Legal Foundation for Development: Challenges in Implementing Construction Projects in Ukraine

Ukraine’s construction sector remains a cornerstone of the national economy, attracting billions in investment from both domestic and foreign investors. However, the implementation of even well-planned projects frequently faces substantial legal hurdles. The unstable legislative environment, gaps in urban planning regulations, limited access to land resources, lack of procedural transparency, and the practice of “manual” administration — all contribute to a high level of risk for market participants.

For a developer or investor, construction is not merely a matter of capital investment but also a battle to get legal predictability. Below, we examine the most common legal issues arising in the course of implementation of a construction project, which may result in cost overruns, project delays or even full-scale suspension.

Asset Protection

The protection of property rights, including those to land plots designated for development, is a crucial factor when deciding whether or not to invest in a project. Consequently, a wave of state-initiated lawsuits against developers regarding land titles has created uncertainty regarding the future of construction projects. Claims for the recovery of land plots, leasehold rights, or annulment of the agreements resulting in such rights may become the subject of claims not only before the commencement of construction but also during the project or even after the property has been commissioned. This may result in the cancellation of permit documents and grounds for the demolition of the property that has been built.

On 9 April 2025, the Law of Ukraine No.4292-IХ On Introducing Amendments to the Civil Code of Ukraine regarding the Strengthening of Protection of the Rights of Bona Fide Acquirers came into force. This law establishes that the limitation period for claims concerning the recovery or recognition of rights to immovable property transferred from state or municipal ownership into private ownership — where the title has been registered in the State Register of Property Rights to Immovable Property — begins on the date of registration of title by the first acquirer or the date of transfer to such acquirer, provided that at the time of transfer, the law did not require state registration of the transaction or of title. These amendments aim to prevent abuse by state authorities who previously calculated the limitation period from the date of internal investigations, thereby artificially circumventing the legal consequences of limitation period expiry.

The same law also sets a final limitation period of 10 years from the date of acquisition (or its registration), after which the property may no longer be reclaimed from a bona fide acquirer. This change will positively affect the protection of ownership rights, as there are still cases where the state asserts claims over assets that have remained in private ownership for more than a decade. Gathering evidence regarding events from the distant past can be significantly complicated or even impossible. Furthermore, if a claim for recovery of property from a bona fide acquirer is satisfied within the 10-year limitation period, the law mandates compensation of the value of the property.

Thus, the expected application of this law on protecting bona fide acquirers will contribute to the safeguarding of property rights as guaranteed by Protocol No. 1 to the Convention for the Protection of Human Rights and Fundamental Freedoms, promote legal certainty, and enhance the investment climate in the country.

Regulation of Access to Construction Activities Involving Real Estate Projects

The current procedure for accessing construction activity is often unclear — not only for foreign companies but even for local developers. This stems from the fact that under the Law of Ukraine No.222-VIII On Licensing of Types of Economic Activity, the construction of facilities classified as having medium (СС2) or significant (СС3) consequences requires licensing. The list of relevant construction works is determined by the Cabinet of Ministers of Ukraine, subject to the specific provisions of the Law of Ukraine No. 3038-VI On Regulation of Urban Development Activity.

However, in 2020 a number of regulatory acts governing the licensing process for the construction of architectural objects — including the licensing conditions themselves — were repealed (see Decree of the Cabinet of Ministers of Ukraine On the Optimization of State Authorities for Architectural and Construction Control and Supervision). Despite the statutory requirement to obtain a construction licence, the government has since failed to develop and approve a universal mechanism for obtaining such a licence. This has effectively barred new market participants from entering the construction sector while favouring those companies that managed to acquire licenses before the repeal of licensing conditions.

A temporary solution is currently in place. For the duration of martial law, the right to carry out construction activities is acquired by submitting a declaration pursuant to the Decree of the Cabinet of Ministers of Ukraine Some Issues Concerning the Ensuring of Economic Activity under Martial Law. This declaration is, in effect, a substitute for the construction licence. However, this provision applies solely during martial law. Upon its termination or cancellation, the issue of restricted access to construction activities is likely to re-emerge.

Moreover, subordinate legal acts still require evidence of a construction licence. This is problematic. For example, a valid construction licence is typically a prerequisite for obtaining permission to carry out building works or for participating tenders for real estate construction. The absence of such a licence may result in the unjustified rejection of a bid.

The existence of these regulatory inconsistencies does not contribute to improving the investment climate or facilitating post-war reconstruction in Ukraine. It is, therefore, imperative that the licensing framework be resolved as a matter of urgency.

Mechanisms to Attract Private Funds For Construction

The coming into force on 10 October 2022 of the Law of Ukraine No.2518-IХ On Guaranteeing Property Rights to Real Estate Objects to Be Constructed in the Future has introduced both adjustments and certain ambiguities in the regulation of financing and private investment in residential construction. Many developers sought to obtain building permits before the effective date of the said law, as in such cases its application would be voluntary, allowing developers to proceed with construction based on already established schemes.

However, developers who received building permits after 10 October 2022 must now comply mandatorily with the requirements of the new legislation. This necessitated the creation of new models for implementing construction projects. The law stipulates that direct or indirect attraction (investment or financing) of funds from individuals or legal entities by the construction customer, construction developer, or manager of a construction financing fund — including under management arrangements — for the construction of real estate objects with subsequent transfer of ownership to such individuals or entities may be conducted exclusively in one of the following ways: (1) through agreements for the purchase of indivisible units of incomplete or future construction objects (shares in indivisible construction objects); (2) through participation agreements in construction financing funds managed by fund managers in accordance with the law and subject to the provisions of the Law of Ukraine No.978-IV On Financial and Credit Mechanisms and Property Management in Housing Construction and Real Estate Transactions; (3) through the issue of targeted corporate bonds, to be redeemed by transferring ownership of the real estate (or part thereof) under the Law of Ukraine No.3480-IV On Capital Markets and Organised Commodity Markets, provided that a notarial agreement is concluded between the construction customer and bondholder reserving the respective unit of real estate.

This interpretation is supported by the Ministry of Justice of Ukraine, which in its clarifications on the state registration of property rights confirms that the use of various financing and investment instruments — including agreements for the sale of property rights or investment agreements — is prohibited if the building permit was obtained after 10 October 2022. As a result, the registration of ownership rights to newly-built real estate for physical or legal persons under such schemes is not permitted (see the letter of the Ministry of Justice of Ukraine of 2 April 2024, No. 50479/8.4.1/32-24).

Construction using other mechanisms for attracting funds from private individuals or entities, which may be financially more advantageous but are not expressly regulated by Ukrainian legislation for residential development, cannot be considered risk-free, at least from a criminal law and tax compliance perspective.

The aforementioned legal framework does not apply where construction is financed from the developer’s own, borrowed, or credit funds. Thus, beyond the above-listed methods, the involvement of housing cooperatives remains a viable option. Cooperatives attract monetary contributions to a share fund, making contributors members with corresponding share rights. The cooperative receives funds for construction, so these cannot be deemed third-party funds for investment purposes. The ability of housing cooperatives to act as construction customers for apartment buildings is explicitly recognized under the Law of Ukraine No.3038-VI On Regulation of Urban Development Activity. However, outdated provisions in the Housing Code of Ukraine that govern the functioning of housing cooperatives may still create legal difficulties, particularly regarding land allocation (see, for instance, the resolution of the Supreme Court of Ukraine dated 30 November 2020, case No. 922/2697/15).

Urban Planning Documentation & Obtaining Urban Planning Conditions and Restrictions

As of now, access to and the processing of urban planning documentation remains imperfect, with the quality of graphical documentation often leaving much to be desired. Moreover, inconsistencies between master plans, zoning plans and detailed territory plans are not uncommon. According to current legislation the development of detailed territory plans may be financed from private sources. This has given rise to a practice where such plans do not always align with legislative requirements or with other urban planning documents (e.g. master or zoning plans), instead being tailored to satisfy the interests of private developers. On the one hand, this may appear attractive for the construction business, for example, where restrictions around regulatory zones (such as coastal protection strips) are relaxed. On the other hand, such measures may compromise the environmental integrity of these areas (pollution, destruction and other negative impacts), attract scrutiny from regulatory and law- enforcement bodies, and even pose future risks to the developments themselves.

Moreover, the process of obtaining urban planning conditions and restrictions during the project preparation stage is frequently accompanied by formal refusals based on alleged non-compliance with existing urban planning documents. As previously noted, such documents are often inconsistent or difficult to interpret. In such cases, developers are compelled to seek redress in administrative courts which can delay project implementation for several years. Notably, judicial practice has established various remedies for protecting developers in such scenarios, including re-evaluation of the application and mandatory issuance of the urban planning conditions and restrictions in line with the developer’s intentions (see, for instance, the resolution of the Supreme Court of Ukraine of 23 November 2023, case No. 420/21826/21).

It is, therefore, our view that the procedure for obtaining urban planning conditions and restrictions should be improved and automated. Urban planning documentation should be digitised and integrated into public registries. The issuing of significantly divergent urban planning restrictions for neighbouring projects undermines trust in urban planning authorities and does not contribute to the improvement of Ukraine’s investment climate.