1 REAL ESTATE LAW
1.1 Please briefly describe the main laws that govern real estate in Ukraine. Laws relating to leases of business premises should be listed in response to question 10.1. Those relating to zoning and environmental should be listed in response to question 11.1.
The principal laws governing real estate matters in Ukraine, such as registration and protection of rights to real estate, as well as limitations of such rights, and real estate transactions, are the Civil Code of Ukraine, dated 16 January 2003, No. 435-IV ("Civil Code") and the Commercial Code of Ukraine, dated 16 January 2003, No. 436-IV ("Commercial Code"). Both the Civil Code and the Commercial Code have been effective in Ukraine since 1 January 2004. Further, land real estate, as distinguished from all other real estate, is regulated by the Land Code of Ukraine, dated 25 October 2001, No. 2768-III ("Land Code") and certain other laws, e.g. the Law of Ukraine "On Land Payment", dated 3 July 1992, No. 2535-XII and the Law of Ukraine "On Land Appraisal", dated 11 December 2003, No. 1378-IV. The Land Code entered into force on 1 January 2002.
Additionally, such laws as the Law of Ukraine "On State Registration of Property Rights to Real Estate and Restrictions Thereof", dated 1 July 2004, No. 1952-IV ("Law on State Registration of Titles"), the Law "On Basics of Town-Planning" dated 16 November 1992, No. 2780-XII, the Law "On Regulation of City Construction Activity", dated 17 February 2011, No. 3038- VI, and the Law of Ukraine "On Territories-Planning and Construction", dated 20 April 2000, No. 1699-III, deal with such specific aspects of real estate as real estate registers, town-planning and construction activity.
1.2 What is the impact (if any) on real estate of local common law in Ukraine?
Ukraine belongs to a civil law group of countries, and, therefore, the value of a judicial precedent is comparatively small. Decisions of higher courts or of the Supreme Court of Ukraine do not have a binding effect on the decisions of lower courts that decide a similar case.
1.3 Are international laws relevant to real estate in Ukraine? Please ignore EU legislation enacted locally in EU countries.
Ukraine is a party to a number of bilateral inter-state agreements on promotion and mutual protection of foreign investments, which guarantee, inter alia, the observance of foreign investors' rights relating to investment in real estate objects in Ukraine.
2 OWNERSHIP
2.1 Are there legal restrictions on ownership of real estate by particular classes of persons (e.g. non-resident persons)?
The Land Code imposes certain restrictions on ownership rights of foreign entities for land plots ("LPs") in Ukraine, while no such restrictions exist with respect to ownership for non-land real estate. Foreign entities are prohibited from ownership of LPs with an agricultural designation. If inherited by a foreign entity, an agricultural LP is subject to alienation within a one year term. With respect to foreign ownership of non-agricultural land, the following rules apply:
- Foreign individuals may acquire ownership title to:
- LPs within settlements; and
- LPs outside settlements, on which real estate objects already
owned by such individuals are located.
- Foreign legal entities may acquire ownership title to:
- LPs within settlements in the event of a purchase of real estate/construction of real estate objects on such LPs connected with entrepreneurial activity in Ukraine; and
- LPs outside settlements in case of a purchase of real estate
objects located on such LPs.
- Joint ventures founded with foreign participation may acquire
ownership title to:
- LPs within settlements in the event of a purchase of real estate/construction of real estate objects on such LPs connected with entrepreneurial activity in Ukraine;
- LPs outside settlements in case of a purchase of real estate objects located on such LPs; and
- other non-agricultural land plots.
3 REAL ESTATE RIGHTS
3.1 What are the types of rights over land recognised in Ukraine? Are any of them purely contractual between the parties?
The Land Code establishes the following types of rights over land:
- Ownership right for land (private, community and state).
- Land use rights, including:
- rights of permanent use;
- rights of limited use (servitude, easement, emphyteusis, superficies); and
- lease rights.
Right of ownership for land comprises the rights to possess, use and dispose of the land at one's own free will, in compliance with the applicable law and independently of other persons' will. As already mentioned under question 2.1, the right to acquire and own land largely depends on the category and other characteristics of a particular LP.
Right of permanent land use is the right to possess and use land in state or community ownership, which is only available to a limited group of entities. Among such entities are: state and community owned enterprises, institutions and organisations; and the civil organisations of disabled persons of Ukraine, along with their enterprises (associations), institutions and organisations.
A land servitude is a limited right of use granted on a chargeable or free of charge basis to a LP owner/user for a LP owned by other entity(ies). Land servitude may be established by an agreement or a court decision and remains with the LP in the event of an ownership transfer.
An emphyteusis is the right to use land for agricultural needs. A superficies is the right to use a land plot for construction.
A land lease right is a contractual temporary right of possession and use of a LP, normally granted on a chargeable basis.
3.2 Are there any scenarios where the right to a real estate diverges from the right to a building constructed thereon?
In Ukraine, the right to a land plot sometimes diverges from the right to a building constructed thereupon. Such divergence usually arises when a building is constructed on land which is not owned by the developer but to which the developer has certain rights. Such land may either be leased by the developer or the developer might have a right of permanent use or a superficies.
4 SYSTEM OF REGISTRATION
4.1 Is all land in Ukraine required to be registered? What land (or rights) are unregistered?
All land and land rights in Ukraine are subject to registration with the unified system of the State Land Cadastre.
4.2 Is there a state guarantee of title? What does it guarantee?
The Ukrainian Constitution guarantees ownership rights for land and the inviolability of private ownership. Guarantee of an ownership title means that an owner may not be deprived of its ownership rights other than by a court decision. Compulsory alienation of a LP for public needs is permitted only upon the condition of full compensation of its value to the owner. Further, the State of Ukraine guarantees the validity of registered rights to real estate and encumbrances thereof pursuant to the Law on State Registration of Titles.
4.3 What rights in land are compulsory registrable? What (if any) is the consequence of non-registration?
All rights to land listed under question 3.1 are subject to mandatory state registration. Rights to land that have not been duly registered do not become effective. Also the lease right's entry into force, being a purely contractual right, depends on state registration of the lease agreement.
4.4 What rights in land are not required to be registered?
All rights in land require state registration.
4.5 Where there are both unregistered and registered land rights is there a probationary period following first registration or are there perhaps different classes or qualities of title on first registration? Please give details. First registration means the occasion upon which unregistered land or rights are first registered in the registries.
Ukrainian law does not provide for any such probationary periods, and the title conferred by the initial registration in no way differs from those acquired subsequently as a result of a transfer.
4.6 On a land sale, when is title (or ownership) transferred to the buyer?
Ownership to land transfers to the buyer at the moment when a document evidencing the buyer's title to land (State Act on Ownership Title to a LP) is registered with the state.
4.7 Please briefly describe how some rights obtain priority over other rights. Do earlier rights defeat later rights?
Under Ukrainian law, such priority is only envisaged with respect to registered rights of the mortgagee. Although the mortgage is subject to a mandatory state registration, non-registration of a mortgage will not render a mortgage agreement void. However, in case of a dispute, registered rights of a mortgagee shall have priority for claims' satisfaction over such non-registered rights. Similarly, earlier mortgage rights shall have priority over subsequent mortgage rights.
5 THE REGISTRY / REGISTRIES
5.1 How many real estate registries operate in Ukraine? If more than one please specify their differing rules and requirements.
The Ukrainian Parliament passed the Law on State Registration of Titles in 2004, providing for the establishment of a unified state registration system of proprietary rights to real estate but the formation of the single state registration system has not yet been completed. As a result, a number of real estate registers currently operate in Ukraine.
The following two registers contain information on proprietary rights to real estate and will serve as a foundation and information basis for the State Register of Titles to Real Estate and Encumbrances Thereof ("Unified State Register"): (i) the State Register of Lands (within the State Land Cadastre); and (ii) the Register of Ownership Titles to Real Estate.
The State Register of Lands is administered by the Centre of the State Land Cadastre of the State Land Resources Committee of Ukraine. The registration procedures are carried out by the territorial subdivisions of the Centre at the local Land Resources Departments of the State Land Resources Committee of Ukraine.
The Register of Ownership Titles to Real Estate is administered by the state company "Information centre" of the Ministry of Justice of Ukraine, and the registration procedures are carried out by the bureaus for technical inventorisation ("BTI") of the relevant territorial units at the location of the real estate object.
Additionally, the following registers contain information on restrictions of proprietary rights to real estate and agreements pertaining to real estate: (i) the State Register of Mortgages; (ii) the Single Register of Real Estate Disposition Bans; (iii) the State Register of Encumbrances over Movable Property; and (iv) the State Register of Deeds.
5.2 Does the Land Registry issue a physical title document to the owners of registered real estate?
Ownership to land is evidenced by a State Act on Ownership Title to LP prepared by a licensed entity and registered with the local Land Resources Department. Ownership title to non-land real estate may be evidenced either by a Certificate of Ownership Title to Real Estate issued by a local BTI or by an agreement on transfer of title to real estate bearing the stamp of a local BTI on registration.
5.3 Can any transaction relating to registered real estate be completed electronically? What documents need to be provided to the land registry for the registration of ownership right? Can information on ownership of registered real estate be accessed electronically?
Most transactions relating to registered real estate have to be made in writing and notarised. The Law of Ukraine "On Electronic Documents and Electronic Documents Circulation", dated 22 May 2003, No. 851-IV, provides for the possibility of a transaction concluded electronically to be notarised; however, no procedure allowing such notarisation exists. Some transactions relating to real estate which do not have to be notarised may be completed electronically provided that parties thereto have electronic digital signatures.
If a LP is acquired from a private owner, the following documents are provided for the registration of ownership right to a LP:
- State Act on Ownership Title to LP, with a notary's inscription on the transfer of title to LP.
- Agreement on LP alienation or a certificate on right to the decedent's estate.
The following documents are provided for the registration of ownership right to a LP in all other cases:
- Application on registration of ownership right.
- Document confirming the applicant's identity.
- Applicant's Certificate on Taxpayer Registration.
- Either (i) technical documentation on the production of State Act on Ownership Title to LP, together with the resolution of a competent authority (local council or local state administration) on granting ownership title to a LP – for LPs the borders of which have been allocated on site and without changes in land designation, or (ii) a draft land allocation project together with the resolution of a competent authority (local council or local state administration) on granting ownership title to a LP – for LPs the borders of which have not been allocated on site and the designation of which has changed.
- Technical documentation on the production of State Act on Ownership Title to LP if LPs are split or adjoined.
- Agreement on LP alienation – if the LP is sold by the state or local community.
- Copies of documents confirming an heir's entitlement to the LP – if a LP is inherited from a citizen of Ukraine with respect to whom a decision was taken to grant ownership right to a LP free of charge.
- Court ruling – if a LP is acquired on the basis of a court ruling.
- Copies of documents confirming payment for the relevant administrative services for state registration.
Information on real estate ownership cannot be accessed electronically; it can only be obtained upon submission of a written request in the form prescribed by law.
5.4 Can compensation be claimed from the registry/registries if it/they makes a mistake?
Under the Law on State Registration of Titles, the State guarantees authenticity of the data contained in the Unified State Register. Although the regulations on the currently existing real estate registers contain no express liability provisions, compensation for loss through a mistake in a register can be claimed before the court on the basis of the general liability provisions of the Civil Code.
5.5 Are there restrictions on public access to the register? Can a buyer obtain all the information he might reasonably need regarding encumbrances and other rights affecting real estate?
In the absence of the unified real estate registration system, a buyer might need to consult a number of registers to verify the "purity" of title to a real estate object.
The State Register of Mortgages, the Single Register of Real Estate Disposition Bans and the State Register of Encumbrances over Movable Property are publicly accessible. Extracts from the aforementioned registers may be obtained upon submission of a written request in the standard form to the corresponding register-administering authority.
Information contained in the State Register of Lands and the Register of Ownership Titles to Real Estate is of limited access, and may be obtained only at the request of the following:
- Owners (users) of land/owners of non-land real estate objects, inheritors (legal successors), persons in whose favour the encumbrances were established, as well as their authorised representatives.
- Courts, law enforcement agencies, the Prosecutor's Office, the State Tax Authorities, state executors, notaries, the Security Service of Ukraine and other state authorities (state officials), provided that the request falls within the scope of their competence.
6 REAL ESTATE MARKET
6.1 Which parties (in addition to the buyer and seller and the buyer's finance provider) would normally be involved in a real estate transaction in Ukraine? Please briefly describe their roles and/or duties.
1) Selling and purchasing agents (realtors)
Realtors monitor the real estate market, search for the real estate that meets the buyer's requirements, assist the sellers in selling their real estate, conduct negotiations and help the parties agree on the terms and conditions of a sale and purchase agreement.
2) Lawyers
Normally lawyers (i) follow a due diligence process with respect to the real estate involved in the transaction, where, in particular, the seller's title to the real estate is examined, (ii) advise on possible transaction schemes, (iii) assist or represent the parties at negotiations, (iv) draft and negotiate the sale and purchase agreements and other related documents, (v) arrange for the settlement of all necessary formalities, and (vi) conduct necessary registrations with the land registers.
3) Notaries
Notaries are involved if an agreement that concerns real estate requires compulsory notarisation (e.g. sale and purchase agreement, mortgage agreement) or the parties consider notarisation necessary.
4) State registration authorities
Registrars verify whether the submitted documents comply with the registration requirements; and if such requirements are met, they make the corresponding entries to the registers.
6.2 How and on what basis are these persons remunerated?
1) Selling and purchasing agents (realtors)
The realtors are usually remunerated with a commission in the amount of 1-5% of the contract value.
2) Lawyers
The lawyers' fees largely vary and, in each case, are subject to an agreement with the client (e.g. in form of a fixed lump sum, a fee cap, or calculated according to hourly rates).
3) Notaries
For notarial actions, public notaries charge a state duty in an amount prescribed by law. Fees of private notaries often depend on the contract price and are, in most cases, negotiable.
4) State registration authorities
State registration fees are determined by law, and are currently comparatively low.
6.3 How has the real estate market in Ukraine recovered or reacted following the global credit crunch and worldwide recession in 2008/2010? What were the most important real estate transactions in Ukraine in the past year? Please include both local and international investors in your answer.
Real estate prices, the number of real estate transactions and the number of active real estate development projects in Ukraine have gone down considerably, mainly due to the difficulties of obtaining financing for real estate acquisition and development. Some movement was observed in the real estate market in 2010-2012, as real estate prices seem to have stabilised and several large investors announced their plans to once again start new projects in Ukraine. Local real estate investors were the first to resume their activity following the recession, while foreign investors have started to actively work on new real estate projects since summer 2010.
The most important real estate transactions in 2012 were in the area of commercial real estate. A number of hotels were constructed for the EURO 2012 football championship. These hotels were subsequently transferred into the management of local and international hotel operators. Huge transfers of agricultural assets were a consequence of mergers and acquisitions in the agricultural sector. Development of trade areas for large international and local supermarket chains continued.
6.4 Is there a trend in Ukraine towards the investment in retirement homes / nursing homes due to the increased ageing of the population?
Investment in retirement homes / nursing homes is an idea in the Ukrainian market that has been discussed for several years already, but no major projects have yet been realised in this area in Ukraine.
7 LIABILITIES OF BUYERS AND SELLERS IN REAL ESTATE TRANSACTIONS
7.1 What (if any) are the minimum formalities for the sale and purchase of real estate?
Sale and purchase of a real estate object requires that the following basic formalities are satisfied:
First, the validity of the seller's ownership title to the real estate must be confirmed. For this: (i) the seller must present a duly registered document confirming its ownership title to the real estate (e.g. an ownership certificate or a sale and purchase agreement, depending on the preceding means of acquisition and the type of real estate); and (ii) the real estate registers must be consulted in order to confirm that the seller's rights are unrestricted (as described under questions 5.1 and 5.4).
Second, a sale and purchase agreement for real estate must be executed in writing and is subject to mandatory notarisation and state registration.
Third, the ownership title of the buyer must be duly registered.
7.2 Is the seller under a duty of disclosure? What matters must be disclosed?
Under the Civil Code, the seller must inform the buyer of all existing rights of third persons to the object of the sale and purchase agreement. In the event of non-disclosure, the buyer may demand a reduction in the purchase price or terminate the agreement, provided that he did not and could not have known about the third person's rights when entering into the agreement.
7.3 Can the seller be liable to the buyer for misrepresentation?
A seller can be held liable to a buyer for misrepresentation, especially if the court finds that the seller was acting in bad faith.
7.4 Do sellers usually give contractual warranties to the buyer? What would be the scope of these? What is the function of warranties (e.g. to apportion risk, to give information)? Are warranties a substitute for the buyer carrying out his own diligence?
Most commonly, the seller warrants to the buyer that (i) it is the sole owner of the real estate, (ii) its ownership title is full and unrestricted, (iii) the real estate object is free from any defects, and (iv) there is no land tax in arrears (in case of land real estate), etc.
The warranties themselves do not ensure the buyer's rights, unless the agreement prescribes a strict liability for violation of such warranties.
The warranties are not a substitute for the buyer's own due diligence.
7.5 Does the seller warrant its ownership in any way? Please give details.
Usually, a seller provides a contractual warranty of its title to real estate. However, the documentation necessary to confirm its title would also normally be requested and examined by a notary at the signing of the sale and purchase agreement.
7.6 What (if any) are the liabilities of the buyer (in addition to paying the sale price)?
Normally, the buyer is obliged to accept the object of the sale and pay the purchase price. It is also common that the buyer bears the auxiliary transaction costs (e.g. notary and the realtors' fees, and contributions to the State Pension Fund of Ukraine).
Besides, the buyer is under an obligation to inform the seller of the defects of the real estate within a term established by the agreement or applicable law, as well as of the third party claims.
8 FINANCE AND BANKING
8.1 Please briefly describe any regulations concerning the lending of money to finance real estate. Are the rules different as between resident and non-resident persons and/or between individual persons and corporate entities?
The Civil Code sets forth the principal rules governing credit relations in Ukraine. The rules generally apply to both individuals and corporate entities. Cross-border loans, however, are subject to prior registration with the National Bank of Ukraine ("NBU"). The interest rate for cross-border loans may not exceed the thresholds set by the NBU.
The Law of Ukraine "On Mortgages", dated 5 June 2003, No. 898- IV, the Law of Ukraine "On Mortgage Credits, Operations with Consolidated Mortgage Debt and Mortgage Certificates", dated 19 June 2003, No. 979-IV, the Law of Ukraine "On Mortgage Bonds", dated 22 December 2005, No. 3273-IV, and the Law of Ukraine "On Securing Creditors' Claims and Registration of Encumbrances", dated 18 November 2003, No. 1255-IV, govern mortgage relations.
8.2 What are the main methods by which a real estate lender seeks to protect itself from default by the borrower?
In practice, a majority of real estate loans are secured against the property itself, i.e. through a mortgage of the real estate object. Further, movable assets and share pledges, sureties and bank guarantees are all popular means of securing loans.
8.3 What are the common proceedings for realisation of mortgaged properties? Are there any options for a mortgagee to realise a mortgaged property without involving court proceedings or the contribution of the mortgagor?
Apart from court enforcement, the Ukrainian law foresees several ways to enforce a mortgage out of court:
- transfer of ownership title of mortgaged real estate to the mortgagee (in particular under agreement on satisfaction of mortgagee's claims);
- sale of mortgaged real estate by the mortgagee (in particular under agreement on satisfaction of mortgagee's claims);
- sale of mortgaged real estate at an auction; and
- enforcement pursuant to a notarial writ.
The agreement on satisfaction of mortgagee's claims can be signed simultaneously with the mortgage agreement or at any time thereafter. The rights of the mortgagee under the agreement on satisfaction of mortgagee's claims can be conditioned e.g. on the occurrence of an event of default. Thus, all four options above enable the mortgagee to realise the mortgaged property without the contribution of the mortgagor.
8.4 What minimum formalities are required for real estate lending?
The following conditions must be met to establish a mortgage: (i) the mortgagor is the owner of the mortgaged object; (ii) the real estate object is alienable and a claim may be enforced against it; and (iii) the object is duly registered as an individual real estate object.
A mortgage agreement must satisfy the following essential conditions (in the absence of which a mortgage may be invalidated):
- Parties' details.
- Details of the principal obligation.
- Description of the mortgaged real estate.
- Reference to the mortgage paper security, if any.
- Other essential conditions.
Under the Civil Code, a contract must contain any other essential conditions. Essential conditions are any conditions without which the parties would not have entered into the contract. Specific essential conditions may exist in each individual case.
The mortgage agreement is subject to mandatory notarisation and state registration, as outlined under question 4.7.
8.5 How is a real estate lender protected from claims against the borrower or the real estate asset by other creditors?
The mortgagor has priority in satisfying its claims on account of the mortgaged property. In case of the mortgagor's bankruptcy, the mortgagee becomes entitled to enforce against the mortgaged property even if the secured obligations are not yet due.
9 TAX
9.1 Are transfers of real estate subject to a transfer tax? How much? Who is liable?
There is no real estate transfer tax under Ukrainian law.
9.2 When is the transfer tax paid?
There is no real estate transfer tax under Ukrainian law.
9.3 Are transfers of real estate by individuals subject to income tax?
The tax rates applicable to income derived by individuals from sales of real estate (in percentages in relation to the real estate contract value) are:
|
Type of real estate |
Conditions of sale |
|
|
1st sale within one calendar year (if such real estate was acquired over three years before) |
2nd and subsequent sales within one calendar year (regardless of real estate area) |
|
|
Residential building, apartment, garden house (including land plot underneath such house and other structures on such land plot) |
0% |
5% |
|
Other real estate |
5% |
5% |
9.4 Are transfers of real estate subject to VAT? How much? Who is liable? Are there any exemptions?
As a rule, transfers of real estate are subject to VAT whenever the seller is a VAT-payer. VAT is charged at a rate of 20% over the transfer value, is collected from the buyer and is payable by the seller. Sales of LPs (except for those LPs located under non-land real estate objects and included into the value of such objects by law) are exempt from VAT.
9.5 What other tax or taxes (if any) are payable by the seller on the disposal of a property?
No other taxes are payable by a seller of real estate other than a capital gains tax and the VAT (where applicable).
The corporate profit tax is levied at a rate of:
- 21% from 1 January 2012 until 31 December 2012;
- 19% from 1 January 2013 until 31 December 2013; and
- 16% from 1 January 2014.
9.6 Is taxation different if ownership of a company (or other entity) owning real estate is transferred?
The personal income tax would be levied at a rate of 17%.
The corporate profit tax would be levied at a rate of:
- 21% from 1 January 2012 until 31 December 2012;
- 19% from 1 January 2013 until 31 December 2013; and
- 16% from 1 January 2014.
10 LEASES OF BUSINESS PREMISES
10.1 Please briefly describe the main laws that regulate leases of business premises.
Lease of premises is regulated by the Civil Code and the Commercial Code. Ukrainian law does not distinguish business premises from other categories of premises. Lease of state or community-owned property is also regulated by the Law of Ukraine "On Lease of State and Community Property", dated 10 April 1992, No. 2269-XII.
10.2 What types of business lease exist?
One can distinguish between the leases of office premises, warehouse premises, wholesale and retail premises etc. However, such differentiation is informal only and is irrelevant under Ukrainian legislation.
10.3 What are the typical provisions for leases of business premises in Ukraine regarding: (a) length of term; (b) rent increases; (c) tenant's right to sell or sub-lease; (d) insurance; (e) (i) change of control of the tenant; and (ii) transfer of lease as a result of a corporate restructuring (e.g. merger); and (f) repairs?
a) Length of term
The effective Ukrainian legislation does not prescribe any limitations as to the term of the lease agreement for business premises. A lease agreement that does not stipulate a fixed term will be deemed an indefinite term. Notably, a lease agreement concluded for a term of three years or more requires notarisation and is subject to state registration.
b) Rent increases
A lease agreement may provide for a periodical review of rent, which may result in a rent increase. If the conditions for using the leased premises have worsened considerably due to circumstances beyond the lessee's control, the lessee is entitled to claim a rent reduction.
c) Tenant's right to sell or sub-lease
A tenant may not sell or otherwise dispose of the leased property. Unless a lease agreement stipulates otherwise, a tenant may sublease the premises only with the lessor's consent.
d) Insurance
The effective Ukrainian legislation does not prescribe that the leased business premises are insured. The lease agreement may provide for different types of insurance to be taken out by either party.
e) (i) Change of control of the tenant
Changes in the shareholding structure or corporate governance of the tenant do not influence the lease agreement unless otherwise set out in the lease agreement.
e) (ii) Transfer of lease as a result of a corporate restructuring (e.g. merger)
In such a case, the rights of the lessor (or lessee) usually transfer to the new entity created as a result of restructuring.
f) Repairs
Unless agreed otherwise, the lessee is responsible for current maintenance at his own expense, while the lessor is responsible for substantial repairs. Substantial repairs must be conducted within the agreed term. If no such term is stipulated in the lease agreement or substantial repairs are driven by an urgent need, the repairs must be conducted within a reasonable time period.
10.4 What taxes are payable on rent either by the landlord or tenant of a business lease?
The profit derived by the lessor from the rent payments of the lessee is subject to income/profit tax and VAT (in case the lessor is a VAT-payer). Please note that lease of real estate located in Ukraine by a non-resident lessor must be carried out exclusively through either (i) a permanent establishment of such non-resident in Ukraine, or (ii) a legal entity resident in Ukraine that, based on a written agreement, performs representation functions on behalf of such non-resident lessor.
10.5 In what circumstances are business leases usually terminated (e.g. at expiry, on default, by either party etc.)? Are there any special provisions allowing a tenant to extend or renew the lease or for either party to be compensated by the other for any reason on termination?
1) Termination of a lease agreement
Generally, business leases terminate automatically when the term expires (unless prolonged) or may be terminated early by the parties' agreement.
Business leases of indefinite duration may be terminated by either party for any reason by providing three months' advance notice. However, parties remain free to stipulate a different period of notice for termination of such agreements.
Additionally, the lessor is entitled to claim prior termination of a lease agreement by law, when:
- the premises are used contrary to the terms of the agreement and the premises' designation;
- the premises are sub-leased without the lessor's consent;
- the lessee creates a risk of damaging the premises; or
- the lessee failed to begin substantial repairs of the premises where responsible for such repairs under the lease agreement.
Moreover, the lessor may withdraw from the lease agreement if the lessee fails to pay rent for three consecutive months.
The lessee is entitled to claim prior termination of a lease agreement by law if:
- the quality of the leased premises does not comply with the terms of the agreement and the premises' designation; or
- the lessor does not comply with his obligation to perform substantial repairs of the premises.
2) Extension of a lease agreement
Upon expiry of a lease agreement, a lessee may have an option to renew the lease for another term. The lessee shall notify the lessor of his intention to renew the agreement within the period specified in the agreement or, if not specified, within a reasonable period of time. If the parties fail to agree on the conditions in the agreement, the lessee loses his right to renew.
Please note that a lease agreement will be deemed automatically renewed on the same conditions and for the same term, where the lessee continues to use the premises upon expiry of the lease term and the lessor makes no objections during the one-month period following expiry.
3) Compensation
A lessee is entitled to claim compensation for costs incurred for the improvement of premises if such costs (i) were made with the lessor's consent, and (ii) cannot be removed by the lessee without damaging the premises. A lessor is entitled to claim compensation for damages caused to the premises by the lessee if the premises cannot be rehabilitated. The statute of limitations for such claims is set at a one year term.
10.6 Does the landlord and/or the tenant of a business lease cease to be liable for their respective obligations under the lease once they have sold their interest? Can they be responsible after the sale in respect of pre-sale non compliance?
The lessee of business premises may, with the lessor's consent, assign his rights and obligations, thereby passing such rights and obligations to the new lessee from the moment of assignment. This will, however, not deprive the lessor of the right to bring claims against the original lessee for a breach of the agreement that occurred prior to the assignment. Similarly, the change of the lessor is subject to the lessee's continuing rights on the leased property, and the original lessor may be held liable to the lessee for a pre-sale breach of his obligations.
10.7 Green leases seek to impose obligations on landlords and tenants designed to promote greater sustainable use of buildings and in the reduction of the "environmental footprint" of a building. Please briefly describe any "green obligations" commonly found in leases stating whether these are clearly defined, enforceable legal obligations or something not amounting to enforceable legal obligations (for example aspirational objectives).
Leases in Ukraine do not normally contain any obligations of the parties designed to promote greater sustainable use of buildings and reduce the "environmental footprint" of a building, other than a general obligation to comply with any applicable environmental laws and regulations.
11 PUBLIC LAW PERMITS AND OBLIGATIONS
11.1 What are the main laws which govern zoning and related matters concerning the use and occupation of land? Please briefly describe them and include environmental laws.
The Land Code, the Law of Ukraine "On Lands Protection", dated 19 June 2003, No. 962-IV, the Law of Ukraine "On Territorial Planning and Construction", dated 20 April 2000, No. 1699-III, the Law of Ukraine "On Environmental Protection", dated 25 June 1991, No. 1264-XII, the Law "On Regulation of City Construction Activity", dated 17 February 2011, are the principal laws on zoning and related matters.
11.2 Can the state force land owners to sell land to it? If so please briefly describe including price mechanism.
The state can force owners to sell land to it for public needs. The Land Code contains a list of such public needs: (i) construction of buildings for state and municipal authorities; (ii) construction of buildings and production objects in state and communal ownership; (iii) creation of nature protection objects; (iv) defence and national security; (v) construction and servicing of energy and transport infrastructure (roads, gas pipelines, water pipelines, electricity lines, airports, oil and gas terminals, electric stations, etc.); (vi) allocation of diplomatic and similar representative offices of foreign countries and international organisations; and (vii) city parks, recreation sites and other objects of public use for servicing the population.
The LP owner has to be informed one year in advance on forced purchase and sale of the LP. The LP is purchased upon the LP owner's consent. The LP plot price is determined based on monetary valuation of the LP conducted in accordance with methodology approved by Order of the Cabinet of Ministers of Ukraine, dated 11 October 2002, No. 1531. If the LP owner does not agree to the LP price determined based on monetary valuation, the issue is resolved in court.
Further, forced expropriation of a LP may be carried out in case of war or extraordinary circumstances. The owner gets compensation of the LP value. After the end of effect of circumstances which lead to expropriation, the owner may require that the LP is returned. If the LP cannot be returned, the former owner upon his consent is granted a different LP.
11.3 Which bodies control land/building use and/or occupation and environmental regulation? How do buyers obtain reliable information on these matters?
The following authorities control land, town-planning and environmental law issues:
- Cabinet of Ministers of Ukraine, Council of Ministers of the Autonomous Republic of the Crimea.
- State Land Resources Committee of Ukraine.
- Ministry of Environmental Protection of Ukraine.
- Ministry of Regional Development and Construction of Ukraine.
- Local state administrations.
- Local self-government authorities.
11.4 What main permits or licences are required for building works and/or the use of real estate?
Real estate construction activity is subject to licensing in Ukraine. After obtaining the licence for conducting construction activity, the entity will need to obtain a number of permits and approvals to start constructing a building, depending on the type of development project. Generally, permits and approvals, such as approval for the development documents and a permit for carrying out construction works, are required to be obtained prior to construction of objects of IV and V categories of complexity (which include most of commercial real estate and large residential real estate).
A number of specialised state authorities, as well as the local municipal authorities, are responsible for granting permits and approvals, monitoring construction work and commissioning constructed buildings based on compliance certificates.
11.5 Are building/use permits and licences commonly obtained in Ukraine? Can implied permission be obtained in any way (e.g. by long use)?
After construction works are finalised, the constructed object is subject to commissioning. The use of a newly constructed object prior to commissioning is prohibited. Moreover, commissioning of a newly constructed object is a pre-condition to registration of ownership title to a real estate object. The concept of "implied" permission is unknown to the Ukrainian law.
11.6 What is the appropriate cost of building/use permits and the time involved in obtaining them?
Terms and costs of obtaining various permits in the process of construction of a real estate object largely vary. So, e.g. a permit for carrying out construction works is issued within one month from application, while commissioning of a completed real estate object based on a compliance certificate shall not exceed a 10-day term.
11.7 Are there any regulations on the protection of historic monuments in Ukraine? If any, when and how are they likely to affect the transfer of rights in real estate?
The Law of Ukraine "On List of Cultural Heritage Memorials which are not Subject to Privatisation", dated 23 September 2008, No. 574-VI, contains a list of monuments which may not be privatised and thus the ownership right to such monuments may not be transferred to a private person.
The Law of Ukraine "On Protection of Cultural Heritage", dated 8 June 2000, No. 1805-III (the "Monuments Protection Law") stipulates that, in case of the sale of a cultural heritage monument, the owner has to notify the competent cultural heritage protection authority (usually the Department for Cultural Heritage Protection of the local State Administration) on the conditions of sale. The cultural heritage protection authority has a pre-emptive right to purchase such monument. Should cultural heritage protection authority refuse to avail of its pre-emptive right or fail to realise it within a month, the owner may sell such object to another person or entity. The new owner of a cultural heritage monument has to execute an agreement on the protection of the respective cultural heritage with the cultural heritage protection authority within one month from the date of acquisition.
An essential condition of an agreement on the transfer of a cultural heritage monument with regards to possession, use or management, is an obligation of the transferee to protect the monument and to comply with the Monuments Protection Law and the agreement on the protection of the respective monument.
A cultural heritage monument may be privatised only after execution of a preliminary agreement on the future of the cultural heritage protection by the future private owner and by the cultural heritage protection authority.
11.8 How can e.g. a potential buyer obtain reliable information on contamination and pollution of real estate? Is there a public register of contaminated land in Ukraine?
A potential buyer may review the results of an ecological expert or order a new ecological report. There is no public register of contaminated land in Ukraine.
11.9 In what circumstances (if any) is environmental cleanup ever mandatory?
Environmental cleanup is mandatory whenever the soil is damaged (e.g. as a result of exploration, extraction, construction or other works). Non-compliance with statutory requirements on environmental protection may lead to a prior termination of use rights for land.
11.10 Please briefly outline any regulatory requirements for the assessment and management of the energy performance of buildings in Ukraine.
The law of Ukraine "On Energy Saving", dated 1 July 1994, No. 74/94-BP, provides for elaboration of energy saving standards. Any construction projects for objects of IV and V categories of complexity are subject to State Energy Saving Expertise. Any newly constructed (reconstructed) objects of IV and V categories of complexity prior to commissioning are subject to State Energy Saving Expertise. Negative Conclusion of State Energy Saving Expertise serves as basis for elimination of deficiencies in a newly constructed (reconstructed) object. The object is commissioned and may be used after such deficiencies are eliminated.
12 CLIMATE CHANGE
12.1 Please briefly explain the nature and extent of any regulatory measures for reducing carbon dioxide emissions (including any mandatory emissions trading scheme).
Ukraine is a party to the United Nations Framework Convention on Climate Change and ratified the Kyoto Protocol in 2004. The Cabinet of Ministers of Ukraine by its Resolution, dated 22 February 2006, No. 206, has approved a Procedure of Preparation, Consideration, Approval, and Realisation of Projects Aimed at Reduction of Anthropogenic Emissions of Greenhouse Gases. Following this procedure, Ukrainian companies possessing objects causing greenhouse gas emissions may earn emission reduction units by participating in joint implementation projects and attracting foreign investments aimed at greenhouse gas emission reduction.
12.2 Are there any national greenhouse gas emissions reduction targets?
The Kyoto Protocol sets targets for Ukraine, as an Annex 1 Party, of decreasing its greenhouse gas emissions to a level 5% below the level of its emissions in 1990. Ukraine is far below such levels and possesses large volumes of greenhouse gas quotas to sell annually.
12.3 Are there any other regulatory measures (not already mentioned) which aim to improve the sustainability of both newly constructed and existing buildings?
There are no other measures other than those listed above.
This article appeared in the 2013 edition of The International Comparative Legal Guide to: Real Estate; published by Global Legal Group Ltd, London. www.iclg.co.uk.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
