Ukraine: Survey By Allen&Overy. Legal Ratings Survey Of Global Real Estate: Ukraine Chapter

Last Updated: 27 November 2017
Article by Andrew Zablotskyi

Most Read Contributor in Ukraine, November 2017

1. Alien ownership

Q. There are no restrictions on the ownership or leasing of land by aliens?

Comment (1) Alien individuals and alien corporations are permitted to lease local land directly; however they are permitted to own only nonagricultural land and in certain cases. (2) Local corporations directly owned by aliens cannot own agricultural land but can lease it. Local corporations controlled by aliens can own (in certain cases) and lease local land. (3) Government or the Parliament permission shall be obtained for acquisition of land plots by aliens in cases when there are no real estate objects, subject to privatisation and situated on such land plots.

2. Absolute ownership

Q. All nationals (including locally incorporated companies) can own land outright and are not limited to leases or mere occupancy rights?

Comment There are restrictions on the ownership of land by aliens, however they can lease land on the same conditions as residents. Aliens cannot own agricultural land plots. Aliens can obtain property title to non-agricultural land plots mainly in connection with ownership to the real estate objects, situated on such plots. There are no such restrictions for local citizens and legal entities.

The right of foreign citizens as well as the right of foreign legal entities and joint ventures established in partnership with foreign individuals or legal entities to own land is limited. Foreign citizens and persons without citizenship can acquire the ownership right to non-agricultural land plots within the boundaries of localities, as well as non-agricultural land plots outside localities on which objects of real estate, privately owned by them, are situated. Foreign legal entities and joint ventures established in partnership with foreign individuals or legal entities can acquire the ownership right to non-agricultural land plots: (i) within the boundaries of localities in case of purchasing real estate objects (other than land plots) as well as for construction of objects for conducting entrepreneurship; (ii) outside localities in case of purchasing real estate objects (other than land plots). The right of land lease can be obtained by all nationals (including locally incorporated companies).

3. Proof of title

Q. Proof of title to land is quick and safe? Comment (1) The State register of rights in rem to real estate (including land plots) and their encumbrances operates since 1 January 2013, including title to land (2). The register shows the extent of the land, ownership, mortgages, leases and certain other important rights, such as servitudes etc. (3) The state guarantees the accuracy of the register and its information is publicly available. Meanwhile information about rights to land plots, arising before 1 January 2013 is included in the register on optional basis. (4) Problems over title are mostly rare. (5) Extra due diligence, e.g. into rights of occupation, is usually straightforward.

4. Cost of land transfers

Q. There are no material costs in transferring land or a lease of land used for business purposes or in the grant of a long lease of land used for business purposes, other than normal legal and registration fees and reasonable taxes on any gains?

Comment (1) Apart from normal legal fees depending on the scope of the work, there is no substantial transfer or documentary taxes or notarisation fees or registration fees on transfers of land used for business purposes or leases of such land or the grant of leases of such land. (2) The taxes on the gains on a transfer of such land or leases are reasonable.

5. Mortgages

Q. Mortgages of land and related assets (by nonconsumers) are very protective of the mortgagee as creditor?

Comment (1) The owner of land can mortgage specified land. (2) The mortgage can secure all present and future debt generically and must specify the debt precisely. (3) The mortgage can be in a foreign currency but special rules of obtaining loans in foreign currency should be observed. (4) The mortgagee can sell on a default by private sale, if so provided, without a court order or public auction. (5) There are freezes in the mortgage if the owner enters bankruptcy proceedings. (6) On insolvency the mortgage ranks prior to all unsecured creditors including taxes, employee benefits and insolvency costs. (7) There are no substantial costs or fees involved in land mortgages. (8) It is possible for a tenant to mortgage the lease if permitted by the terms of the lease and the above comments in (1) to (8) generally also apply to this mortgage of a lease. (9) These principles generally apply to associated assets such as insurances, shares and a bank account for rents.

6. Controls on terms of leases of land

Q. The law relating to business leases of commercial premises is very protective of landlords and the law does not restrict or control the terms of leases of such land (ignore rights of termination on default)?

Comment According to legislation land lease agreements cannot be concluded for the period of time which exceeds 50 years. The law has few controls on the terms of a lease of commercial premises to protect the tenant and the lessee, e.g. (1) there are no controls on rents of private land, (2) the lease can validly exclude any obligations of the landlord to repair, insure, make the premises safe or compensate the tenant for improvements on expiry of the lease, (3) when a lease of business premises expires, the landlord cannot easily evict the tenant and the tenant has no protection, such as a right to a new lease, (4) the lease can validly exclude the ability of the tenant to assign or sub-lease, and (5) a lessee is not released from its obligations under a lease when it assigns the lease.

7. Termination of leases

Q. A landlord can freely terminate a lease of commercial premises on default by the tenant if the lease so provides?

Comment (1) A landlord can immediately terminate a business lease if the tenant does not pay the rent or breaches other terms of a lease of land used for commercial purposes if so provided. (2) If the tenant becomes bankrupt, the landlord can terminate the lease of such land if so provided.

8. Foreign direct investment

Q. The law is friendly to foreign direct investors in land?

Comment (1) The government has to pay compensation for a compulsory purchase of land, which is possible only in case of social necessity and after previous and complete compensation (monetary compensation or allotment of another land plot of equal value). The compulsory purchase can be conducted only by means of court decision. Registration of acquirer's property title to the land plot takes place on the basis of court decision and documents, proving previous and complete compensation of the purchase price by transfer of money to notary's deposit or registration of property title to the land plot allotted in compensation of the compulsory purchased one. (2) There are no effective subsidies and special zones where taxes are relaxed. (3) There are exchange controls or restrictions on repatriations of profits and capital from land. (4) There are material withholding taxes on the interest on foreign loans which are difficult to avoid.

9. Development of land

Q. No official permissions are required to build on or change the use of land, other than normal public safety and environmental restrictions?

Comment Legislation provides to landowners a possibility to change the use of land (except agricultural land and lands of defence) by their own decision. Construction can be started only after obtaining rights to the relevant land plot and registration of specific declaration (in some cases – obtaining construction permits).

10. Environmental

Q. The rules governing the environment and liability for clean-ups in relation to land are very light and relaxed?

Comment (1) The environmental rules are strict, with tight liabilities for clean-up and penalties. (2) An owner or lessee of land is not liable to clean up contamination by former owners/lessees. (3) Shareholders and directors of the company owning or leasing the land can be liable for contamination caused by the company.

General comment Legal regulation of land relations generally is moving in the right direction to ensure rights to land plots and provide sustainable use of land, but in some aspects effective mechanisms of regulation should be developed or improved.

Produced by the Allen & Overy Global Law Intelligence Unit and Real Estate Department together with Global Relationship Firms

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.

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