiatives in Ukraine are aimed at the further deregulation and simplification of the construction permit system in line with European legislation and practice.

Last modified 22 Mar 2024

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

Recently the Ukrainian government initiated the reform of construction licensing providing for transition from licensing the construction companies to granting qualifying certificates to professionals engaged into construction. Procedure for issuing construction licenses was cancelled and since 18 March 2020 no construction licenses can be issued.

Still licenses are still required until new amendments are implemented into core Ukrainian laws regarding to licensing.  Licences issued before March 2020 remain in force. Currently only carrying out of certain construction works (general construction and installation works, construction of infrastructure and transport objects) which are classified as works related to construction of objects with medium (II class) and essential consequences (III class) require construction license. In order to be entitled to carry out such construction works a contractor must hold the relevant licence (new licenses cannot be issued at the moment). Design and engineering works related to construction of objects with medium and essential consequences are not subject to licensing and only require the availability of appropriate certificate.

Additionally, those who directly carry out separate construction, design and engineering works related to construction of objects with non-essential consequences are required to be properly qualified to carry out such works, as confirmed by certificates of qualification.

On 17 January 2017 Ukrainian Parliament adopted the law introducing amendments to town-planning legislation, which came into force on 10 June 2017. According to introduced amendments, all buildings are now divided into three classes of consequences instead of five categories of complexity: I class – buildings with non-essential consequences, II class – buildings with medium consequences and III class – buildings with essential consequences.

Most official permissions and consents necessary for the commencement of works (including input data for planning, examination of planning documentation, permit for performance of construction works, etc) must be obtained by the developer (the party procuring the work and having rights to the relevant plot of land).

Last modified 22 Mar 2024

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

General issues and concepts for health and safety on construction sites are determined in Ukraine by the Law of Ukraine ‘On the Protection of Labour’ No. 2694-XII, dated 14 October 1992 and the Law of Ukraine ‘On the Approval of the National Initiative for the Improvement of the State of Safety, Health  and Manufacturing Sectors for 2014-2018’ No. 178-VII, dated 4 April 2013 (the ‘Initiative’).

The Initiative envisages that Ukrainian legislation in the sphere of health and safety protection should be brought into compliance with EU regulations and contains general guidelines to be followed in order to achieve this. More specific rules are laid down in regulations, eg State Construction Regulations or State Sanitary Regulations. It should be noted that important international conventions on health and safety in construction (eg Convention of International Organization of Labour No. 167, dated 20 June 1988 on Safety and Construction Health) have still not been ratified by Ukraine.

Depending on the designated use of a building (eg an industrial facility) some rules relating to health and safety may be applicable to the operation of that building after completion of the construction works.

Last modified 22 Mar 2024

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

Provisions dealing with environmental issues in construction are contained in a number of environmental laws, specifically, Law of Ukraine ‘On Protection of Environment’ No. 1264-XII, dated 25 June 1991, Law of Ukraine ‘On Wastes’ No. 187/98-BP dated 5 March 1998, Law of Ukraine ‘On Protection of the Atmosphere’ No. 2707-XII, dated 16 October 1992, Law of Ukraine ‘On Environmental Impact Assessment’ No. 2059-VIII, dated 23 May 2017 and Law of Ukraine ‘On Ecological Audit’ No. 1862-IV, dated 24 June 2004.

On 22 June 2017, the Ukrainian parliament passed the Law of Ukraine ‘On Energy Efficiency of Buildings’, which is based on concepts elaborated in Directive 2010/31/EU. Most provisions of the law came into force on 23 July 2018, while rules related to mandatory certification of buildings came into force on 1 July 2019. According to the Law ‘On Energy Efficiency of Buildings’, the energy efficiency is a feature of a building characterizing the amount of energy needed for creating proper conditions for dwelling in such building. The energy efficiency of a building is determined based ‘Methodology for determination of buildings energy efficiency’, which was adopted by the Ministry of Regional Development and Construction of Ukraine on 11 July 2018. This methodology was elaborated with consideration of requirements of legislative acts of European Union, Energy Community and harmonized European standards in the sphere of energy efficiency.

From 1 July 2019, the energy efficiency certification is required to confirm that a building meets the energy efficiency requirements. Such certification is mandatory for:

1. buildings under construction: new buildings, reconstruction and/or capital repairs of buildings, with medium and significant consequences, that are almost all residential and commercial buildings except for residential houses up to 4 floors high and buildings, where not more than 50 persons are located permanently or 100 persons – temporarily;
2. state-owned buildings with heated area more than 250 sqm, which are occupied by a public authority and frequently visited by public;
3. buildings with heated area more than 250 sqm, which are occupied by a municipal authority (in case of their thermic modernization); and
4. buildings, where the thermic modernization is financed by public funds.

Following such certification, the energy certificate should be issued, which is effective for the term of 10 years. The energy certificate is a part of design documentation and should be issued before the commissioning. The detailed procedure for energy certification is described in ‘Procedure of energy efficiency certification and forms of energy certificate’ which was adopted by the Cabinet of Ministers of Ukraine on 11 July 2018.

In addition, on 18 December 2017, the Law of Ukraine ‘On Assessment of Environmental Impact’ came into force. According to this law, construction permits related to construction of objects, which have impact or may have impact (the list of such objects is provided in the Law and includes chemical enterprises, crude oil refineries, drilling works, agricultural enterprises, complex infrastructure objects etc.) cannot be issued prior to conducting an environmental impact assessment and the approval of that report.

Last modified 22 Mar 2024

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

For the period of construction, developers in Ukraine usually enter into temporary agreements with utility suppliers (water, electricity, sewerage etc) to secure the construction site with the utility services necessary for its construction needs. After completion of the construction works, the company which owns or manages the building enters into permanent agreements with utility suppliers.

On 20 September 2020 Ukrainian Parliament passed the law that amended the Law of Ukraine ‘On the Regulation of Town Planning Activity’. From 1 January 2020 till 1 January 2021 there is a transition period during which developers of residential and commercial projects shall pay share investment contribution for settlement's infrastructure under reduced rates (construction of industrial objects is released from paying such contribution). From 1 January 2021 all constructions projects will be released from paying the above contribution.

Last modified 22 Mar 2024

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

The contracts for carrying out building works should contain the mandatory terms and conditions prescribed by the Civil Code of Ukraine, the Commercial Code of Ukraine and the General Conditions of Conclusion and Execution of Contractor's Agreements in Capital Construction approved by the Resolution of the Cabinet of Ministers of Ukraine No. 668 dated 1 August 2005, in particular names and details of the parties, the place and date of the execution of the contract, the contractual price, terms for commencement and completion of works and rights and responsibilities of the parties. Any contract which lacks the mandatory provisions envisaged by the law, may be declared invalid by the court.

Last modified 22 Mar 2024

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

Generally, most construction contracts in Ukraine contain a clause providing for advance payments that should be paid to the contractor before the commencement of construction works. The rest of the contract price is usually divided into payments that are made on completion of specific stages of the construction works or periodically (eg monthly). The final retention payment is usually paid within one to two years after the completion of construction (after the expiration of the construction guarantee period).

Last modified 22 Mar 2024

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

Under Ukrainian law, the parties may agree a fixed time/date for completion of works as well as agree on the responsibility and consequences of a breach in a construction contract.

Last modified 22 Mar 2024

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

As a general rule, all variations to the specification for engineering or construction works must be agreed by the parties.

According to Ukrainian legislation, if the contractor discovers the necessity for extra works that are not envisaged by the design documentation, the contractor is obliged to inform the developer about the issue. If the developer fails to decide whether it is necessary to carry out those works within a reasonable time, the contractor is entitled to suspend execution of construction works. In case of emergency (eg if non-performance of such works could entail damage to the construction works or other damage), additional works can be performed by the contractor without prior consent from the developer.

Additionally, under the Civil Code of Ukraine, a developer is entitled to amend a design documentation at any time provided that additional works necessary due to such amendments would not exceed 10 percent of the estimated price of the construction works stipulated by the design documentation prior to amendment.

Last modified 22 Mar 2024

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

In Ukraine, completion of building works is defined by the construction contract and design documentation which also defines what has to be achieved before 'completion' of those works. Notwithstanding this principle, the law and construction regulations require that the building may be commissioned on completion of all works envisaged by the relevant design documentation (although façade and site landscaping works may be completed after the commissioning if that occurs during the winter). In the construction contract and design documentation the parties usually agree on a wider scope of works to be completed before the new construction is handed over to the customer.

The commissioning of the building/other facility is certified by the local Inspectorate of Construction and Architecture Control (the state authority with responsibility for construction issues) or the architectural department of the municipality (for the area in which the relevant building/other facility is located) by means of the issuance of a Certificate of Compliance (for technically complex projects) or registration of a Declaration of the Readiness for Use of a Completed Construction Project (for technically simple projects). The completion of construction works envisaged in the construction contract is usually certified by execution of the act of acceptance of the completed works/facility between the client for the works, the general contractor and other contractors.

Last modified 22 Mar 2024

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

Under Ukrainian law, the general limitation period which is also applicable to breaches of construction contracts amounts to three years from the moment when the parties whose rights were violated, became aware of such violation. In addition, the Commercial Code of Ukraine sets forth specific limitation periods which are applicable to breaches of construction contracts connected to the performance of works with insufficient quality from one year (regarding defects of non-capital structures) to 30 years (regarding compensation of losses occurred as the result of the illegal actions of a contractor which caused destruction and damage).

Last modified 22 Mar 2024

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

Generally, the developer shall be fully liable for any physical damage or economic loss suffered by the end user(s) of the completed development. It means that the developer shall be obliged to remedy the defects in the construction works and reimburse damages/losses in full. In the case of construction works which are performed by the developer's contractor, the latter would be obliged to reimburse losses to the developer.

The developer shall be released from liability if it proves that physical damage or economic loss was incurred without its fault (ie due to actions of the third parties).

Last modified 22 Mar 2024

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

According to Ukrainian legislation, the architect, another designer, building contractor and any sub-contractor shall be liable before the developer and, thus, as a rule, shall not be liable before the end user (except in cases when agreements on execution of the respective works are concluded by such contractors directly with the end user).

Last modified 22 Mar 2024

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

The measures which can be used by the third parties depend on the nature of their relationship with the developer. In particular, a wide range of contractual measures could be used: taking encumbrances (mortgages) over buildings being constructed or any other property of the developer, obtaining a guarantee or surety, a pledge of rights under construction agreements, stipulating fines or other penalties for the developer etc.

According to Ukrainian legislation, an architect, another designer, building contractor and any sub-contractor shall be liable to the developer and, thus, as a rule, shall not be liable to the end user (except in cases when agreements for the respective works are agreed by such contractors directly with the end user).

Last modified 22 Mar 2024

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

Construction disputes between companies are settled in commercial courts. Disputes with the participation of individuals are settled in courts of general jurisdiction. Disputes involving state/municipal authorities and disputes relating to challenging the acts/powers of such bodies are settled by the administrative courts. Decisions of courts of first instance can be appealed to the courts of appeal and ultimately to the Supreme Court.

Last modified 22 Mar 2024

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

Generally, construction disputes in Ukraine are resolved in state courts (commercial courts and courts of general jurisdiction) or in arbitration courts (if the parties have included an arbitration clause in the construction contract). As a rule, arbitration secures faster and sometimes a more objective settlement of disputes in comparison with the courts of general jurisdiction. Notwithstanding this, in order to enforce the arbitration decision, the party must refer to the local court of general jurisdiction.

Last modified 22 Mar 2024

Apart from the contract are any other documents commonly entered into by way of security – such as a guarantee from a building contractor's parent or ultimate holding company or a bond from a third-party surety?

Ukrainian law does not provide for any obligatory forms of ADR to be used in construction dispute resolution. A pre-court procedure settling disputes (by means of submitting a claim and having it reviewed by the party at fault) is envisaged by the Ukrainian Code of Commercial Procedure, but this procedure is not compulsory provided that the parties have not agreed otherwise. Other forms of ADR are rarely used in Ukraine.

Last modified 22 Mar 2024