Destroyed flats are to be compensated in cash or housing certificates. How the compensation mechanism for war-damaged real estate will work
And why not everyone will receive compensation
At its meeting on February 23, the Verkhovna Rada adopted draft law No. 7198, establishing the procedure for state compensation for damaged and destroyed property as a result of hostilities. By property, the authors of the bill mean real estate owned by individuals.
Mind has analysed how the compensation mechanism will work in practice, and how Ukrainians affected by military aggression will be able to receive this compensation.
Background of the compensation mechanism. Draft law No. 7198 appeared in the Verkhovna Rada in the spring of 2022: a group of MPs, together with Olena Shuliak, Deputy Head of the Servant of the People parliamentary group, registered it in parliament on March 24. On April 1, the parliament voted on the bill in the first reading, and then the document was sent back for revision.
While the draft law was being prepared for the second reading, the Cabinet of Ministers adopted Resolution No. 473 on April 19, 2022. It sets out the procedure for conducting an examination of the destruction with the participation of local authorities.
A little later, the Presidential Office offered the owners of damaged and destroyed property an algorithm for documenting losses so that they could receive prompt compensation. In addition, the Ministry of Digital Transformation presented the Register of Damaged and Destroyed Property, which would store information about residential buildings and other structures destroyed during the russian invasion.
However, there was still no possibility of obtaining compensation (in cash or in the form of new housing), as draft law No. 7198 had never been adopted. Eventually, the Rada did get to it, but only at the end of February 2023. Thus, almost a year after registration.
Who can receive compensation? Citizens of Ukraine who are:
- owners of real estate (including members of cooperatives who have bought out their housing but have not registered their ownership)
- construction project owners;
- investors who have invested in real estate;
- heirs of real estate owners.
Housing cooperatives, managers, or people authorised by block of flats co-owners will be able to receive compensation for the damaged property of a block of flats.
Individuals on the sanctions lists, those with a criminal record for crimes against national security, and their heirs will remain without compensation.
However, the Cabinet of Ministers will be able to determine additional categories of individuals who will be eligible for compensation.
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What property can be compensated for? As mentioned above, compensation is provided only for real estate. Thus, cars, household appliances and other property are not covered by this document.
Compensation will be provided only for the property that has been damaged/destroyed after February 24, 2022, and within three years after the lifting of martial law in the area where such property is located. The law does not apply to facilities that have been already located in the temporarily occupied territory at the time of the martial law introduction.
The following are eligible for compensation:
- flats and other residential premises (for example, rooms in dormitories);
- manor houses, garden and country houses;
- unfinished construction projects with supporting and external structures;
- a common property of a block of flats (in case of damage).
What compensation options are possible? One can receive compensation only for destroyed real estate. Thus, expertise must confirm that the flat or private house cannot be restored. The state will reconstruct the damaged property at its own expense, either by paying for construction work or providing building materials, in accordance with the procedure to be determined by the Cabinet of Ministers.
However, the compensation mechanism itself is such that not all owners of even completely destroyed properties will receive real money.
1. The owners of the destroyed flats and other residential premises will receive a housing certificate, a document confirming the state's obligation to finance the purchase of the real estate, including its construction.
2. Owners of private houses will be able to choose whether to receive a housing certificate for the purchase of a new flat/house or a sum of money that will be transferred to a special account to finance construction.
There is no limit to the amount of compensation. The recipient of compensation can select more expensive housing compared to the one that has been destroyed. The only thing is that the difference in cost will be covered at his own expense.
The certificate for the purchase (construction) of new real estate must be redeemed within five years from the date of its issuance. This certificate is also prohibited from being transferred or sold to anyone within the same 5 years, except for inheritance. Similar restrictions apply to the housing that will be purchased in the form of a certificate.
Read also: Housing for displaced people: Kyiv intends to buy 1,000 apartments, but they will not be enough for everyone
Who will allocate funds for compensation? The sources of funding for payments for damaged and destroyed property will be
- funds from the state and local budgets;
- funds from international financial organisations, other creditors and investors;
- international technical and/or reimbursable or non-reimbursable financial assistance;
- reparations and other penalties from the russian federation;
- other sources not prohibited by the legislation of Ukraine, including local funds established for the purpose of paying compensation and restoring damaged/destroyed real estate.
How to apply for compensation? The decision to provide compensation will be made by special local commissions established by the decision of the executive body of the village, town, city, or district (in the city) council, military or civil-military administration of the settlement.
An application for reimbursement can be submitted to the commission in two ways:
- in electronic form – through the Unified State Web Portal of Electronic Services;
- in paper form – through an administrative service centre, social security authorities or a notary.
In addition, there will be on-site application centres set up by administrative service centres and social welfare authorities.
The deadline for submitting an application applies for the entire period of martial law and for another year after its lifting.
Drawbacks of the compensation mechanism. The draft law has received both positive feedback and criticism. For example, the Better Regulation Delivery Office (BRDO) points out that
- the document is aimed at creating a legal framework for citizens to receive compensation for real estate as soon as possible, without waiting for international court decisions on reparations from russia. After all, such processes can take years;
- the funds allocated for compensation for damaged or destroyed property will work for the Ukrainian economy. It will be possible because Ukrainians who have lost their homes and are in need of housing will be able to use the certificate to obtain housing on the secondary market or to finance the construction of new housing.
At the same time, analysts of Transparency International Ukraine have identified several drawbacks of draft law No. 7198 and made recommendations for its improvement. Representatives of the organisation believe that it is necessary:
- to provide the right to choose the option of compensation regardless of the type of real estate – private house, flat, or other residential premises;
- to allow recipients of compensation to use it not only to finance the purchase/construction of the residential real estate, but also to equip such housing;
- to eliminate or ease restrictions related to the alienation of housing received with the use of a housing certificate;
- to provide the payment of the amount of underpaid compensation to a special account from which the recipient can spend funds to solve housing problems;
- to regulate the procedure for forming commissions to consider compensation issues by specifying: requirements for individuals who may be members of such a commission; the procedure for making decisions on granting or refusing compensation;
- exclude the possibility of the Cabinet of Ministers to define additional categories of persons who will be able to receive compensation, as this approach gives the government excessive powers to impose/remove restrictions.
Transparency International believes that the suggested approach to compensation will take into account the interests of only a part of its owners. Moreover, restrictions on the realisation of property rights (a ban on the alienation of property) will become an additional burden for compensation recipients.
It should be noted that the adopted draft law No. 7198 has not yet been signed by the President. Accordingly, if the head of state vetoes it, there is a chance that the document will be finalised with the suggested amendments.
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