Ministersky Residential Complex on Kondratyuka — legal review

All New Developments

Prices as of November 2021 — Ministersky Residential Complex

Number of rooms	Area	Price per m2
1-room	53 m2	33,100 UAH/m2
2-room	79 – 95 m2	27,000 – 28,000 UAH/m2
3-room	113.5 m2	17,500 – 23,500 UAH/m2

Residential complex features

• Class – business
• Buildings – 4
• Number of floors 25-26
• Construction technology – monolithic-frame
• Heating – centralized
• Walls – brick
• Insulation – mineral wool
• Ceiling height – 2.7 m (floor to ceiling)
• Parking – surface, underground (1118 parking spaces)

Risks for a commissioned building

This is an unconventional review of a residential complex in the Obolon district of Kyiv, better known to most as the “Ministersky” complex. All clients I spoke with, without exception, reason like this: if the building has been commissioned and ownership rights for the apartments have been registered, then there are no problems and it is safe to invest. Maybe that is true, and maybe there are nuances you do not know about. One such nuance I found in the complex on Kondratyuka St. To avoid casting a shadow on the well-known and successful Ministersky complex, that name was kept for the earlier section of the buildings, while a new name was invented for the continuation of construction – Residential complex on Kondratyuka St. This intention may be related to the fact that at some stage problems arose with the construction.

The complex on Kondratyuka consists of four buildings. Three buildings were completed earlier, and the fourth was commissioned in 2021, even though the developer promised to finish the works in 2016. Thus the delay for the fourth building was 5 years. But this is not the only reason for my review of this complex. The building is ready, commissioned, and assigned a postal address in the Obolon district of Kyiv on Kondratyuka St., which is considered popular, yet there are one-room apartments still on sale — apartments that are usually sold first. I wanted to understand how it happened that some apartments are still available. Using this complex as an example we will look at whether there are risks if a client buys an already registered apartment with ownership rights.

Client and developer

The client, who was also the developer of the project on Kondratyuka St., was the company “ЕНЕРГОПОЛЬ-УКРАИНА”. The company inspired great trust among investors because by all criteria it looked like a very reliable developer:

• a company with foreign capital and therefore supposedly less affected by internal processes in our country;
• the company was founded in 1996 and successfully operated in the Ukrainian market for over 20 years;
• “ЕНЕРГОПОЛЬ-УКРАИНА” has many large-scale projects to its name: the building of the Kyiv Chamber of Commerce and Industry, the second terminal of Boryspil Airport, reconstruction of the Polish Consulate building in Ukraine.

In general, the company’s record includes reputable projects, and the completed successful Ministersky project clearly showed how the developer fulfills its obligations. So why did a 5-year delay occur in completing construction?

The reason was legal disputes among construction participants. As a result, the client of the construction “ЕНЕРГОПОЛЬ-УКРАЇНА” is currently undergoing bankruptcy proceedings. Two creditor companies have filed claims against “ЕНЕРГОПОЛЬ-УКРАЇНА” in court. The total amount of their claims is almost 67 million UAH.

What does this mean for apartment buyers?

According to the sales department, there are no free apartments from the developer. At the moment all apartments are sold by private individuals who already have ownership rights. It would seem everything is fine: the ownership is registered, the client buys the apartment from a private person, and the developer and its bankruptcy no longer concern them. But there is a nuance.

Under current legislation, if bankruptcy proceedings begin, an arbitration manager is appointed who disposes of the property of the bankrupt company. The arbitration manager has the right to examine what the company did prior to its bankruptcy. If one of the creditors or the arbitration manager proves that previous transactions of the bankrupt company caused damage to the company, the court may declare those transactions invalid.

Today, completed apartments in the complex on Kondratyuka are being sold with ownership rights already registered, and in most cases these rights were registered shortly before the bankruptcy procedure began. The sequence thus looks like this: the building is commissioned, ownership rights are registered on certain individuals, and then a bankruptcy claim is filed. The developer itself is undergoing bankruptcy, but the apartments no longer belong to it; they are being sold by private individuals who registered them in their own names.

But, as I said before, the arbitration manager or other creditors can contest these ownership rights in court. They may argue that the bankrupt company concluded agreements with related persons, and since it is not known to whom the ownership rights were registered, these might be related parties. In that case there is a certain risk.

Legal proceedings and utilities in the complex

One of the advantages of a commissioned building is the presence of utilities. During construction, even if the developer has all documents and technical conditions, that is no guarantee the building will be connected to utilities and that the developer will fulfill all technical requirements. For a commissioned building such problems theoretically should not exist. But unfortunately that is theory. In reality, completed buildings can still have long-standing problems with utilities.

I will note another court case related to building No. 5 in the complex on Kondratyuka. The newly created OSBB (condominium association) was not handed the technical documentation necessary to manage the building by the company “ЕНЕРГОПОЛЬ-УКРАЇНА”. The OSBB had to go to court requesting that “ЕНЕРГОПОЛЬ-УКРАЇНА” be obliged to provide the required documentation. The court satisfied this claim. The decision was made in 2021, but I assume the developer did not comply, since there are several enforcement proceedings listed in the register that the OSBB opened against “ЕНЕРГОПОЛЬ-УКРАЇНА” and one proceeding is still active.

In general, I definitely recommend that if you buy an apartment in any of the buildings of this complex, you first talk to the OSBB, the management company, or residents to understand the situation with the building’s maintenance.

The next question concerned electricity in the fourth commissioned building. In May 2021 (two months after the building was commissioned) the State Emergency Service filed a lawsuit requesting to disconnect electricity to that building. The case is still pending in the administrative court and the decision timing is unknown. If the decision is negative, the building will have problems with electricity.

Building permit and land

The complex was built on two land plots, both of which are municipal property and were leased to “ЕНЕРГОПОЛЬ-УКРАЇНА” for development. The land’s designated purpose allows residential construction. However, I could not find the urban planning conditions and restrictions for these lands in public access. In principle, since the building is commissioned they may no longer seem necessary. But there are cases when a commissioning decision is contested in court, and given the obvious issues with this complex, before buying I would insist on seeing all permitting documents. Why? The commissioning document indicates a height of 25 floors. I would want to verify that the urban planning authorities actually allowed this height for these plots.

Purchase scheme

Since all apartments in the fourth building are sold not by the developer but by private individuals, the client buys a ready apartment from the previous owner under a standard sale-and-purchase agreement. Therefore the contract is standard and essentially does not need changes. I will draw attention to several points in the transaction:

• Before completing the transaction, the notary must check whether there are any persons registered in the apartment; since it has already been registered to someone, people could be registered there.
• Since this is a new building and ownership is already registered, check whether the previous owner made any renovations or alterations.
• Discuss in advance with the seller what additional notary fees and taxes will be. If the previous owner sells an apartment that was owned by them for less than 3 years, they will face high taxes (at least 5% personal income tax + 1.5% military levy). You may say this is the seller’s problem. In essence yes, but you should understand the seller will include these costs in the apartment price. On the other hand, ask why the seller is selling the apartment. Those who invest in complexes to earn usually sell apartments before registering ownership in their name specifically to avoid these taxes.

And of course you should pay attention to a small nuance mentioned by the sales department – ownership exists, but keys are promised only in spring 2022 due to lack of utilities because work is ongoing in the building. On forums you can also find information that at the moment of commissioning the building was far from ready.

Conclusions

Checking a residential complex is a very complex task. You need to spend several days to check construction documents, re-read contracts and hundreds of court cases that may affect construction. I definitely do not recommend trusting the words of a sales department; thoroughly verify every document or piece of information you are given. Even better, entrust the investment to people who understand this field.

If I were buying an apartment in the complex on Kondratyuka, I would insist my notary handle the transaction. Yes, you can check in the online real estate ownership registry yourself that the person selling you the apartment is indeed the owner and that the apartment is entered in the registry. But notaries see this registry differently. They see many more sections of information. I would want my notary to review the full information about this apartment: how the building was commissioned, what documents the developer provided, who the seller is. Is this a real primary investor or did the developer, before bankruptcy proceedings, register apartments in the names of “their” people?

The second point is utilities. They are still missing and whether they will be provided is unknown. I also mentioned there is a court case that may result in electricity problems. Only after weighing all these risks would I make a decision.