Land Titles in Ukraine: Acquisition of Land Titles by Foreigners
By Andrey Kolupaev and Yuriy Katser
Lexwell & Partners
All through 2007 investment
in land and its
development have remained
among the most attractive
and profitable businesses in
Ukraine.
At the same time, however,
efficient development and functioning
of the land market and,
therefore, the supply of foreign investment is held back by
entangled and opaque mechanisms used for the acquisition
of land titles and lack of clear guarantees that would
secure inviolable rights of bona fide investors, which makes
investment in land titles very risky in the eyes of foreign
investors.
In this light, evolution of an attractive investment environment
in Ukraine is critically dependent on improvement
of a country’s public policy in the area of land relations.
In particular, as regards legal regulation of the land
market, establishment of clear, comprehensible, and stable
rules of the game on this market, and security of land titles
held by good faith owners.
Legal entities founded on the basis of private ownership
can possess land in Ukraine on the basis of the following
rights:
1.1 Ownership:
Acquisition of land titles in Ukraine largely depends on
such criteria as (i) the land category and (ii) the nationality
of the investor/buyer. If foreigners (be it foreign citizens or
foreign companies) intend to buy land in Ukraine, they fall
under certain peculiar conditions related to categories of
land, zoning, and acquisition procedures.
In addition, Ukrainian legislation sets different procedures
for the sale of private and public (state or municipal)
property.
1.2 Lease:
Lease is the agreement-based charged possession and
use of land needed by investors for their business and other
activities.
Ukrainian law contains no provisions whatsoever that
would restrict the circle of persons entitled to lease land.
Land lease in Ukraine can be short-term (up to 5
years) and long-term (not longer than 50 years). It should
be noted that it is rather common for public land lease
agreements (in particular, those made in Kiev) to establish
the investor’s obligation to complete construction on
the leased land lot within a certain period of time, which
usually come to three years. The failure by an investor to
meet such an obligation often empowers the landowner to
cancel the lease.
Neither current legislation nor, regrettably, the land
lease agreements used in practice, regulate legal consequences
resulting from termination of lease of the land
provided for development purposes. Therefore, in order
to avoid disputes and contentious situations, the parties
should make sure that their relevant lease agreements duly
regulate consequences caused by termination of the lease.
Another problem is that in Ukraine land lease cannot
function as an independent object of commercial turnover
as existing law and practice of lease relations do not enable
tenants to alienate (transfer) their land lease rights to any
third parties. It is also still disputable as to whether or not
the lease of development land can be pledged; at least, we
are not aware of any such cases.
1.3 Servitude (the right to limited use of land): the Right to
Use Somebody Else’s Development Land (superficio) and
other Servitudes:
Unlike the land lease which, as noted above, cannot be
used as an independent object of commercial turnover in
Ukraine, the norms related to the superficio directly establish
the right of land users to alienate their right to use the
land for development purposes to third parties.
The positive side of the superficio norms is that they
regulate the consequences caused by termination of the
right to use the land where a certain real estate object is
constructed. By analogy, such norms can be also applied
to leasing relations.
The superficio rules were introduced in Ukraine on
1 Janu ary 2004, but the instrument did not become particularly
po pular as it was not regulated by the Land Code.
However, recent amendments have aligned the Land Code
with the Civil Code, having complemented the former with
the superficio provisions.
However, due to the superficio’s ability to be used
in commercial turnover, it is rather doubtful that local
councils and public authorities would be widely employing
this tool as, unlike the lease, the use of the superficio
may deprive such authorities of their administrative levers
of influence on the distribution of land for development
purposes.
The law also enables legal entities based on private
ownership to possess land through the “private permanent
use right” provided that such right was acquired before the
Land Code of Ukraine of 25 October 2001 came into force.
In this case, current land legislation sets no terms for
the restructuring of such a right into lease or ownership
title, just as it sets no sanctions for failure to perform such
a restructuring.
As already mentioned above, there are particular rules
related to categories of land, zoning, and the acquisition
procedure in cases when land titles are acquired by foreigners
(foreign citizens and foreign legal entities).
2.1 Restriction of Land Categories
In Ukraine, foreigners are allowed to acquire ownership
titles exclusively to non-agricultural lands, while agricultural
lands (intended for farming, gardening, vegetable
growing, haymaking, herding, etc.) cannot be owned by
foreigners.
2.2 Zoning Restrictions
Foreigners are entitled to acquire ownership titles to
non-agricultural land in the following cases:
(Á) within communities:
(i) foreign citizens – any non-agricultural lands;
(ii) foreign legal entities – lands where the real estate
owned by it is located, as well as lands used for construction
of objects related to their business activities.
(b) outside communities:
Foreign citizens and legal entities may acquire land
ownership titles exclusively to lands where the real estate
owned by them is located.
2.3 Land Title Acquisition Procedure
In order to purchase any land in Ukraine, foreign legal
entities shall register their permanent representative office
in the country.
State-owned land is sold to foreign legal entities by the
Ukrainian government (the Cabinet of Ministers) on the
approval of Parliament (Verkhovna Rada), with the exception
of lands where the objects subject to privatization are
located if such privatization is under way. If a certain plot
of land is owned by a municipality, it shall be sold by the
local council on the approval of the Cabinet of Ministers
of Ukraine.
It should be noted that the content of the notion of “a
foreign legal entity” in the contest of land relations is still
disputable in legal practice. Some experts argue that the
term “a foreign legal entity”, as it is used in the Ukrainian
Land Code, covers exclusively non-resident companies
(i.e. established and registered outside of Ukraine), while
others consider that this term also extends to legal entities
registered in Ukraine and indirectly (through other
companies registered in Ukraine) controlled by foreigners.
Neither is there any well-established judicial practice related
to this issue. The majority of land resource authorities,
however, adhere to the stance that “a foreign legal entity”
also covers companies registered in Ukraine and indirectly
controlled by foreigners.
A negative aspect in the acquisition of land titles by
foreigners is that there is no clear legislative regulation of
the procedure to be followed by the government and/or
Parliament when providing their approval for the sale of
land to foreigners (in particular, there is no list of documents
to be submitted for consideration by them, no deadline
set for such consideration, no exhaustive grounds for
refusal to provide approval, etc.).
It should also be noted that joint ventures (legal entities
registered in Ukraine with foreign participants) fall under
the same land title acquisition regime as the one set for
foreign legal entities.
However, there are no restrictions set for foreigners as
regards leasing land.
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