In June 2025, the National Anti-Corruption Bureau of Ukraine announced a suspicion against Deputy Prime Minister and former Minister for Development of Communities and Territories Oleksii Chernyshov in a corruption case involving the Ministry. According to the investigation, a Kyiv-based developer, together with senior ministry officials, orchestrated an illegal scheme to seize a land plot in Kyiv for the construction of a residential complex through a state-controlled enterprise.
A key element of the scheme involved the state enterprise signing a series of investment agreements with the developer. Under these agreements, the enterprise provided a land plot under its management for multi-apartment construction. In return, the developer undertook to transfer to the state a portion of the future apartments proportional to the value of the land. However, to minimize the state’s share, the value of the land and the existing buildings on it was artificially reduced almost fivefold. This allowed a significant reduction in the amount of residential space that would have gone to the state. According to investigators, had the agreements been executed, the state would have lost real estate worth over UAH 1 billion.
Such schemes have been repeatedly used to acquire attractive state or municipal land plots for development. Striking examples include the “apartment case” of former MP Maksym Mykytas, suspected of misappropriating National Guard property worth UAH 81 million, the construction of housing on the lands of the State Enterprise Agrocomplex Pushcha-Vodytsia, and corruption scandals involving housing construction on Ministry of Defense land.
Oversight bodies have also drawn attention to the problem of investment agreements. Following an audit of the National Academy of Sciences of Ukraine, the State Audit Service revealed that 116 hectares of state land in Kyiv had been transferred to private developers under extremely unfavorable terms for the state.
In September, Parliament registered Draft Law No. 14038, designed to reduce corruption risks associated with investment projects on state and municipal lands and to safeguard public interests in housing construction projects implemented on such lands.
Summary
The draft law proposes to classify housing investment projects on state or municipal lands, where the constructed property is divided between the customer and the investor, as public-private partnership projects. This approach would close legislative loopholes that currently allow de facto seizure of state and municipal land through non-competitive investment agreements and ensure more transparent investor selection procedures.
However, in its current version, the draft law still poses risks of unfair allocation of housing between the customer and the investor in completed properties. Therefore, we recommend:
- Applying public-private partnership legislation not only when concluding but also when amending investment agreements for housing construction on state and municipal lands
- Requiring that tender documentation include mandatory provisions defining the minimum residential area to be owned by the customer upon completion.
How do investment agreement schemes work?
The practice of signing agreements with private developers for constructing residential properties on land plots held under the permanent use rights of state or municipal enterprises, institutions, and organizations involves multiple risks resulting from legislative shortcomings.
To obtain the right to build on state or municipal land, a developer must, under land legislation, acquire legal rights to the relevant plot. Such land is transferred into ownership or use for construction on a competitive basis through land auctions conducted via the Prozorro.Sale system. The only exception to this rule is leasing land for implementing public-private partnership projects, where a private partner is already competitively selected, making additional auctions redundant.
However, in the case of residential construction agreements, developers may be selected non-competitively. The Land Code of Ukraine grants state or municipal enterprises, institutions, and organizations the right to independently construct residential, industrial, and other buildings and facilities on land under their management, including with the involvement of private investors. At the same time, there is no obligation to transfer land rights for such construction through competitive procedures.
The Law of Ukraine on Investment Activity also lacks such a requirement. The obligation to select investment projects on a competitive basis applies only when state support is provided for their implementation.
A significant additional risk arises from the one-sided and non-transparent decision-making process. Investment agreements for housing construction are usually initiated by the land user, require no approval from
supervisory bodies, and do not mandate public disclosure — neither of any selection results (if held) nor of the agreements themselves.
Retaining the land plot under the management of a state or municipal enterprise, institution, or organization also entails extra financial costs. Although the developer effectively uses the land during construction, the legitimate user remains responsible for paying the land tax, which is not reimbursed.
Furthermore, upon completion of a multi-apartment building, the permanent use right to the land is terminated. Under the Land Code of Ukraine, this right transfers to the management company of the building. If a homeowners’ association is later established, the land on which the building stands may be transferred free of charge into the ownership of its co-owners, effectively removing it from state or municipal ownership.
Perhaps the greatest risk in concluding investment agreements for residential construction on state or municipal land lies in the absence of a legislatively defined minimum share of the state or community in the completed property, or a mechanism for determining such a share. This regulatory gap opens the door to abuse and corruption, allowing developers to:
- Acquire land plots below market value,
- Amend agreements and redistribute shares during project implementation (including through redesign),
- Undervalue the land or existing property to artificially reduce the state’s or community’s share in the completed asset.
What changes are proposed?
Draft Law No. 14038 proposes to classify investment projects involving housing construction on state or municipal land, where the constructed property is to be divided between the customer and the investor, as public-private partnership projects. Consequently, their preparation and implementation would have to follow the procedures and requirements of the Law of Ukraine on Public-Private Partnership.
Agreements governing the implementation of such investment projects, as well as agreements on the organization and financing of housing construction on state or municipal land involving the distribution of completed assets between the customer and the investor, would be concluded in accordance with the PPP Law. Agreements concluded in violation of this rule would be deemed null and void, and the constructed assets would become state or municipal property.
At the same time, this provision would not apply retroactively: existing agreements would continue to be executed under their current terms and the legislation in force at the time of their signing.
Importantly, the proposed changes would not affect investment projects or construction agreements implemented on land plots leased to developers or held under the right of superficies. Thus, the draft law specifically targets development on state and municipal lands obtained by developers through non-competitive means.
The proposal to treat investment projects involving residential construction on state or municipal land as PPP projects offers several clear benefits:
- Standardization of procedures for managing state and municipal property. Investment projects involving housing construction on state or municipal land already share most legal characteristics of PPPs. Moreover, the PPP Law already regulates the specifics of preparing and implementing PPP projects for housing construction. Therefore, aligning investment projects with PPPs would effectively close the loophole allowing developers to use “grey schemes” under investment agreements to seize public land.
- Greater transparency in project preparation. Unlike investment projects, where decisions are made directly by the state or municipal land user, PPP projects undergo multiple stages of review and approval, including a final decision by the competent public authority.
- Flexible use of land plots. During PPP implementation, the land may be transferred to the private partner for the project’s duration, removing the land tax burden from the public partner. Alternatively, the land may remain under the public partner’s management if a delegation agreement assigning the customer’s functions to the investor is signed.
Risks
Compared to standard investment agreements, preparing a public-private partnership project is more complex and resource-intensive. It requires conducting an efficiency analysis, adopting a decision to implement the project, organizing a competitive selection process, determining the winner, and signing an agreement. As a result, implementing housing projects through the PPP mechanism may become considerably more complicated, whereas investment agreements do not involve such demanding procedures.
One of the key risks of investment agreements lies in the possibility of redistributing the housing portion allocated to the customer during or even after the project implementation. For example, in the already mentioned “apartment case” of former MP Mykytas, National Guard officials and the developer company concluded new agreements under which the National Guard relinquished apartments and parking spaces in central Kyiv in exchange for housing on the city outskirts, whose market value was significantly lower.
The draft law does not eliminate these risks, as it does not require amendments to signed agreements to comply with PPP legislation. Under that law, any change to the economic balance of interests between the parties is considered a material modification and cannot be made by mutual consent without holding a new competition.
Applying PPP legislation to investment projects in the housing sector also introduces several inherent risks.
Even though the investor will be selected through competitive procedures, tender commissions will retain broad discretionary powers, including the ability to:
- Establish an open-ended list of qualification criteria,
- Determine the weighting of qualification and evaluation criteria,
- Deny participation in the competition or refuse to recognize a winner.
Concerns also arise regarding the composition of these commissions — when a commission is created for a specific project, the public partner may influence its decisions by including additional members of their choosing.
The risk of unfair distribution of space in completed residential properties also remains. The Law of Ukraine on Public-Private Partnership does not specify any minimum residential area to be owned by the public partner. Instead, it allows the tender commission to set such requirements, which again introduces the problem of broad discretionary authority.
Conclusion
The Draft Law of Ukraine on Amendments to Certain Laws of Ukraine to Ensure Construction of Facilities on State and Municipal Lands under Public-Private Partnership Conditions is a step toward enhancing the transparency and efficiency of state and municipal land use.
The document aims to standardize the legal framework for implementing housing investment projects by aligning them with public-private partnership mechanisms. This would close existing legislative loopholes, prevent the use of bypass schemes to gain control of public land through investment agreements, and ensure more transparent investor selection procedures.
At the same time, the proposed changes would apply only to state and municipal land plots obtained by developers through non-competitive means.
Although PPPs involve more complex and time-consuming project preparation procedures than traditional investment agreements, these requirements are justified by the need to ensure competition, transparency, and the protection of state and community interests. The potential risks associated with the discretionary powers of tender commissions and the conditions for distributing residential space can be mitigated through subsequent secondary legislation and by introducing alternative mechanisms for appealing the decisions, actions, or inaction of these commissions.
In view of the identified risks, we also recommend:
- Establishing that amendments to agreements involving investment projects for housing construction on state or municipal land may be made only under the terms and procedures defined by the Law of Ukraine on Public-Private Partnership
- Introducing a provision requiring that tender documentation must include a minimum threshold for the residential area to be owned by the construction customer in projects involving the construction of residential properties on state or municipal land and the division of completed real estate between the customer and the investor.
This material is funded by the European Union. Its content is the sole responsibility of Transparency International Ukraine and does not necessarily reflect the views of the European Union.
