8 April 2015
Ukraine Introduces Measures on Deregulation and Simplification of Business Practices: Impact on Real Estate

On 05 April 2015, the Law of Ukraine “On Amending Certain Legislative Acts of Ukraine with Respect to Simplification of Business Practices (de-regulation)” (hereinafter – the “De-regulation Law”) came into force. For the purposes of implementation of the De-regulation Law, the Cabinet of Ministers adopted the Resolution No. 137, dated 18 March 2015, regarding simplification of administrative services in the area of state registration of rights to immovable property. Also, the Law of Ukraine “On Amending Certain Legislative Acts of Ukraine with Respect to Specification of Powers of a Notary and Peculiarities of Registration of Derivative Rights to Agricultural Land Plots” (hereinafter – the “Registration Law”) came into force on 25 March 2015.

Although the De-regulation Law is far from being a reform, in our opinion, it is probably the first remarkable set of de-regulation measures in the field. At the same time, more changes that could have a considerable impact on business are still in work (e.g. reform of the architecture and construction authorities).

The main regulatory changes under the De-regulation Law and the Registration Law are as follows:

  • Lease of land plots designated for personal farming is now expressly permitted. Leases of personal farming lands have been largely practiced before, but their legitimacy was often questioned due to vague provisions of the law. The new law has eliminated the vagueness.  Besides, it is now established that the term of lease of such lands may not be less than 7 years, which is a novelty in the land lease legislation. The law does not provide that the new requirement should act retroactively, but it should be taken into account when signing new leases.

  • The De-regulation Law has slightly extended the scope of servitude rights. In particular, the right of laying and operating transmission lines, communications, pipelines and other linear communications has been replaced by the right to place temporary structures (small architectural forms). However, since clear definition of temporary structures (small architectural forms) is absent, we expect questions may arise as to which exactly temporary structures ensure the right of servitude.

  • Local authorities have been granted powers to carry out state architectural control and approve commissioning of completed objects, provide pre-construction and construction permits, control contractual obligations of project developers attracting funds from individuals for construction of residential buildings. However, the new law does not specify any limits and instruments to exercise such powers. Therefore, we expect this may result in inconsistent implementation of construction laws by different local authorities, as well as may potentially lead to duplication of some of the functions, which are currently performed by the state architecture and construction authorities. In general, the reform of state architecture and construction control is still in progress, so further legislative changes to facilitate transfer of powers to local authorities are expected. 

  • Mandatory requirements to the contents and form of land lease agreements have been facilitated: the list of essential terms, which must be reflected in land lease agreements, has been reduced from 11 to 3 items, and the list of annexes to a lease agreement has been cancelled. Previously, lack of at least one of the essential terms or any annex could formally be a ground for refusal of state registration or even invalidation the land lease agreement. The said changes will reduce these risks.

  • In-kind rental payments under land lease agreement are now required to correspond to cash equivalent of the respective products’ market value as of the date of payment. Notably, there is no established mechanism to determine market value of such products, which entails risks for lessees using in-kind rental arrangements. 

  • The requirement of state registration of commercial concession (franchise) agreements has been cancelled. This requirement implemented in the past and only constituted an administrative barrier for concluding the above-mentioned types of agreements. 

  • Owners and tenants of residential premises are no longer required to obtain approvals for improving and re-planning of the premises(except for the cases when relevant construction works affect the constructive elements or utility systems). At the same time, the issue of improving and re-planning of non-residential premises remains a grey area, in particular, as regards determination specific types of construction that require approvals.

  • It is no longer necessary to provide the notary with an extract from the State Land Cadastre when entering into transaction and / or registering rights with respect to a land plot. Notaries have received a direct access to the State Land Cadaster and can produce such extracts themselves at the time of notarization of the transaction. 

  • Registration of rights to agricultural land which are derivative from ownership rights (leases, servitudes, etc.) can be performed by a notary irrespectively of whether the underlying agreement is notarized. The registration of derivative rights to agricultural land acquired before 01 January 2013 is performed together with the registration of ownership right to such land plot (unless the right of ownership of the land has already been registered in the State Register of Rights to Immovable Property) on the basis of the owner’s or derivative right holder’s application. The said registration can be performed irrespectively of whether the ownership document is provided by the applicant, as long as the information regarding the land plot has already been included into the State Land Cadaster and before the date of the automatic transfer of the entries (information) concerning the rights of immovable property (land plots) from the State Land Plots Register to the State Register of Rights to Immovable Property. 

  • The entries (information) concerning rights to immovable property (land plots), holders of such rights and documents confirming these rights are to be automatically transferred from the State Land Plots Register (old register, not in active operation currently) to the State Register of Rights to Immovable Property (new properties register) by 1 July 2016.

 

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