Ukrainian Real Estate Law
This article analyses several recent developments in Ukrainian real estate law and covers certain practical legal aspects of real estate transactions.
Developments in Real Estate Law in 2009
Amendments were introduced in March 2009 to the Land Code of Ukraine (the Land Code) and other legislative acts by the On Amendment of Certain Legislative Acts of Ukraine. The ownership right for an acquired land plot, where the borders and zoning are not changed, can now be certified not just by a new state act issued upon completion of the acquisition, but also by:
(i) a notarized civil agreement on the acquisition of the land plot; or
(ii) a certificate issued by a notary on a right of inheritance of the land plot.
Then the relevant state act on ownership of the land plot that was issued to the previous owner in the chain of title who obtained a state act should be attached to such notarized agreement or certificate. The notary involved in the acquisition based on an acquisition agreement or inheritance certificate, and the state body that is carrying out the state registration of the ownership rights to the land plot and its encumbrances, should make a notation on such previously issued state act certifying the right of ownership to the land plot based on the transfer and indicating the document that was the basis for such acquisition. Such registration of ownership rights should be carried out by the relevant state body within 14 calendar days from the date of the submission to the state body of an agreement or inheritance certificate with the relevant annotated state act. The principal benefit of these changes is that it should no longer be necessary to wait months, or even years, until a new state act is issued in order to be able to dispose of a land plot.
Another development concerns mortgages of unfinished buildings and other constructions introduced to the On the Mortgage Act by the On Prevention of the World Financial Crisis’s Influencing the Development of the Construction Sector and Residential Construction Act, from 14 January 2009 permits the mortgaging of an unfinished building or other construction.
State Registration of Proprietary Rights to Real Estate
Although the creation of the State Registry of Rights to Real Property (State Registry of Rights), as provided by the On the State Registration of Proprietary Rights to Real Property and their Encumbrances Act (State Registration Act), has not yet been completed, the various state registries which are currently available effectively support real estate transactions. At the present time and until the State Registry of Rights is created, the registration of titles to real property continues to be handled (1) by the appropriate local Bureau of Technical Inventory (BTI), and (2) the local departments of the State Land Resources Committee for land plots. In addition, various other registries, like the State Registry of Mortgages and the State Registry of Encumbrances of Real Estate, handle the registration of encumbrances on real property rights.
The State Registration Act provides that in the event of any dispute over ownership of a particular real property, the registered rights to that real property should prevail over non-registered rights. Registration is, nonetheless, not a complete guarantee, and the prior registration of title might be attacked for a variety of reasons including, for example, if required spousal consent was not given.
Procedure to Purchase Real Estate
To purchase a building or other real estate, a buyer should verify the seller’s title by examining the title documents. As legislation on misrepresentation and fraud is not yet well developed in Ukraine, it is strongly advisable to have a very protective purchase agreement, as is quite common in the West. Such an agreement 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 the absence of any knowledge of such problems.
(a) Information on the Seller
Turning to the title documents that should initially be presented to the buyer, ordinarily this includes (1) a certificate of privatization, a purchase agreement (usually notarized), evidence of inheritance or gift or other documents lawfully evidencing the acquisition of title, as provided by the seller, and (2) an extract from the Title Registry confirming the seller’s title to the property and certificates from other state registries as applicable to the real estate in question and the seller, which should be produced by the notary handling the transaction. An individual should show his or her passport, personal tax number and, (where the seller has a spouse), notarized spousal consent for the sale. A corporate seller must prove that it validly exists and that its representatives are duly authorized.
For the transfer of a land plot, a seller should also ordinarily provide the State Act On Ownership to a Land Plot (Title Act), certificates on the normative and market value of the land plot and a certificate on restrictions on the use of the said land plot. As observed above, the State Act may now be one issued for a previous owner where subsequent transfers are indicated by notations by the notary and the registry involved.
(b) Documents Required of the Buyer
On the buyer’s side, an individual needs to show his or her passport, and a corporate buyer must prove its valid existence and the authorization of its representatives. In addition, a foreign company should have a permit to purchase the real estate (1) in Kiev, from the General Direction for Services to Representative Offices (known as GDIP) (whose permit can in practice often be difficult to obtain) and (2) for purchases outside of Kiev from the appropriate regional state administrations. The notary involved should require the submission of receipts confirming that the state duty and, for the purchase of premises and other real estate, the payment to the Pension Fund (each constituting 1% of the price), have been duly paid. The parties can negotiate who pays the state duty, but only the buyer may make the payment to the Pension Fund. (Payment to the Pension Fund is not required for land transactions.)
(c) Due Diligence for Purchases
Before a purchaser completes any acquisition of real estate in Ukraine, a complete due diligence of title should be conducted. This should start with the original transfer from state ownership or construction as applicable. For a building or other construction built by the owner, the necessary construction documentation (including construction permits and the other project approval documentation, such as the relevant On Acceptance into Use Act) should be verified, since the absence of any of the required permits and approvals may later lead to a prohibition of the use of the structure. The technical description of the property being purchased should correspond exactly to all official records as indicated in the technical passport, which should be confirmed with an extract from the Title Registry. 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 procedure originally used to privatize a land plot must be verified.
The importance of exhaustive due diligence, including practical verifications, for title transfers in Ukraine cannot be overemphasized. Prior problems can, in practice, result in the invalidation of title to a property when held by a subsequent purchaser, notwithstanding the Civil Code’s provisions to protect bona fide purchasers. Unfortunately, usually many documents that should be examined in Ukraine for such due diligence to verify title will not be officially available for inspection 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 serious problem.
(d) Completion of the Purchase — Notarization and Registration of Agreements
According to Article 657 of the Civil Code, a real property purchase agreement must be executed in the presence of a notary, and the transaction listed by the notary in his/her register of notarial acts. The buyer should then apply for the transfer of the real estate or land to be registered at the appropriate title registry. Under the Land Code and the Civil Code, a purchase agreement for real property comes into force only upon its state registration.
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 the agreement for the purchase and sale of real estate or property must also be carried out in the State Registry of Agreements by the notary who notarized the said agreement.