How to recover damages from the municipality for an illegal building permit?

"And a loss can turn into a profit,
and the profit may turn into a loss.
Lao Tzu

Recovery of damages for illegal actions of authorities is a very controversial category of disputes. Judicial practice is extremely controversial due to the lack of clear criteria for determining the amount of damages, an excessive standard of proving the causal relationship between the actions of authorities and the consequences for business.

However, sometimes it is possible to prove significant amounts and compensate for the losses incurred. So the lawyers of Yurproekt managed to recover damages from the municipality that issued, and then suddenly withdrew a permit for the construction of an apartment building, and also invalidated the land lease agreement concluded with violations.

In the summer of 2018, we were approached by the director of a developer company that won an auction to conclude a lease agreement for a land plot for the construction of an apartment building in one of the cities of Kuzbass.

The client's request was as follows: the construction permit for an apartment building was revoked by the local administration after numerous complaints from residents of houses nearby the construction site. At the same time, the developer has already incurred significant costs for design, engineering surveys, and preparation of the construction site.

Upon a detailed analysis of the situation, it turned out that the land plot provided at the auction for the construction of an apartment building was formed with a gross violation of the law. According to the Land Code of the Russian Federation, land plots within the boundaries of multi-storey buildings should be formed only on the basis of a land surveying project. Such a restriction on the method of forming a land plot is intended to protect the rights of residents of nearby houses, because the land surveying project is discussed at public hearings, in which each resident of the microdistrict can speak “for” or “against” such construction, as well as give comments and suggestions.

In the case of our client, the municipality formed the land plot on the basis of the layout of the land plot, and approved it itself. That is, the residents learned about the upcoming construction only at the moment when preparatory work began at the construction site - snow removal, demolition of green spaces, construction debris removal. By that time, the developer had already prepared a project for the construction of a residential building, connected to the power grid, removed more than 3,000 cubic meters of snow, felled and removed about 60 trees. At the same time, the administration of the municipality did not include information about the method of forming the land plot in the auction documentation.

All the costs incurred suddenly became the developer's losses, because he could not apply the results of the work under the concluded contracts elsewhere - the construction project is "tied" to a specific land plot, taking into account engineering surveys, electricity is also "brought" to a specific place. The money just went to the ground.

In order to restore the financial position of the developer, we decided to make two demands: to declare the contract invalid due to misleading about its subject and to recover damages.

The trial lasted 1 year and 3 months, 17 court sessions took place! The resistance of the municipalities was decisive - they even had to organize a joint trip to count the stumps left from the fallen trees! All this made it possible to convince the court that there was a causal relationship between the illegal actions of the Administration and losses for the developer, and also to confirm the real amount of costs incurred by the developer. However, not all costs were recognized by the court as reasonable, subject to reimbursement by the authority.

The city administration did not appeal the decision of the Arbitration Court of the Kemerovo Region, obviously realizing that the costs that the court recognized as justified are 100% real and there is a risk in the appeal that the amount of damages to be compensated will be higher. The developer also decided not to experiment with the judicial system.

The judgment has entered into force. Writs of execution sent to the Treasury for execution.

Author

Yana Yurievna Alexandrova

Senior Associate, Land. Real estate. Construction"