Usufruct of municipal property instead of operational management. How secondary educational institutions can change the legal regime of property and why this needs to be done now

«Operational management VS usufruct of municipal property for secondary educational institutions. Why are changes inevitable?»

The Law of Ukraine ‘On the Specifics of Regulating the Activities of Legal Entities of Certain Organisational and Legal Forms During the Transition Period and Associations of Legal Entities’ No. 4196-IX dated 9 January 2025 (hereinafter referred to as Law No. 4196) provides for the reform of the institutional framework for operational management, which, prior to the adoption of this law, formed the basis of the legal regime for communal property used by public education institutions. 

Pursuant to Law No. 4196, the legal regime of operational management set for municipal property until 28 August 2025 has the following specific features:

• the right to operational management of municipal property shall remain in force until 28 August 2028, and the specifics of its legal regime are defined in Article 12 of Law No. 4196;

• after 28 August 2028, the legal regime of municipal property transferred to operational management will be the right of ownership or usufruct of municipal property (personal free possession and use);

• from 28 August 2025, ‘the assignment (transfer) of property to legal entities under the right of operational management is prohibited’ (Clause 3 of Article 13 of Law No. 4196).

Therefore, we will consider possible options for action by the local council and the secondary educational institution regarding the determination of the legal regime for municipal property used by the secondary educational institution under the right of operational management.

Option 1. Neither party (neither the secondary education institution nor the local council) takes any active measures regarding the property

If the legal regime of the property is not changed by 28 August 2028, the provisions on usufruct of state or municipal property, which is considered to be established indefinitely, shall apply to legal relations regarding the ownership, use and disposal of state and municipal property that was secured by the right of economic management or operational management.

In other words, if neither the general secondary education institution nor the local council takes any active measures, from 28 August 2028, with regard to municipal property that is at that time in the possession and use of the general secondary education institution under the right of operational management, this right will cease and instead the right of usufruct of municipal property (indefinitely) will ‘automatically’ come into effect with regard to this property.

Option 2. Proactive position of the local council

Pursuant to Clause 2 of Article 601 of the Law of Ukraine ‘On Local Self-Government in Ukraine’, the usufruct of municipal property is determined by the authorised local government for any types of movable or immovable property (except for land plots) owned by the community for a period of five years or indefinitely.

This means that the local council may, at any time after 28 August 2025, adopt a decision to terminate the right of operational management for the secondary educational institution (pursuant to Clause 15 of the Final and Transitional Provisions of Law No. 4196) and establish the right of usufruct of municipal property for the same property. In this case, the local council has more options than in the previous case (in particular, it may establish a 5-year term for such a right and additional conditions for the use of such property).

Option 3. Proactive position of the secondary educational institution

The secondary educational institution may address the local council as an entity interested in obtaining property on the right of usufruct.

This process is set out in the ‘Procedure for the Transfer of State and Municipal Property on the Right of Usufruct of State or Municipal Property, and Control over the Use of Such Property’, approved by Resolution of the Cabinet of Ministers of Ukraine No. 1103 dated 8 September 2025 (Procedure No. 1103).

In particular, Clause 5 of Resolution No. 1103 establishes a number of requirements for such a proposal and a list of mandatory attachments thereto: financial statements for the previous year; characteristics of the object of transfer; constituent information, technical and economic justification for the transfer of property with identification of sources of financing for its maintenance, among others.

The local council shall consider such a proposal from the secondary education institution within one month and shall adopt a decision on establishing the right of usufruct of municipal property or on refusal (in cases specified by law).

Regardless of the option chosen for transferring municipal property to the secondary educational institution on the basis of usufruct, it should be borne in mind that the usufructuary has both certain rights and obligations. One of the first such obligations is that the usufructuary must take steps to register the usufruct right with the state (within one month). The usufructuary must also submit an annual report on the use of the property to the managing entity, using the form approved in the appendix to Resolution No. 1103. The introduction of this form of reporting makes the process of using the property a transparent procedure with real legal consequences for the local council, since if the condition of the property deteriorates, the local council may decide to terminate the usufruct right.

Although the deadline (28 August 2028) seems distant, it is critically important for local councils to start preparing for the introduction of usufruct, including for secondary educational institutions, right now, as early preparation will give the local council a chance to make a smooth transition and use its right to set a 5-year term for better control over the use of the property and to set extra conditions for its use.

The DECIDE project is implemented by NGO DOCCU and PHZH International Projects in Education with the support of the Embassy of Switzerland in Ukraine.