Ukraine: Changes in real estate by the Deregulation Law

REAL ESTATE

For many years the complex and often unclear Ukrainian regulatory environment caused significant difficulties for doing business in the country. The recent simplification of regulatory requirements can be considered as a step forward to attract investments into Ukrainian economy the need for which is especially acute given the turbulent time Ukraine is facing today.

One of the goals of the new Ukrainian government is to bring Ukrainian legislation in line with EU laws and make structural changes in the legal regulatory system of Ukraine, including in real estate, by simplifying procedures, reducing the number of regulatory authorities and abolishing unnecessary permits and licenses. Below we discuss the most notable positive developments in the real estate regulatory framework which were recently introduced.

DEREGULATION LAW

On 5 April 2015 the Law of Ukraine No. 191-VIII "On Amendments to Certain Legislative Acts of Ukraine on Simplification of Business Environment (Deregulation)" (the "Deregulation Law") came into force.

The main changes in real estate field provided for by the Deregulation Law are the following:

1) The Deregulation Law introduced amendments to the Law of Ukraine "On the Lease of Land" No. 161 dated 16 October 1998, aimed at simplification of lease of real estate. The following changes were made:

  • The list of material terms (the absence of which makes an agreement invalid) of a land lease agreement was significantly reduced, and now contain the following material terms: (i) details of the land plot, (ii) term (duration) of lease, and (iii) rent amount and rent payment arrangements (indexation, payment provisions, procedure for and terms of payments, change of rent payments and responsibility for non-payment). Before the Deregulation Law took effect, a land lease agreement was required to contain eleven material terms and five mandatory annexes (such as a plan of a land plot, an allocation project, an act of transfer and acceptance, etc.).
  • The Deregulation law also removed a statutory provision according to which the absence of at least one of the material conditions in a land lease agreement was a ground for a refusal of state registration of such agreement or its invalidation. This legal development allows to eliminate the practice of invalidation of land lease agreements based on the absence of secondary conditions and requisites.
  • Based on the Deregulation Law, a land plot is considered transferred to a lessee at the moment of state registration of the relevant land lease agreement.
  • This new provision removes much of the legal conflict that existed under previous regulations, as the state registration of a land lease agreement and the transfer of a land plot to a lessee did not happen concurrently. This inconsistency resulted in situations when a lessee started working on the transferred land plot without formalization of its rights to such land plot. As a result of the changes lessees have a greater degree of confidence that land plots they lease have been transferred to them on the basis of effective land lease agreements and no additional actions are needed to document such transfer.
  • The amended Law of Ukraine "On the Lease of Land" now provides that the land rent must be paid in cash (before that, the law provides for the three forms of rent: monetary rent, rent in kind and in the form of works). The rent in the form of works, which was possible before, is no longer applicable.
  • At the same time, the law leaves the possibility to settle the rent in kind for privately owned lands. In such a case, the calculation of rent in kind must correspond to the monetary equivalent of the value of goods at market prices on the date of payment of such rent.
  • The rent for lease of the land plots belonging to the state and municipal ownership should be paid exclusively in cash.

 

2) The Deregulation Law introduced several important changes related to agricultural land.

  • The Deregulation Law cancels a requirement to prepare so-called "land projects" providing for ecological and economic justification for land rotation and land management as well as for land protection measures (paragraph 4 of Article 22 of the Land Code of Ukraine) for users and owners of agricultural land plots (i.e. land plots designated for commodity agricultural production).
  • Instead, a new requirement was introduced according to which land lease agreements must be concluded for a period of at least 7 years. This requirement concerns land plots designated for commodity agricultural production as well as for personal agricultural use.
  • In our view, the goal of such changes was to eliminate a burdensome regulatory procedure requiring obtaining of the above discussed land projects, and also to place a responsibility for land protection on the lessees. The legislators' rationale behind it could be that a lessee (having a statutory protected right to lease a land plot for a lengthy time period) will be interested in using agricultural land reasonably and preserving its fertility. Therefore, a lessee will be interested to observe the principle of rotation and other land protection requirements. In any event, this development is expected to result in significant reduction in the amount of resources and time spent by businesses on bureaucracy for execution and further prolongation of land lease agreements with land owners.
  • The Deregulation Law expressly allowed providing agricultural land designated for personal agricultural use for lease to legal entities for commodity agricultural production without the need to change the designation (i.e. re-zoning) of such land. The right of legal entities to use personal agricultural land plots previously was not clearly regulated by law. This created considerable uncertainty and apprehension for businesses working in this area, since a large percentage of land used by legal entities for commercial agricultural purposes is formally designated (zoned) for personal agricultural use (i.e. for individual needs rather than for commercial needs). Therefore, the said change introduced by the Deregulation Law should be favorable for many existing and potential agricultural investors and encourages them to enlarge their land banks.

SIMPLIFICATION OF PROCEDURE FOR REGISTRATION OF REAL ESTATE RIGHTS

On 5 April 2015 the Resolution of the Cabinet of Ministers of Ukraine No. 137 "On Certain Issues of Simplification of the Procedure for Providing Administrative Services in the Area of Registration of Property Rights to Real Estate and its Encumbrances" (the "Resolution") came into force. It introduced amendments to a number of legal acts regulating the procedure for registration of rights to real estate.

In particular, the Resolution provides that the rights of the state registrar to accept and issue documents related to the state registration of property rights to real estate can be performed not only by the state registrars and notaries, but also by the officials of local municipal authorities and special centers of administrative services. The right of such bodies is limited to accepting and issuing documents from/to relevant applicants. These bodies are not entitled to register title rights to real estate because this right is exclusively vested in state registrars and notaries.

The Resolution also establishes that a decision of the state registrar, a certificate of title to real estate, an extract from the State Register of Property Rights to Real Estate can be issued in electronic form. If an applicant requests a document in electronic form, the state registrar should send such document to the applicant by e-mail. In such a case an electronic version of the document has the same legal force as a paper document.

It is expected that the said changes will result in the simplification of the procedure for state registration of rights to real estate and decrease corruption in this area.

SIMPLIFICATION OF THE PROCEDURE FOR APPROVAL OF PROJECTS FOR ALLOCATION OF LAND PLOTS

On 12 March 2015 the Law of Ukraine No. 180-VIII "On Introducing Changes to Article 1861 of the Land Code of Ukraine Concerning the Simplification of the Procedure for Approval of Land Management Projects" came into force.

According to this law, the relevant executive bodies, which are entitled by law to approve projects on allocation of a land plot, in case of refusal to approve a land management project, must include in their conclusion an exhaustive list of defects of such project and provide a reasonable term for correction of such defects (rather than simply reject the project as practiced before).

In view of the above provision, the relevant executive bodies may finally refuse to approve a land management project on allocation of a land plot only in case the defects listed in their previous conclusion were not corrected. According to this law, it is prohibited to reject a land management project due to other reasons, which were not earlier specified or identified, or come up with additional defects which have not been mentioned before.

It is expected that as a result of such amendments the procedure of approval of the land management projects will become more predictable and less time-consuming.

Author

Olena Kravtsova

Associate
Ukraine