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Country - Ukraine
Sale and Purchase
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A. ACQUISITION OF REAL ESTATE
Applicable legislation
Transfer of title to real estate is generally governed by the Civil Code of Ukraine, the Commercial Code of Ukraine, the Land Code of Ukraine and other legislation (including specific regulations related to the transfer of title to plots of land etc.).
Is the purchase of real estate assets by foreign investors subject to restrictions?
There are restrictions on the purchase of plots of land by foreign investors. Agricultural land cannot be owned by foreign investors or joint ventures. In addition, the purchase of non-agricultural land by foreign investors and joint ventures may require the approval of the Ukrainian government. There are other temporary restrictions regarding sale and purchase as well as disposal by other means of certain types of plot.
Do different legal regimes apply to the transfer of title to different kinds of real estate (commercial, residential, manufacturing)?
Different legal regimes apply to the transfer of title depending on: the type of real estate (plots of land or other real estate); the type of ownership (state, communal or private); and the status of the buyer (non-resident, resident, joint venture enterprise etc.).
Do mandatory pre-emption rights apply to the sale of real estate assets?
A lessee, which complies with its obligations under a lease agreement, has a pre-emptive right to acquire the leased asset in the event of its sale.
Co-owners of real property have a right of pre-emption in the event that the property is to be sold by one of the owners. This right is to be exercised within one month.
Is real estate registered?
If so, is this official information made available to the public?
Title to immovable property (other than rights to land) is registered with the State Register of Title to Immovable Property. Rights to plots of land are registered with the State Land Cadastre.
Information from the State Register of Title to Immovable Property is publicly available but information from the State Land Cadastre can be difficult to access (since this is not a unified system and only a landowner or lessee is entitled to obtain information about any given parcel of land). It is not possible to track the history of a particular parcel of real estate (e.g. to find out about previous owners, transfers of title, restrictions, etc.).
A Unified State Register of Rights to Immovable Property, which will cover rights to both immovable property and plots of land, is planned but has not yet been established.
Is transfer of title recorded?
Can other related deeds (for example preliminary sale agreements) be recorded?
Transfer of title is recorded in the State Register of Transactions.
Do buyers usually carry out due diligence?
If so, what due diligence is typically conducted and what is its timing (i.e. before or after contract execution)? Is there any protection for the buyer during the due diligence period (for example an exclusive right to negotiate or buy)?
Investors usually carry out technical, legal and environmental due diligence on title, building permits, leases and contracts relating to the property. This is usually carried out before purchase, either after signing the preliminary agreement (letter of intent, term sheet) providing the buyer with an exclusivity period, or after signing a principal agreement, which will include the conduct of due diligence as a condition precedent of completion.
Is title insurance available?
Some insurance companies offer this kind of insurance, although it is not yet well established in Ukraine.
How are deals typically structured?
Deals are typically structured either as the direct acquisition of the real estate ("asset deal") or the acquisition of the company holding the title to the property ("share deal"). Many deals are performed off-shore.
The advantages of asset deals include:
- Anti-monopoly Committee approval is generally not required;
- there is no need to acquire any assets other than the real estate asset/relevant plot of land.
Disadvantages of asset deals include:
- 20% VAT is payable;
- 1% state duty and 1% pension fund duty is payable;
- the time taken to re-register the title/rights to the land plot.
Advantages of share deals include:
- no state duty or pension fund charges are payable;
- there is no need to conduct re-registration of the property;
- there is no need to re-issue the approvals and permits;
- no Ukrainian VAT is payable.
Generally the transaction will include the following stages:
- conclusion of the confidentiality agreement/preliminary agreement/letter of intent;
- performance of legal due diligence (and of financial, environmental and technical due diligence where applicable);
- negotiation of the contract;
- signing and registering the contract and notarisation;
- fulfilment of any conditions necessary for completing the contract (for example obtaining the approval of the Ukrainian Anti-monopoly Committee or dealing with defects of title etc.);
- completion of the contract.
B. STRUCTURE OF THE CONTRACT
Are there formal requirements regarding the content and structure of the sale and purchase contract?
Real estate sale and purchase contracts must be made in writing, notarised and registered in accordance with the relevant legislation. Ukrainian law stipulates that such contracts must include certain material provisions including details of the property and the purchase price.
The parties to the contract also generally execute an instrument of transfer and acceptance.
All preliminary agreements must have the same form as the principal contract.
What is a typical contract like?
The content of the contract is negotiable.
Sale and purchase contracts usually include the following:
- details of the property;
- the rights and obligations of the parties;
- the purchase price;
- the liability of the parties;
- other relevant terms.
What seller's warranties are provided under statute (for example the state of the building, asbestos, etc.)?
Can they be excluded or varied by contractual agreement? Is there a deadline for claims to be made?
According to the Civil Code of Ukraine, the seller is under an obligation to warn a buyer about the rights of third parties to the property (for example, rights of tenants, pledge, right of lifelong use, etc.).
In the event that a third party brings a claim against the buyer, in relation to matters which have arisen before the sale, the seller must participate in the court hearings on the side of the buyer.
The seller is obliged to transfer the property and to deliver any related documents (e.g. technical passport, quality certificate etc.) to the buyer in accordance with the sale and purchase contract and relevant legislation.
The property which the seller transfers to the buyer must comply with quality requirements. The warranty period within which a claim can be brought is three years unless the contract provides for a longer period.
Generally statutory warranties can be limited by agreement between the parties; however, some statutory warranties cannot be changed.
Are there any interests in real estate other than exclusive ownership?
If so, what are they?
Ukrainian law provides for the following real estate rights:
- lease (the right to use property for a certain period subject to payment);
- possession of someone else's property (actual possession of property which belongs to another person);
- use of someone else's property ("servitude" - the right to use someone else's property in order to satisfy a need, in the event that such a need cannot be satisfied in any other way);
- use of someone else's land for agricultural purposes ("emphyteusis");
- use of someone else's land for construction ("superficies");
- permanent use of land (this is established only in relation to plots of land which are state or communal property, and then only for state companies and certain not-for-profit organisations).
C. PUBLIC LAW ASPECTS RELATED TO THE ACQUISITION OF REAL ESTATE
What are the most important areas of public law for an investor to consider when purchasing real estate?
The following matters should be verified by the investor:
- Zoning and town planning provisions
Town planning documentation should be checked to establish whether the designated use of the land plot permits construction.
- Building permits and licences
The building must be compliant with the construction documentation and the construction works must have been carried out only subject to obtaining the necessary prior authorisations (for example, a permit for construction, permit for performance of construction works, etc.).
- Permits and approvals from other authorities
All necessary approvals for an acquisition of a plot of land and the construction of any buildings must have been obtained (including approvals from ecological, sanitary, architectural, fire safety and other authorities).
- Encumbrances imposed by the public authorities
Any encumbrances imposed by the public authorities on the property must be established since, in certain cases, the existence of such encumbrances (for example a tax pledge) can make the legal acquisition of the asset impossible.
Is the buyer of a real estate asset responsible for soil pollution or contamination of the building even if it is not caused by him?
This issue is open to dispute but it is likely that the answer would be yes.
How can a buyer ascertain the possible uses of an area under the applicable zoning or planning laws?
Can uses be changed?
Planning documentation kept by local authorities as well as documentation pertaining to each particular property should be verified, in particular, the master plan, the detailed plan of the locality, rules of construction, title documents, etc. Use of land can be verified with the Land Cadastre.
Generally use can be changed, but there are some categories of land where a change of use is not permitted or where change of use would involve a complicated process, requiring the approval of the Cabinet of Ministers of Ukraine or of Parliament.
Is it possible to enter into specific development agreements with relevant public authorities in order to facilitate a project?
Can public authorities make a charge for this?
Some local, municipal or regional regulations may provide for special fees to be payable in relation to the development of the municipality or the construction of public facilities. In some cases, payment of such fees may be mandatory for the developer.
D. TAXES RELATED TO ACQUISITION OF REAL ESTATE
Are there transfer taxes or sales taxes?
In the case of asset sales, VAT at 20% and corporate profit tax at 25% apply. Sale of undeveloped plots of land is not a VATable operation.
What are the normal transaction costs?
Notary fees, state duty (calculated according to the value of the transaction), pension fund duty, legal fees, technical and financial consultants' fees, etc.
Notary fees constitute 1% and pension fund duty constitutes a further 1% of the property value.
Real estate agency charges are around 2.5 to 5% of the property's value.
How are transaction costs shared by the buyer and seller?
Notary fees can either be shared or paid by the seller. Pension fund duty is paid by the buyer as is the agency fee in most cases.
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