Real Estate & Construction

The Constitution of Ukraine dated 28 June 1996 (the “Constitution of Ukraine”), the Civil Code of Ukraine dated 16 January 2003, (the ‘‘Civil Code’’), the Commercial Code of Ukraine dated 16 January 2003, (the ‘‘Commercial Code’’), the Land Code of Ukraine dated 25 October 2001 (the ‘‘Land Code’’) and other laws recognise and protect the right to private property.

Ukrainian legislation specifically allows the use of privately owned property for commercial purposes, including leasing of such property, and grants the right to obtain the revenues, profits and production derived from the commercial use of property. According to effective Ukrainian legislation, the right to private property may be protected in legal proceedings.The Land Code provides general principles of land ownership. The Land Code allows the mortgages of privately owned land plots, however, only banks may be mortgagees of agricultural land.

Private Ownership of Land in Ukraine

Generally, Ukrainian individuals and legal entities are permitted to acquire private, state and municipal land in Ukraine. Foreign individuals, foreign legal entities and foreign states are allowed to own, use and dispose of certain non-agricultural land in Ukraine, but are explicitly prohibited from factual possession of agricultural land. Though, foreign individuals, foreign legal entities and foreign-owned Ukrainian entities are allowed to lease land plots in Ukraine.

The Land Code does not explicitly allows Ukrainian companies wholly owned by foreign individuals and/or legal entities to possess any land plots in Ukraine. Although such subsidiaries of foreign companies are generally treated in the same way as joint ventures, there is a risk that ownership rights of such subsidiaries to land in Ukraine may be challenged. As a practical matter, if a Ukrainian company having a ownership title to a land plot is owned by another foreign-owned Ukrainian company, then there should not be any risks regarding the challenging of ownership title to the land plot owned by the first Ukrainian company. Those Ukrainian legal entities which have been established by Ukrainian individuals or legal entities, or joint ventures may own land in Ukraine, subject to, inter alia, the above restrictions. Joint ventures established by foreign and Ukrainian individuals or legal entities may purchase non-agricultural land owned by the state or by a municipality from the Cabinet of Ministers of Ukraine (the “CMU”) with the approval of the Parliament of Ukraine, or from the relevant municipal council, with the approval of the CMU, respectively.

State Registration of Rights to Immovable Property

Sale and purchase agreements, gift contracts or other types of agreements which concern the ownership rights to real estate must be notarised and registered with the State Register of rights to real estate (the “State Register”). In addition to registration of the agreement with the State Register, the property rights to a building shall be registered with the local Bureau of Technical Inventory, while he property rights to a land plot shall be registered with the local Department for Land Resources.

Acquiring land plots for construction purposes

The principal legislative acts in the area of construction include the Law of Ukraine ‘‘On the Planning and Development of Territories’’ dated 20 April 2000, the Law of Ukraine ‘‘On Architectural Activity’’ dated 20 May 1999 and the Law of Ukraine ‘‘On City Construction’’ dated 16 November 1992. In addition, construction activities are governed by resolutions of the Cabinet of Ministers of Ukraine and the rules developed by the Construction Committee. At the same time, the municipal authorities are authorised to develop and approve construction rules (‘‘pravyla zabudovy’’) setting forth specific procedural requirements regarding construction on the territory of the respective municipality.

Lease of Land in Ukraine

All Ukrainian and foreign individuals and legal entities, as well as foreign states may lease land in Ukraine. The Land Code establishes the maximum term of land lease up to 50 years. Ukrainian legislation also allows entering into subleasing arrangements, subject to the lessor’s consent. Land lease relations are regulated in details by the Law of Ukraine ‘‘On the Lease of Land’’ dated 6 October 1998, (the ‘‘Land Lease Law’’).

All land lease agreements shall comply with the model land lease agreement approved by the Regulation of the CMU “On Adoption of the Model Land Lease Agreement” dated 3 March 2004 and shall be registered with the state land authorities.

Lease of Real Estate Other Than Land (Buildings and Structures)

The Civil Code contains general provisions governing the lease of immovable property.

In particular, according to the Civil Code, the lease agreement of a building (or other capital structure) or part thereof must be concluded in writing and must be notarised and registered with the State Register should such agreement be concluded for a period of three years or exceeding such period.

Licensing of Construction Activities in Ukraine

Under the Law of Ukraine ‘‘On the Licensing of Certain Entrepreneurial Activities’’ dated 1 June 2000 (the ‘‘Licensing Law’’), construction activities are subject to mandatory licensing. A foreign company seeking to engage in construction activity should establish a wholly owned Ukrainian subsidiary company or a joint venture eligible for obtaining construction license. Construction licenses are issued for a period of five years. The term of the licensee may be extended pursuant to procedures established by the Licensing Law.

Land and Real Estate Taxation

Owners of land and persons having permanent rights to use land shall pay a land tax and lessees shall pay the land rent as set forth in the lease agreement. Currently, the general land tax for the land plots located within city limits, subject to certain exceptions established by the Land Tax Law is 1% per year of normative (state) value of the land, which is updated periodically. The general land tax for agricultural land is established at the rate of 0.03% and 0.1% per year of normative (state) value of the land depending on the type of the land. Tax is paid on a monthly basis at one-twelfth of the annual tax amount.