Dualism of the Legal Nature of Land Lease Agreements

On the grounds of the analysis of legislative acts of Ukraine, the legal nature of land lease agreements is considered. These documents are determined to have characteristics of both civil law and administrative instruments. It is proved that relations regulated by the land lease agreements are subject to the provisions of the tax and administrative law. Having analyzed the relevant judicial practice the author found out that disputes arising out of the implementation of land lease agreements should fall under jurisdiction of the administrative courts.
Keywords: land lease, agreement, lease payments, taxpayer, judicial practice

Judicial practice in considering disputes arising out of the activities in the sphere of land relations purports that the issue to differentiate jurisdiction between commercial and administrative courts still remains one of the most important. In this respect, determination of the essence of a land lease agreement is considered to be a key problematic aspect, as this legal instrument has the elements of both civil law and administrative acts. The subject of powers of authority which decision constitutes grounds for the right of the economic entity to a private land parcel also participates in such legal relationships; however that gives occasion to contradictions while determining the type of judicial procedure to settle disputes arising out of these relationships.

Current legislation does not specify features to classify the legal agreement as an administrative one. Instead of this, the Code of Administrative Judicial Procedure of Ukraine contains the appropriate definition according to which “an administrative agreement is a bilateral or multilateral agreement having the content to be constituted by the rights and obligations of the parties arising out of the administrative functions of the subject of powers of authority that is one of the parties to the agreement” [3].

Analysis of the rules of the Land Code of Ukraine (articles 93, 122­123) [2] and the Law of Ukraine ‘On Land Lease’ (Article 16) [8] shows that the necessary prerequisite to conclude, alter or terminate a land lease agreement is the expression of will of a local self­government body represented in the form of a relevant decision. Such a decision should contain essential provisions of a land lease agreement, in particular: its term; amount of the lease payments; conditions of use and designation of the leased land parcel; conditions to preserve the state of the object of lease; conditions and terms for the transfer of a land parcel to the lessee; conditions for the return of a land parcel to the lessor, etc. If the agreement is altered, this decision should also stipulate the legal basis for and nature of the proper alterations (or the procedure for terminating the agreement).

By taking this decision the local self­government body acts as a subject of powers of authority which implements administrative and other functions entrusted to it in the sphere of land relations [Bielogubova, 2011: 33­34]. That legal position was set out in the Decision of the Constitutional Court of Ukraine № 10­rp/2010 of 1 April 2010 in the case upon the Constitutional Petition of the Higher Administrative Court of Ukraine concerning official interpretation of the provisions of Part 1 of Article 143 of the Constitution of Ukraine, items ‘a’, ‘b’, ‘c’, and ‘d’ of Article 12 of the Land Code of Ukraine and Item 1 of Part 1 of Article 17 of the Code of Administrative Judicial Procedure of Ukraine [13]. According to the Decision of the Constitutional Court, the provisions of items ‘a’, ‘b’, ‘c’, and ‘d’ of Article 12 of the Land Code of Ukraine regarding the powers of village, township, and city councils to dispose the lands of territorial communities; to transfer land parcels under the municipal ownership to the possession of citizens and legal entities; to provide land parcels under the municipal ownership for use; to exclude land parcels from the lands under municipal ownership should be understood in such a manner that, while solving appropriate issues, these councils act as subjects of powers of authority.

The administrative nature of a land lease agreement is revealed through the tax essence of land lease payments.

So, in accordance with Sub­item 1.9.10 of Item 9.1 of Article 9 and Sub­item 14.1.147 of Item 14.1 of Article 14 of the Tax Code of Ukraine [4], lease payments for land parcels being under the state and municipal property are the form of land payments and belong to the national­level taxes. That is, lease payments for land parcels being under the state and municipal property are a national­level tax and, as a result, the relationships being the subject of this research are primarily regulated by the Tax Code of Ukraine.

Legal regulation of lease payments as the national­level tax may not be performed under rules of the Civil Code of Ukraine [5] in view of the provisions of Part 2 of Article 1 thereof which stipulate that “property relations grounded on administrative or other authority­based subordination of one party to the other, as well as tax and budgetary relations shall not be regulated by the civil law, unless otherwise established by the law”.

The tax nature of lease payments complicates lease relations with the mandatory participation therein of the body of revenue and duties which (taking into account analysis of articles 40­41 of the Tax Code of Ukraine) is the only controlling institution to accrue and collect land payments, in particular, land lease ones. Provisions of Part 5 of Article 41 of the Tax Code stress the uniqueness of functions of the bodies of revenue and duties as collecting institutions.

Powers of local self­government bodies are set forth in Article 12 of the Tax Code of Ukraine ‘Powers of the Verkhovna Rada of Ukraine, the Verkhovna Rada of the Autonomous Republic of Crimea, village, township, and city councils regarding taxes and duties’: according to its provisions, these powers are practically applied while introducing local taxes and duties foreseen by the appropriate decisions, only.

Applying to the court as plaintiffs the local self­government bodies justify their powers with reference to Sub­item 4 of Item ‘a’ of Part 1 of Article 33 of the Law of Ukraine ‘On Local Self­Government in Ukraine’ [7]. In its text the legislators state that the jurisdiction of executive bodies of village, township, and city councils covers their own powers including “derivation of land payments”. Exact meaning of the term ‘derivation’ is not defined by either the Law of Ukraine ‘On Local Self­Government in Ukraine’ or other legislative acts in this area. Assuming that the specified term implies ‘to accrue and collect land payments’ one should be guided by the provisions of Item 3 of Subsection 10 of Section XX of the Tax Code of Ukraine. The latters stipulate that “in the case when legislative acts foresee the rules for collecting taxes and duties other than those provided by this Code, the rules of this Code shall be applied”. As a result, the powers to accrue and collect land lease payments are exercised by the bodies of revenue and duties and cannot be delegated to other institutions.

Control over the accuracy and completeness of accruing land lease payments by the lessee is exercised by a body of revenue and duties by means of its inspections in accordance with the rules of the Tax Code of Ukraine. During the inspection, it uses data of the land lease agreement which (under Item 288.1 of Article 288 of the Tax Code) are the basis for accruing lease payments for the land parcel; information contained in the annual tax returns; notifications of local self­government bodies on concluding new lease agreements, altering the existing ones and termination thereof on the basis of Article 288 of the Tax Code and Article 24 of the Law of Ukraine ‘On Land Lease’; notifications of the central executive body which implements the state policy in the sphere of land relations concerning annual indexation of normative monetary value of lands estimated in line with Item 289.3 of Article 289 of the Tax Code of Ukraine.

Pursuant to Article 86 of the Tax Code, after considering materials of the inspection the above­mentioned body draws up a tax notification­decision. Such a notification­decision agreed by the taxpayer in accordance with articles 54 and 58 of the Code is a proper and acceptable evidence of a tax debt in the form of land lease payments (that shall be reimbursed by the lessee to be a taxpayer).

In view of the presented documents’ analysis, one can state that the conclusion of a land lease agreement results in generation of the two groups of legal relationships. Firstly, these are relationships between the local self­government body being a lessor and the lessee concerning conclusion, alteration and termination of the agreement. This group contains legal relationships arising out of the regulatory and individually applicable acts adopted by the local self­government body which are the ground for conclusion, alteration or termination of a lease agreement. Secondly, these are relationships between the body of revenue and duties being a body to accrue and collect lease payments and the lessee to be a taxpayer.

These relations have close mutual interconnection but judicial protection of the rights of lessees within the specified groups takes place under different rules of judicial procedure.

For instance, the decisions on approval of the normative monetary value of lands of localities or indeces of the lease payments for land parcels to be leased adopted by the local self­government body are the basis for appropriate alteration of lease agreements that, in its turn, affects the rights and obligations of the lessees. Based on her own practice, the author believes that, in this case, the judicial protection of rights of the lessees is provided under the rules of the Code of Administrative Judicial Procedure; the violations of provisions of the Tax Code and laws of Ukraine ‘On the Principles of State Regulatory Policy in the Sphere of Economic Activity’ and ‘On Local Self­Government in Ukraine’ are the basis for recognition of such regulatory acts to be unlawful and their revocation. Therefore, the Decision of the Sievierodonetsk City Council of the Luhansk Region № 516 of 28 April 2011 ‘On approval of the indeces of lease payments for the land parcels to be leased from the lands of the City Council’ was declared to be unlawful and revoked by the Administrative Court. In accordance with its Ruling [15], the Sievierodonetsk City Council violated the procedure for adoption and promulgation of the regulatory act provided by the Law ‘On the Principles of State Regulatory Policy in the Sphere of Economic Activity’ (articles 9, 13, 21) [6], and provisions of the contested Decision did not comply with the rules of the Tax Code of Ukraine.

Individually applicable acts concerning alteration of the current lease agreement are contested under the rules of the Commercial Procedure Code of Ukraine [1]. Judicial practice of the author [14] shows that commercial courts declared to be unlawful and revoked decisions on altering or terminating the lease agreements due to their inconsistency with the rules of the Land Code of Ukraine, the laws of Ukraine ‘On Land Lease’, ‘On Local Self­Government in Ukraine’, and so on.

Today, disputes arising as a result of altering the land lease agreements are considered by the commercial courts although their judgements depend on the validity and legality of the relevant decisions (to be in the form of regulatory acts or individual decisions) of local self­government bodies.

The second group of legal relationships directly depends on the first one. So, alteration of a land lease agreement as it pertains to the increase in lease payments causes extension of the taxpayer’s tax liability to be administered by the body of revenue and duties. The issues on legal protection of the lessees’ rights are complicated with the existence of judicial practice in considering exactly the opposite disputes. For example, the issues on legality of accrual and collection of lease payments are currently solved by the commercial [11; 12] and administrative [9; 10] courts. Commercial courts consider suits of the local self­government bodies for recovery of lease payments’ arrears, and the administrative ones entertain the suits for recovery of the lease payments’ tax debt and the claims of lessees for declaring to be unlawful and revoking the relevant tax notification­decisions.

Thus, proposed arguments prove that judicial protection of legal relationships related to a land lease agreement is realized under different rules of judicial procedure, and judicial practice in this area is controversial.

Taking into account the fact that the features of an administrative agreement are inherent to the land lease one (as evidenced by participation of the two subjects of powers of authority in the specified relations) and the lease payments have unconditional tax essence, the author believes that the disputes concerning conclusion, alteration and termination of a land lease agreement, as well as the disputes relating to recovery of lease payments fall under jurisdiction of the administrative courts. Therefore, implementation of this approach may ensure observance of the lessees’ rights to be monitored by the courts of administrative jurisdiction on the basis of their agreed unified practice.

　

References

1. Господарський процесуальний кодекс України. Закон України № 1798­XII від 6 листопада 1991 р. [The Commercial Procedure Code of Ukraine. The Law of Ukraine № 1798­XII, 6 November 1991], <http://zakon4.rada.gov.ua/laws/show/1798­12>

2. Земельний кодекс України. Закон України № 2768­III від 25 жовтня 2001 р. [The Land Code of Ukraine. The Law of Ukraine № 2768­III, 25 October 2001], <http://zakon2.rada.gov.ua/laws/show/2768­14>

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Olga KHATNIUK