CONTENTS
01 — General
Legal system
How would you explain your jurisdiction’s legal system to an investor?
Ukraine is a civil law jurisdiction. Real estate is governed by nationwide laws. International law is relevant to a limited extent (eg, international tax matters). Ukraine has a compulsory system of registering property rights, which is governed by independent rules of procedure.
Courts have limited powers to interpret laws and do not create binding precedents. However, the positions of the Supreme Court shall be taken into account by authorities and lower courts.
Courts have the power to grant injunctions in disputes involving real estate, preventing any registration actions towards the property (eg, conveyancing of title).
Freedom of contract is limited by the relevant imperative provisions. Oral contracts for real estate do not have legal effect. Parol evidence in contractual disputes is admissible only as of the last resort in cases where the contract is ambiguous and cannot be interpreted under the law or customary business practice.
Land records
Does your jurisdiction have a system for registration or recording of ownership, leasehold and security interests in real estate? Must interests be registered or recorded?
Ukraine has a compulsory system of state registration of property rights, including ownership of and security interest over the land. During the period of the martial law and within 30 days after its termination, registration actions regarding real estate are carried out by designated subjects. Registered property, leasehold rights and security interests to the land are registered and displayed in an electronic public register of property rights and encumbrances. Also, there is a State Land Cadastre, which contains such information as the land’s number, owners, restrictions, boundaries and technical details of the land, etc. Currently these registers are functioning in a limited regime due to the martial law.
Conveyance or leasehold of the land cannot be performed until the land is duly registered and has a cadastral number.
Failure to register the security does not make the mortgage agreement void, provided the mortgage agreement has all material conditions and is notarised. Unregistered security interests rank below registered interests and prior undisclosed interests.
Registration and recording
What are the legal requirements for registration or recording conveyances, leases and real estate security interests?
The transfer of property must be registered with the electronic real estate register, and land must also be registered in the State Land Cadastre. The conveying deed remains valid without registration; however, transfer of the property becomes effective as of the date of registration of the property rights.
Although the law allows electronic registration, there are no technical solutions for this. Thus paper applications are required for ownership, leasehold and security interests’ registration.
The fees, taxes and the party responsible to pay them vary depending on the type of party: residents or non-residents entities, natural persons, or legal persons. Usual fees constitute of:
- a pension levy of 1 per cent;
- a state duty of 1 per cent; and
- other taxes that depend on the whether the seller is a natural or legal person, and other circumstances, including:
- personal income tax of 0 per cent, 5 per cent or 18 per cent;
- military tax (for individuals) of 1.5 per cent; and
- corporate tax of 15 per cent or 18 per cent and VAT 20 per cent (if applicable).
Taxes are usually borne by the seller, the pension duty by the buyer, and the state duty is split between both parties. Additional expenses (eg, appraisals, notary fees) are customarily split.
The amount of taxes due can be optimised through an indirect sale (the sale of a company owning a property).
Foreign owners and tenants
What are the requirements for non-resident entities and individuals to own or lease real estate in your jurisdiction? What other factors should a foreign investor take into account in considering an investment in your jurisdiction?
There are restrictions on the rights of foreign purchasers of real estate in Ukraine. The most prominent is the prohibition of ownership of agricultural land (which includes indirect ownership). However, the lease of real estate, including agricultural land, to foreigners is not restricted.
Foreign entities can acquire non-agricultural land within cities, towns, villages when buying buildings on it or for the construction of a property for their own business. Outside cities, towns and villages, foreign companies can only acquire land when buying buildings on it.
Other restrictions may arise from international or Ukrainian sanctions. National defence or security limitations may also prohibit ownership of land or real estate belonging to strategic state- or military-owned infrastructure.
Ownership of real estate by foreigners does not require licences, however ownership must be registered with the tax authority at the location of the real estate (for entities) and an individual must obtain a tax ID before acquiring real estate.
Exchange control
If a non-resident invests in a property in your jurisdiction, are there exchange control issues?
Ukraine is gradually eliminating exchange control measures. However, the restrictions on the transfer of foreign currency abroad are currently in force in Ukraine. According to the special martial law legislation, such transfers are prohibited except for some cases (payments for goods or services received from abroad, critical import, etc). The respective restrictions are temporary and will stay in force till the end of the martial law.
Additional limitations may also arise from international sanctions, transactions with cash and anti-money laundering legislation. All payments within the territory of Ukraine shall be made in hryvnia, unless the parties use foreign bank accounts for payments.
Legal liability
What types of liability does an owner or tenant of, or a lender on, real estate face? Is there a standard of strict liability and can there be liability to subsequent owners and tenants including foreclosing lenders? What about tort liability?
The nature of liability of an owner, tenant or lender depends on the type of asset (eg, land or other real estate, such as buildings, factories or plants etc). Owners (tenants) of land are liable for using it according to designated purpose (with the exception of the period of martial law), maintaining soil fertility, paying land tax and observing established limitations, etc.
Breaching the land law entails civil, administrative or criminal liability depending on the severity. The violation may result from concluding deeds and contracts in violation of the law, damaging or polluting land, use contrary to the designated purpose, failure to perform recultivation, etc.
Owners of real estate undertake the burden of care for the property and should take measures to prevent damage to the health of individuals and the environment; should not infringe on the rights of its neighbours; should pay the taxes and utility bills; and inform tenants or buyers about third-party rights.
Owners (or tenants, if agreed) bear the risk of accidental loss and damage to their property. Tenants are liable for using the property according to the contract and purpose, fire safety and others.
Protection against liability
How can owners protect themselves from liability and what types of insurance can they obtain?
Owners and tenants are not required to have insurance for the property unless their contract provides otherwise. Insurance is mandatory for mortgaged property, real estate with a hazard source, and when leasing state- or community-owned property.
Insurance protects owners against destruction or damage to the property and loss and tenants’ liability for destruction and damage. Insurance for civil liability shields owners and tenants from third-party claims and tort liability.
Environmental insurance is not common in Ukraine as no regulation exists at the moment (except for the draft law ‘On Environment insurance’ – which is not in force yet).
Choice of law
How is the governing law of a transaction involving properties in two jurisdictions chosen? What are the conflict of laws rules in your jurisdiction? Are contractual choice of law provisions enforceable?
In relation to deeds with real estate, the laws of the country where the property is located or shall be registered shall apply. Therefore, if the parties choose to apply foreign law to the contract regarding real estate in Ukraine, Ukrainian courts will not recognise an express choice of law.
Jurisdiction
Which courts or other tribunals have subject-matter jurisdiction over real estate disputes? Which parties must be joined to a claim before it can proceed? What is required for out-of-jurisdiction service? Must a party be qualified to do business in your jurisdiction to enforce remedies in your jurisdiction?
Depending on the parties involved real estate disputes are considered by civil or commercial courts, located at the property’s location. Apart from the plaintiff and a defendant, state registrars usually join real estate disputes, considering that enforcement of the court’s decision is usually associated with registration actions.
Ukraine is part of the Hague Service Convention, which applies to service of process in civil and commercial matters and has diplomatic service for outside-jurisdiction enforcement. Ukraine also has several international treaties on judicial assistance, which allow sending courts’ requests for service directly to foreign court or authority and a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which is applied on a reciprocal basis.
Foreign parties are not required qualification to do business to enforce remedies in Ukraine. The courts’ decisions are enforced by the State Enforcement Agency.
Read more at
https://golaw.ua/insights/publication/real-estate-in-ukraine-2023-special-report-for-lexology/
