Ukrainian Real Estate Law
By Bate Toms and Taras Dumych
B.C. Toms & Co
his article analyses the developments
of the Ukrainian
real estate law in 2007
and practical application of some
of the legal aspects in commercial
transactions related to real estate.
Since the beginning of 2007 a number of changes applicable
to the taxation of real estate sale transactions and to the regulations
applicable to the lease of real estate, have come into effect.
According to the changes introduced to the Personal Income
Tax Act, the sale of residential real estate (including residential
buildings, apartments and land plots) which are over 100 square
meters in size, and if conducted once within the tax year, is subject
to a 1% tax (sales of such properties which are less than 100
square meters in area and conducted once within a tax year, are
exempt from this taxation). If the sale of the mentioned properties
by the same person takes place more than once during a
year, or the subject of the sale are non-residential properties (for
example, non-residential buildings, offices and land plots), such
sale transactions are subject to taxation at 5%.
The next development has positively affected the leasing of
real estate. First, Article 793.2 of the Civil Code has been changed
to provide that leasing agreements applying to a building or
premises for a term of three years or more, have to be certified
by a notary (prior to this such leasing agreements for a period
of one year or more had been subject to notarial certification).
Second, the amount of state duty for the notarization of real estate
lease agreements has been decreased from 1% of the value
of the leasing agreements to 0.01% (but not less than 5 untaxed
minimum incomes and not more than 50 untaxed minimum
incomes). This change is especially favorable to the long term
leasing of large pro perties, as it has introduced a fairly reasonable
amount of state duty for leasing agreements which are subject to
notarial certification.
Although the formation of the State Registry of Rights to
Real Property (State Registry of Rights), as provided by the State
Registration of Proprietary Rights to Real Property and their Limitations
Act (State Registration Act) has not been completed, the
currently available various state registries effectively support dayto-
day real estate transactions. Under the State Registration Act
the following proprietary rights will have to be registered in the
State Registry of Rights: (1) ownership rights (title); (2) proprietary
rights, including inter alia rights of possession, servitudes
and rights of use (including leases) of real estate with a term of
one year or more; and (3) limitations on proprietary rights arising,
for example, out of mortgages, court injunctions and the decisions
of courts and other competent authorities.
Presently, until the State Registry of Rights is created, registrations
of titles to real property continue to be handled by
the appropriate local Bureau of Technical Inventory (BTI) with
regard to apartments and buildings and the local departments of
the State Land Resources Committee with regard to land plots.
In addition, various other registries, like the State Registry of
Mortgages and State Registry of Encumbrances of Real Estate,
apply to the registration of limitations on proprietary rights.
The State Registration Act has also introduced a significant
statutory guarantee into Ukrainian law for the recipients of proprietary
rights who register these rights — in the event of any dispute
over a particular real estate property, registered rights to that
real estate property should prevail over non-registered rights.
To purchase a building, or office, or residential premises
within a building, the buyer should verify the seller’s title by reviewing
the title documents. As legislation on misrepresentation
and fraud is not yet well developed in Ukraine, it is strongly advisable
to have more developed purchase agreements, like those
common in the West. Such agreements should guarantee, inter
alia, the transfer of absolute and unconditional title, the good
physical condition of the premises and the absence of any encumbrances,
adverse claims or defects, or at the very least the
absence of any knowledge of such encumbrance and problems.
(a) Information on the Seller
Turning to the title documents that should initially be presented
by the seller, ordinarily this includes (1) a certificate of
privatization, a purchase agreement (usually notarized), evidence
of inheritance or gift or other documents evidencing the
acquisition of title as provided by law, (2) an extract from the Title
Registry confirming the seller’s title to the property and certificate
from other state registries applicable to the real estate and the
seller, which are produced by a notary handling the transaction.
An individual should also show his or her (internal ID) passport,
personal tax number and notarized spousal consent allowing the
sale of the property (in cases where the seller has a spouse). A corporate
seller will need to prove that it validly exists and that its
representatives are duly authorized to conclude the transaction.
As regards a land plot, a seller ordinarily should provide the
State Act On Ownership to the Land Plot (Title Act), certificates on
the normative and market value of a land plot and a certificate on
the restrictions on the use of the said land plot.
(b) Documents Required of the Buyer
On the buyer’s side, an individual needs to show his or her (internal
ID) passport, and a corporate buyer must prove his valid existence
and the authorization of his representatives. In addition, a
foreign company should have a permit from the General Direction
for Services to Representative Offices (based in Kiev and known
as GDIP) or from regional state administrations (depending on
whether the transaction is in Kiev or elsewhere in Ukraine) for a
particular purchase. The notary involved should require the submission
of receipts confirming that the state duty and the payment
to the Pension Fund (each constituting of 1% of the amount of the
transaction) have been duly paid. The parties can negotiate who
pays the state duty but the buyer must pay the duty to the Pension
Fund. (The pension duty does not apply to land sale transactions.)
(c) Due Diligence for Purchases
Before a purchaser completes any acquisition of real estate in
Ukraine, a complete due diligence of title, starting with the original
transfer from state ownership (if applicable) should be conducted.
If a building or other construction was built by the owner, the necessary
construction documentation (including building permits
and the project approval documentation, including the Acceptance
into the Use Act) should be verified, since the absence of any of the
required documents may subsequently lead to a prohibition of any
use of a structure that was constructed without proper permits.
The technical description of the property being purchased
should correspond exactly to all official records (the technical
passport for the property), which should be confirmed in the extract
from the Title Registry. This can be a problem in Ukraine
since improvements to premises are often made by owners without
the permits required. As regards a plot of land, if its designation
of use (zoning) has been changed, the validity of the procedure
by which this change of use was accomplished needs to be
checked. Likewise, the procedures originally used to privatize the
land plot must be verified.
The importance of exhaustive due diligence, including practical
verifications, for title transfers in Ukraine cannot be overemphasized.
Prior problems in practice can result in the invalidation
of title to a property when held by a subsequent purchaser,
notwithstanding arguments over the new Civil Code’s protection
for bona fide purchasers. Unfortunately, a number of documents
that should be examined in Ukraine for the sake of due diligence
are not officially available in public records. There are, however,
practical measures that can be taken to largely overcome this difficulty.
Hopefully, the relevant laws will be suitably revised in the
near future to address this.
(d) Completion of the Purchase — Notarization and Registration
of Agreements
According to Article 657 of the Civil Code, a real estate
purchase agreement must be executed before a notary, and the
transaction should be listed by the notary in its register of notarial
acts. The buyer should then apply for the transfer of the property
to be registered at the appropriate Title Registry. For a land plot,
the new owner should also apply for and receive a new Title Act
issued in its name as the new owner of the land plot. Please note
that under the Civil Code, a purchase agreement for real estate
enters into force only upon its registration by the state.
According to the Resolution of the Cabinet of Ministers of
Ukraine of 26 May 2004 On Approval of the Temporary Procedure
for the State Registration of Agreements (Temporary Procedure),
the registration of agreements for the purchase and sale
of real estate must also be carried out in the State Registry of
Agreements by the notary who notarizes such an agreement. The
notary should submit the necessary information concerning the
agreement to the State Registry of Agreements simultaneously
with the agreement’s notarization, assuming that the notary is
for this purpose a registrar and is connected to the state registry’s
computer system. If the notary does not have access to the State
Registry of Agreements’ computer system, he or she should deliver
one copy of the agreement to this State Registry of Agreements
on the same day that the agreement is notarized.
Generally, the development of Ukrainian real estate law is
strongly helping the development of the real estate market in
Ukraine, and further development is expected. However, real
estate law in Ukraine still requires careful attention to detail
and full due diligence. While there are many more title and
other disputes in Ukraine than in Western countries, almost
all of these problems are attributable to an absence of careful
legal work.
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