In October, the Verkhovna Rada adopted the Law of Ukraine “On Amendments to Certain Legislative Acts on Improving the Procedure for Providing Administrative Services in the Construction Sector and Creating a Unified State Electronic System in the Construction Sector.” The document entered into force on December 1, 2019. In addition to creating the aforementioned e-system in the industry, the legislator also provided for amendments to the Law “On Advertising.”
Amidst the loud noise of land reform, the transformation of another related industry, construction, has almost imperceptibly begun.
Thus, on November 14, 2019, the President of Ukraine signed Bill No. 1081, which came into force on December 1 of this year.
The main emphasis of the law is on regulating the creation of a Unified State E-System in the field of construction, the components of which will be the Register of Construction Activities and the Developer’s Electronic Cabinet. However, this law also makes amendments to a number of legislative acts, including the Law “On Advertising”, which will come into force on February 1, 2020 and for which developers should prepare now.
According to the document, some developers will be obliged to stop advertising their facilities.
The law actually adjusted the requirements for advertising construction projects established by the recently adopted Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine Regarding Improving the Procedure for Licensing Economic Activities” dated October 2, 2019 No. 139-IX.
Who will be allowed to advertise?
From the moment the law comes into force, advertising of housing construction projects (in particular, residential and non-residential premises) with the aim of attracting funds from individuals and legal entities (in particular, management) for the construction of such projects is permitted only:
- if the construction customer has the right to own or use the land plot on which the advertised object is being constructed;
- if the construction customer has the right to perform construction work on a specific advertised object, obtained in accordance with the Law of Ukraine “On Regulation of Urban Planning Activities”;
- if the business entity carrying out the construction of objects that, by the class of consequences (liability), belong to objects with medium (CC2) and significant (CC3) consequences, has a license to conduct economic activity in the construction of the relevant objects;
- provided that the attraction of funds from individuals and legal entities (including management) for the construction of such objects is carried out in accordance with Part 3 of Article 4 of the Law of Ukraine “On Investment Activity”.
Such advertising must contain the details of the documents specified in this part and the identifier of the construction object in the Unified State Electronic System in the Field of Construction (for objects for which the right to perform construction work was acquired after the introduction of the Unified State Electronic System in the Field of Construction).
Which new buildings will be prohibited from advertising?
The greatest resonance for the construction market is the ban on advertising provided that developers use schemes for attracting funds from individuals and legal entities that do not comply with Part 3 of Article 4 of the Law of Ukraine “On Investment Activity”.
From the date of entry into force of amendments to the Law of Ukraine “On Advertising”, developers will be able to advertise construction that involves attracting funds from individuals and legal entities only:
- through construction financing funds;
- through real estate funds;
- through collective investment institutions;
- through the issuance of target corporate bonds.
Advertising of residential construction projects, the sale of which is carried out according to other schemes, automatically becomes prohibited.
The established ban is important because individuals – buyers of “square meters” in new buildings, no matter how strange it may sound, are not buyers of real estate in the sense of civil law.
In fact, they are investors who invest their hryvnias in high-risk financial instruments (we recall property rights and forward contracts), which, accordingly, can bring both a result (in the form of “square meters”) and losses that are almost impossible to recover.
How and to whom to prepare for innovations
In view of the above, investors need to reconsider their attitude towards investing in new buildings and consider them not as safe conservative investments in real estate, but as expenses for high-risk financial instruments. Accordingly, advertising of such real estate objects should not mislead investors and should correspond to the real essence of legal relations.
Developers who operate in the market with the involvement of funds from individuals and legal entities, and there are a majority of such entities in the Ukrainian market, should now begin work on revising their policies and approaches to doing business.
Thus, in the case when the developer of residential construction objects is an individual who also attracts funds under contracts for the purchase and sale of property rights, or, for example, joint activities, advertising such objects will be prohibited.
Persons guilty of violating advertising legislation shall bear disciplinary, civil, administrative and criminal liability in accordance with the law.
What advertising did they forget to ban?
The list of bodies that exercise control over compliance with the legislation of Ukraine on advertising is established in accordance with Article 26 of the Law of Ukraine “On Advertising”.
However, in fact, almost the entire burden of such control is carried out by the central executive body that implements state policy in the field of state control over compliance with the legislation on consumer protection – regarding the protection of the rights of advertising consumers (currently, such a body is the State Inspectorate of Ukraine for Consumer Protection (State Consumer Inspectorate of Ukraine).
We predict that after the entry into force of the above-mentioned amendments to the Law of Ukraine “On Advertising” and the closure of conservative channels, advertising of risky construction projects will move to the Internet space, where, in the absence of a special body that would exercise control over compliance with the legislation on advertising on the Internet, it will be much more difficult to exercise control.
According to materials https://mind.ua/
