REALWorld Law

Commercial leases

Ukraine

Legal characteristics of a lease
What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

Ukrainian law provides for two main types of real estate lease, depending on the type of property:
- land leases, and
- real estate leases (which deal with premises, buildings etc)
In addition, Ukrainian law provides for the following:
- restricted use of someone else's property (servitude which is the right to use someone else's property in order to meet a need if this cannot be done in any other way);
- restricted use of someone else's land for agricultural purposes (emphyteusis); and
- restricted use of someone else's land for construction (superficies).
- Concession (as a form of public-private partnership). The person who obtains the right of concession is entitled to use state property on a long-term basis after investing in such state property.
Last modified 22 Mar 2024
What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

A land lease agreement can be entered into for a term of not more than 50 years. The lease term for a lease of agricultural land for commercial agricultural purposes, a farm business or a private agricultural household cannot be less than seven years. If such lands are meliorated with use of hydraulic structures (ie reclamation infrastructure), the lease term for them cannot be less than 10 years. There is no limit on the term of other real estate lease agreements (with the exception of leases of apartments with the right to buy-out, the length of which does not exceed 30 years).

Last modified 22 Mar 2024

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

Under Ukrainian law all specific regulations are agreed on by the parties to the contract but general regulations imposed by Ukrainian law also apply. These include certain essential provisions and dictate the form of the contract.

The leasing of land as opposed to buildings is subject to stricter regulation. Thus, a leased plot of land must be used exclusively in accordance with its designated purpose. Additional restrictions on land use may be imposed by authorized bodies or established by virtue of law. These restrictions depend on the type of land involved, eg protection zones for certain facilities (such as historical monuments, recreational zones or underground utility lines) and areas located near facilities that may cause damage to the environment (such as factories or nuclear power stations), and are subject to special regimes governing their use, eg a prohibition on the construction (total or partial) of specific types of structure), restrictions on carrying out certain kinds of activity etc

Additional restrictions are imposed by Ukrainian law for the use of residential buildings. For example, premises located in residential buildings cannot be used for industrial/production purposes. There are different interpretations of the law as to whether residential buildings may be used for non-residential purposes other than industrial (eg as offices), but the general approach of officials is that any use of residential buildings or premises for purposes other than residential is prohibited. At the same time, there are no substantial penalties or liabilities for using residential premises for other purposes – Ukrainian law provides for only immaterial administrative fines in such cases. It is also possible to change the status of residential premises to non-residential.

There is also specific regulation applied to the lease of state and municipal real estate. As the Law ‘On lease of state and municipal real estate’ came into effect on 01 February 2020, a new procedure for the lease of state and municipal real estate was provided for. Under this procedure state and municipal real estate will be included by a competent authority in two separate lists. The real estate from the first list (as opposed to the real estate from the second list) shall be leased out at an auction.

Leases of real estate (other than land, residential apartments and state or municipal real estate leased out on an auction) for terms over three years are subject to state registration, and must be notarized. Leases of state and municipal real estate are also subject to notarization if granted at an auction for a term more than five years. Leases of land are subject to state registration irrespective of the lease term. Lease of residential apartments is not subject to state registration.

Last modified 22 Mar 2024
Tenants' rights to possession
What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

The Civil Code of Ukraine provides that if a lessee under a lease agreement remains in occupation of real estate following expiry of the lease term, this continued occupation will be considered as an extension of the original lease term provided that the landlord does not serve an objection within one month of the lease expiry date. The Commercial Code of Ukraine provides that, if neither the landlord nor the lessee serve a notice relating to the termination or change of conditions of the lease within one month following the expiry of the original lease term, then the lease agreement is considered to be extended for a term equal to the original term on the same conditions.

The Law of Ukraine "On land lease" does not provide for automatic extension of a land-lease term if the lessee continues using the land upon expiry of the lease term, except for private lands (which may be extended automatically subject to it is specified in land lease agreement). The law also envisages that lessee which properly fulfils its obligations under land lease agreement enjoys a pre-emptive right to conclude lease agreement on a new term (renew the lease agreement). To exercise its pre-emptive right, the lessee shall provide landlord with one month prior written notice on renewal of the lease agreement and respective draft agreement. If parties fail to agree on rent or other material terms of agreement, the lessee loses its pre-emptive right. In this case, if the lessee continues using the land and the landlord does not send a written objection within one month from the lease expiry date, the lease agreement deemed extended for the same term and parties are obliged to enter into respective agreement within one month.

Last modified 22 Mar 2024

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

The lease agreement may provide various options to ensure that the lessee leaves on the day agreed by the parties. The most efficient way is to prescribe in the agreement a substantial deposit payment that is returned by the lessor when the lessee leaves. It is also widespread practice to provide for a fine to be payable by the lessee to the lessor if it fails to vacate the premises on the agreed date. In addition, the lease agreement may stipulate that the lessor is entitled to remove the lessee's property from the leased real estate and claim compensation for his expenses from the lessee (although in practice this is difficult to enforce). In addition, the lessor is obliged to ensure that the lessee's property is safely stored until the lessee collects it.

Illegal use of land upon expiry of the lease term, despite the lessor's objection, in certain cases (eg if the lessor incurred damages exceeding UAH 283,750), may be considered a crime.

Last modified 22 Mar 2024

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

Generally, a lessee can only be forced to leave the premises before the contract expires as a result of a court order, if the lessor seeks to terminate the contract early based on the grounds stipulated in the contract and/or Ukrainian law. Nonetheless, the lessor must notify the lessee that termination is to occur and the lessee has at least 20 days to respond to the notification.

Last modified 22 Mar 2024

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

Ukrainian law provides for termination as a result of court proceedings where the interests and rights of a third party are affected (eg if the letting of the real estate and/or the lessee's activity causes serious damage or significant disturbance to neighbouring areas, lessees and/or lessors; or if the lease agreement was entered into by someone who was not the real lessor of the real estate).

The length of this process depends on the length of the court proceedings and length of the enforcement procedure (if applicable).

Under Ukrainian law a lessee can make a claim for compensation relating to such termination. The parties may provide in the lease agreement for additional compensation to be paid by the lessor in the event of early termination at the lessor's instigation.

Last modified 22 Mar 2024

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

A bank guarantee, suretyship by an affiliated company or a deposit of monetary funds are usually provided by the lessee to secure the lessee's obligations under the lease agreement.

Last modified 22 Mar 2024
Managing leased real estate
What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

Ukrainian law contains provisions requiring real estate to be used in accordance with its designated use, as well as laying down fire protection and health and safety regulations to be observed by the person (eg the lessee) using the real estate. Furthermore, the building (for instance a business centre) where the leased premises are situated will generally have its own rules as to the use of the premises. Additional restrictions regarding the use of real estate may be imposed by the lease agreement.

The land must be used in accordance with its zoning and designated use, and the lessee must abide by any rules protecting the interests of neighbours. Also Ukrainian law provides for environmental regulations and other restrictions on certain categories of land, as well as on areas subject to special regimes.

Last modified 22 Mar 2024

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

A lessee is entitled to improve the leased real estate subject to the consent of the lessor. Specific conditions (eg scope or terms) for the improvements are subject to agreement between the lessee and the lessor. Ukrainian law categorizes improvements as separable or inseparable. Separable improvements may be removed by the lessee at the end of the term of the lease agreement provided that such removal does not cause damage to the leased real estate. Improvements which cannot be removed without causing damage to the leased real estate are described as 'inseparable'. The lessor must pay the lessee compensation for any improvements that were made with the lessor's consent, unless otherwise agreed by the parties in the lease agreement or in a supplemental agreement.

Last modified 22 Mar 2024

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

Under Ukrainian law a lessee is entitled to transfer his rights under the lease agreement to a third party subject to the lessor's approval, unless the parties agree otherwise in the lease agreement. Leases of state and municipal plots of land may not be assigned, or granted as a contribution to the charter capital of a company, or subjected to a pledge.

Last modified 22 Mar 2024
Rent
What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

By Ukrainian law, rent is subject to indexation. This means that the rent varies in relation to the index measuring inflation or according to other circumstances stipulated in the lease agreement.

A lessor and lessee may also agree and stipulate in the lease agreement other grounds for changing the rent during the lease term and the relevant procedure.

Last modified 22 Mar 2024

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

The method for determining rent is agreed and provided for by the parties in the lease agreement. Where the state/municipal property/land is leased, Ukrainian law contains a mechanism for adjusting the rent which is to be adhered to by the parties of the lease agreement (although the parties are entitled to amend it to a certain extent).

Last modified 22 Mar 2024

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

Yes, VAT is charged.

Last modified 22 Mar 2024
Costs other than rent
What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

As a rule, the lessee is obliged to pay for utilities (water, electricity etc), to reimburse the lessor for operational expenses (garbage disposal, cleaning etc) and land tax (if a stand-alone building is leased). These payments may be included in the rent or may be payable separately. All these issues are dealt with by the parties in the lease agreement.

Last modified 22 Mar 2024

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

As a rule, such expenses are met by the lessor, but the parties to the lease agreement can agree otherwise.

Last modified 22 Mar 2024

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

Ukrainian law differentiates between capital repairs and current repairs of the real estate. Usually, capital repairs are carried out by the lessor, and current repairs are carried out by the lessee. Parties to the lease agreement can agree on other provisions relating to maintenance and repair.

Last modified 22 Mar 2024

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

Utilities and communications are usually paid for by the lessor. In such cases, such payments are included in the rent or paid to the lessor by the lessee separately to enable the landlord to recover the costs incurred. Certain utility payments may be made directly by lessee if parties agree so in the lease agreement.

Last modified 22 Mar 2024

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

Ukrainian law does not make property insurance for leased real estate obligatory unless state or municipal property is involved (except for state or municipal land plot insurance). Under Ukrainian law any state or municipally owned real estate transferred by way of lease must be insured by the lessee.

The cost of insuring private real estate can be charged either to the lessee or to the lessor, as they agree in the lease agreement.

The coverage provided by the insurance policy depends on the terms offered by the insurance company.

Last modified 22 Mar 2024
Key contacts

Types of lease

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

Ukraine

Ukrainian law provides for two main types of real estate lease, depending on the type of property:

land leases, and
real estate leases (which deal with premises, buildings etc)

In addition, Ukrainian law provides for the following:

restricted use of someone else's property (servitude which is the right to use someone else's property in order to meet a need if this cannot be done in any other way);
restricted use of someone else's land for agricultural purposes (emphyteusis); and
restricted use of someone else's land for construction (superficies).
Concession (as a form of public-private partnership). The person who obtains the right of concession is entitled to use state property on a long-term basis after investing in such state property.

Last modified 22 Mar 2024