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DON’T PLAY WITH FIRE

Real estate is something any company or businessman has to deal with in this or that form. At some stage any company purchases or rents real property, or is involved in construction or refurbishment. In the course of the said activities you have to deal with the range of state bodies the functions of which are boiling down to the preparation of certain regulations and control over the execution of these regulations.

Real estate is something any company or businessman has to deal with in this or that form. At some stage any company purchases or rents real property, or is involved in construction or refurbishment. In the course of the said activities you have to deal with the range of state bodies the functions of which are boiling down to the preparation of certain regulations and control over the execution of these regulations.

Architecture control authorities, fire security service, health authorities, electricity supply control authorities, etc. are the bodies you can not avoid a contact with. Particularly this relates to the companies or businessmen professionally involved in real estate or construction business. Basically, there are two ways to meet them. One is when you go to them and they explain you what regulations you are to follow. The other is when they come to you and you explain them why you don’t follow the regulations. Obviously, the latter case is less attractive prospective, but this is what usually happens.

For people who are used to think in terms of making money a lot of things can be priced. Observation and violation of various regulations also have their own prices. And the question is: "What is cheaper: to spend money to follow the regulations (it usually costs money) or to pay fine or bribe?" Certainly, a lot depends on concrete circumstances.

In practical terms it would probably be right to say that presently the way the system of enforcement (of various regulations, relating to real estate and construction) operates makes it cheaper to divert from the regulations. The main reason for such inefficiency is the lack of financial sanctions in the arsenal of "tools" of all these controlling bodies. These authorities are poorly financed by the state budget, their employees don’t get their small salaries timely, so they have to seek for "additional" sources of income and to do that they have to connive at some of the violations. So, what we have in result is the following: the regulations are not observed and the authorities are involved in corruption. And considering "difficult" situation with the state budget the only way out of this plight is going through the pockets of those supervised by these bodies. If the violations are followed by serious financial sanctions two birds are killed with one stone: obviously, money, plus the violations are becoming a costly thing to afford, so their number is going down. It is just a matter of time when they practically implement the concept that the only way to reduce the violations is to make them (violations) very expensive to commit.

In this article we’ll try to draw your attention to fire security regulations (FSR). We chose this subject for two reasons. Number one - all the companies irrespective of the type of business are to observe FSR (the latter may vary depending on the type of business activities). Number two - all the companies violate FSR in this or that form.

"There is no company in Kyiv which does not violate fire security regulations"- said one senior fire security officer who wished to withhold his name. Fire security department experts of Starokyivsky district (one of the centrally located districts) have kindly agreed to provide us with some of the statistics. From the beginning of this year there were more than 400 cases when fines were imposed (this figure relates only to one district of the city). Fire security service has the right to suspend the activities of a company which violates the FSR, and the average figure of such companies (the activities of which were suspended) per one district during just one month is 20.

If you are corporate executive sitting in your office now reading this article, take the labour to look around: Do you have fire security alarm in your office? Are there fire extinguishers in the office premises? Do you have a special place in your office where the fire security regulations are displayed so that everybody could see them? Did you know that you have to instruct your employees as to FSR when you employ them and quarterly afterwards? Did you know that employees when instructed have to sign a special form for that? If you are director of a company did you know that you may be personally liable for violation of FSR, including criminal liability?

What are the most common FSR violations? When a company intends to have its corporate office in some property this company is to officially apply to the Fire security service (FSS) and obtain permission to have office in that particular property. Such permission is given after FSS checks the premises and issues certain prescriptions. (E.g. to make additional entrance, to install fire alarm, etc.). One of the most widely spread violations is failure to obtain FSS’s permission to have offices in a property. Not many companies know they have to do so. If you have your office in a residential building the part of the building used as an office is to be separated from the part of the building used for residential purposes by fire-proof material which means concrete or brick walls; and in buildings with wooden floors offices must be separated from residential areas by concrete floors. Failure to meet the above mentioned "separation" requirements appears to be the most widely spread violations.

Also, offices are to have additional fire exits. Window metal grills at least on one of the windows must be fixed in such a way, which would allow to open them in case of emergency. The violations with regard to these rules are also widely spread.

What we would recommend any company to do is to check whether there are FSR violations and how serious they are. And the person which should be the first to be interested is a director, for under the Law of Ukraine "On fire security" of 17.12.93, it is director who is personally liable for ensuring the observation of FSR by the company. Director has the right to authorise other person to carry out these functions, but the liability stays with him. In case of FSR violation a director may be held liable for administrative violation which is followed by a fine of 102 hrivnas ($20). If within one year after administrative violation a director is found to have committed the same breach of FSR he may be held criminally liable which is followed by probation up to one year or fine at the rate of up to 680 hrivnas ($120). If FSR violation has led to fire criminal liability means imprisonment for the period of up to three years or probation for the period of up to two years or fine the rate of which ranges from 850 hrivnas ($160) to 2040 hrivnas ($380); if such fire caused casualties or other grave consequences a person held criminally liable may spend in prison up to 8 years. (Article 2201 of Criminal Code of Ukraine).

Regardless of whether a director is held liable or not FSS may impose sanctions on a company as well. Financial sanctions may mean up to 2% of monthly wage fund. One of the powers FSS has in its arsenal is the right to seal the premises up (the whole premises or separate rooms or areas), or .to suspend or terminate the activities of an enterprise, violating FSR.

Although a company in breach of FSR may have serious problems with FSS, all these problems (fines, suspension of activities, etc.) may seem nothing in comparison with damages suits. Such legal suits could be filed, for example, by the inhabitants of adjacent premises, which were damaged by the fire in the property owned or rented by your company. Needless to say what may happen if FSS proves that you violated some FSR.

That is why we advice those who are renting properties to carefully stipulate the terms relating to fire security. The rental contract should contain provisions, relating to the following: who is to install and maintain fire alarm system; what is the responsibility of a landlord in respect of fire security and what is that of a tenant; what is the extent of liability of each party in case of damages suit, etc.

So, what we would advise any company to do (especially those owning considerable assets) is to readdress the issue of fire security proceeding from two points. Firstly, it is worthwhile checking fire security anyway. Secondly, it would be wise to establish the extent to which your company violates fire security regulations and estimate the risks arising out of such violations (various sanctions, imposed by FSS, civil and criminal liability, to say nothing about the risk of actual fire with damages and casualties). Such reasonable estimate of risks of non-compliance with FSR will be the basis of your decision (proceeding from the concrete circumstances your company is in) as to whether it is cheaper for you to proceed to violate FSS. In our view, if such problem is raised many companies, considering all the factors, would prefer to comply with the fire security regulations.

© 2000 Peter Hackett and Partners (01.08.2000)


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