Profitable proposition

To prove the profit was lost, the lessee needs to give documentary evidence that only the  unlawful actions of the lessor became the reason that deprived him of the opportunity to make a profit.

Especially for “Legal Practice”

Presently a large number of land disputes arise out of leasehold legal relationships, in particular, related to the violation of the terms of existing agreements with the private landlords of land plots (shares), leased for a certain period. The category of land disputes, in which requirements of early termination of the lease contract to deal with a land plot are set, namely – a land plot currently planted by a lessee, sounds interesting. Otherwise, the lessor occupies the land plot without notice, through the development of the land plot leased out by himself, without waiting for the date of expiry of the lease contract. The lessor acknowledges that the land is prepared at the lessee’s expense. In such cases, a bona fide lessee is forced to raise the issue of damages, including his lost profit.

In due order

In such land disputes, the lessor basically gives reasons for his standpoint that his actions are not unauthorized occupation of land, as he is the lawful owner of and has the state certificate of ownership. Based on damages accrued by the lessee, the argument of the lessor is, in most cases, deals with unfounded and unproven amount to be refunded.

In judicial practice regarding the disputes arising from lease relations, “Procedure for determination and compensation of losses to land owners and land users” approved by Regulation of Cabinet of Ministers of 19 April 1993 No. 284 (the Order) sounds the main argument related to the failure to prove the amount of damages. According to this Order the losses are determined by the commissions set up by Kyiv and Sevastopol municipal, district state administrations, Executive bodies of village, settlement, city councils and non-use of the latter entails a violation of the substantive law governing the procedure for determination of losses to the land user.

However, this argument requires a detailed analysis. Thus, the above-mentioned order applies to relationship specifically defined. The subject of legal regulation laid in the Procedure of determination and compensation of losses to land owners and land users approved by resolution of the Cabinet of Ukraine of 19 April 1993 No. 284, is the compensation of losses to land owners and land users caused by:

– the confiscation of land in favor of the legitimate land users in the prescribed manner,

– the temporary land occupation by such users and resulting failure to receive income by the owner (claimant) during temporary use of land.

However, these legal relations cannot be equated with the fact of the lessor arbitrarily occupying a disputed land plot, that is, without proper legal grounds, and is refuted by the presence and duration of the land lease contract.

 

According to the law

Thus, according to article 1 of the Law of Ukraine as of 19 June 2003 No. 963-IV “On state supervision over use and protection of lands”- unauthorized occupation of land – any action, indicative of the actual use of the land and the relevant decision of Executive authority or local authority on the transfer of ownership or lease (rent) is missing, or the transaction on such land plot is missing, except for the actions that are based on law are legitimate, are considered wrong acts. So, according to the resolution of the Cabinet of Ministers of Ukraine as of 19 April 1993 No. 284 “On procedure of determination and compensation of losses to land owners and land users” the procedure for the reimbursement was set, in particular under temporary occupation of land plots with permission or with the consent of the landholder. And in the case of unauthorized occupation of land plots, including by the landlord, this procedure is not applicable.

In accordance with articles 5.15 Law of Ukraine “On payment for land” the object of payment for land is land and land share, being in property or using, including under lease. So, if a lessee  calculated losses in the form of lost income due to temporary non-use of the land he leased, while the lessor voluntarily (without legal grounds) occupies the disputed land, such a calculation can be carried out using calculations of “methods of determining the amount of damage caused by unauthorized occupation of land, use of land plots not on purpose, removal of ground cover (fertile soil layer) without special permission” (the Methodology), approved by the resolution of the Cabinet of Ministers of Ukraine dated July 25, 2007 No.963. But it cannot be used – at option of the lessee who has suffered the damage.

Therefore, in the case where the lessor had committed land offence and the inflicted damages to the person (the lessee), land legal damages are subject to be compensated as a way of civil liability, and substantive law governing disputable relationship, do not establish the duty of the lessee to confirm its requirements solely by calculations made in accordance with the Methodology.

Based on the court ruling

The specified position of the court is also stated in the same dispute considered in the Decision of the Supreme Court of Ukraine (APU) dated June 14, 2017 in case No. 3-463гс17. The Supreme Court of Ukraine pointed out that the appeal court wrongly limited by reference to the non-compliance by claimant of the provisions of the Procedure as the exclusive basis for calculating the amount of damages. That is, in the opinion of this court, as a result of the actions of the defendant – the elements of civil offence elements are missing, and the impossibility of imposing late charges on reimbursement of the plaintiff’s loss. So, the plaintiff, implying to calculate the amount of lost revenue out of the average yield of the district that is less than the actual soybean yields obtained by the defendant, calculated the amount of expenses that he must incur from the total number and value of the crop that he could get under self-management on the land plots.  The amount of expenses implied cultivation, harvesting on these plots, payment of taxes, rents and the like.

The Supreme Court explained that despite the fact that, in accordance with the provisions of part  three of article 157 of the Land Code of Ukraine, the procedure of determination and compensation of losses to land owners and land users is determined by the Cabinet of Ministers of Ukraine, the substantive law governing the contentious relationship, do not establish the duty of the plaintiffs to prove their claim only by calculations made in accordance with the Methodology.

Additionally, it should be noted that there exists another side to the Supreme Court standpoint in detailed examining of the accrual of losses in lease relationships. It also requires the lessee to duly prove and substantiate the amount and accrual for losses caused to him in the form of lost profits. Despite the use or non-use of Methods, at the discretion of the lessee, when calculating losses, it needs to adhere to certain criteria for the court to have grounds to take this calculation into account.

So, in the opinion of the Supreme Court, set out in the decision dated August 7, 2019 in the case 179/1367/17-c, since according to the fourth part of Article 623 of the Civil Code (CC) of Ukraine, measures taken to receive, present a claim for reimbursement of lost income (lost profit) are considered, and the plaintiff is obliged to prove that these income (benefit) are not abstract, but would really have been received by him. ”

Careful calculation

Meaning that the calculation of lost profits should not be reduced, in particular, to multiplication of harvesting plan by the price. The court will examine a real opportunity of getting this income, given the average rates for the period, the yield per hectare in a particular area, as well as mandatory evidence (documents or other evidence), that the person had to obtain some income, and only the wrongful acts of the landlord were the only and sufficient reason, which deprived him of the opportunity to make a profit. The court shall ascertain the real intentions of a person to farming the disputed land, examining some evidence on the real possibility to obtain the above-mentioned income.

Tatyana ТRIKOZA – the lawyer of Dynasty Law Firm

 

Publications 24 September, 2019

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