Court Confirms the Right to Lift a Tax Encumbrance Through a Negatory Claim

When Debts Follow the Property, Not the Owner

The situation reviewed by the Supreme Court is a common one in Ukraine’s judicial practice. A company purchased real estate at an electronic auction conducted within enforcement proceedings and, after registering ownership, discovered that the property remained under a tax lien imposed due to the former owner’s tax debts.

Despite the new owner having no obligations to the state, the Tax Service refused to lift the encumbrance, effectively preventing the company from using or disposing of its property.

Arguments of the Parties and Lower Court Decisions

The claimant — a limited liability company that had lawfully acquired the property at auction — filed a lawsuit demanding termination of the tax lien, as it impeded the exercise of ownership rights.

Both the commercial court of first instance and the appellate court ruled in favor of the claimant, emphasizing that the lien was connected solely to the previous owner’s tax arrears and could not restrict the rights of a bona fide acquirer.

The Commercial Cassation Court of the Supreme Court (KGS VS) upheld these findings and dismissed the appeal of the State Tax Service (ruling dated September 30, 2025, in case No. 914/2949/24, ECHR Register No. 130707906).

The Supreme Court’s Legal Position

The Court established an important precedent for tax disputes: Property acquired by a bona fide purchaser at an electronic auction within enforcement proceedings must be released from a tax lien imposed due to the prior owner’s debt if that lien prevents the new owner from exercising ownership rights. The ruling refers to Article 391 of the Civil Code of Ukraine, which entitles an owner to demand the removal of obstacles to the possession and disposal of their property — a negatory claim.

The Court underlined that the right of ownership of a bona fide acquirer is inviolable, and any restriction not arising from the owner’s own actions violates Article 41 of the Constitution of Ukraine. Therefore, a tax lien unrelated to the new owner must be terminated through a judicial procedure.

Legal Significance of the Ruling

This decision continues the Supreme Court’s consistent line of reasoning focused on protecting the stability and inviolability of property rights. Previously, tax authorities often assumed that a lien “follows the property” regardless of who the new owner is, effectively forcing purchasers to bear the burden of another person’s debt.

This created a conflict between the state’s fiscal interests and the constitutional right to private property.

Now, the Supreme Court has clearly articulated key principles:

• A tax lien does not transfer to a new owner if the debt arose from another person’s obligations.
• A bona fide purchaser has the right to demand removal of such encumbrance through a court claim.
• The appropriate remedy is a negatory claim, not administrative appeal to the Tax Service.

Implications for Business and Investors

For companies and investors acquiring property through Prozorro.Sale or other enforcement auctions, this decision has practical importance.

1. First, it provides a clear and effective judicial remedy for lifting outdated tax liens.
2. Second, it reinforces certainty for banks, notaries, and creditors — the right of ownership of a bona fide purchaser takes precedence over tax claims against the former owner.
3. Third, it will likely reduce the number of registration disputes, as tax authorities will no longer insist on separate court decisions to release liens that have lost their legal basis.

Conclusion

The Supreme Court’s ruling of September 30, 2025, in case No. 914/2949/24 reaffirms the principle of the inviolability of private property and the legitimacy of ownership acquired in good faith. The state cannot impose the burden of another person’s debt on a new lawful owner, even if such debt was secured by a tax lien.

This approach strengthens trust in electronic auctions and the enforcement sale mechanism, providing greater legal certainty and predictability for the real estate market.