Buying apartments and offices in Ukraine

Buying apartments and offices in Ukraine

Many of the new rules related to the coming into force of the Civil Code of Ukraine as of 1 January 2004 are considered positive and create fair and avourable conditions for the development of real estate market in Ukraine.

Foreign citizens or legal entities have the right to buy and own property in Ukraine. These property rights are set forth in the Constitution of Ukraine and Law of Ukraine On Property. The law permits owners of property not only to own property but also to use such property for commercial purposes, lease property, keep the revenues, profits, and production derived from its use.

To purchase residential or office premises, the buyer should verify the seller\'s title by reviewing the title documents. Title documents which should initially be presented by the seller include:

In case you deal with the legal entity the most common title documents that provide proof of ownership rights of companies are:

Property rights must be registered in the All-Ukrainian Real Estate Ownership Rights Register. Registration of the title of real estate can be confirmed by an Extract from the Real Estate Ownership Rights Register distributed by the local Bureau of Technical Inventory (BTI).

Thus, when buying real estate in Ukraine you should check title documents and registration of property rights.

In order to enter into a sale-purchase agreement, a foreign individual needs to have the following documents:

A corporate buyer (as well as the corporate seller) will need to prove also that the legal entity still exists and its representatives are duly authorized to enter into the purchase transaction. It is rather important as management system of companies in Ukraine often is not simple. Charters of many Ukrainian companies provide that sales of fixed assets (including real estate) are within the competence of the General Meeting of Shareholders and are not related to the Executive Body\'s power. It means a director may not have the power to sell real estate. However, sometimes directors go beyond the limits of their powers that mean such contracts may be recognized void by courts.

It\'s recommended to conduct a due diligence of title before a buyer completes acquisition of real property in Ukraine. The main purpose is to ensure that a seller of real estate is its real owner. In practice there are a number of sale contracts invalid by the reason seller was not the owner.

Another important issue is property encumbrance. The general register of all kinds of real estate encumbrances does not exist in Ukraine today. Although the corresponding law was passed on 1 July 2004 and came into force, the appropriate bodies of state registration and databases have not been created yet as required.

The basic property encumbrances are:

A contract for the sale and purchase of a land plot, an integral property complex, a residential house (apartment) or other real property must be executed in writing, certified by a notary and registered at the state register.

The Civil Code does not envisage exceptions allowing entities to execute real estate purchase contracts without notarization. However, the New Civil Code does not solve the title registration problem completely. A purchase agreement will have to be notarized and registered but certain period of time is required to register such a contract and the transfer of title. An unscrupulous seller may still, using duplicate title documents, sell the same real estate to other buyers over a period of several days and arrange it before the first sale appears publicly in the registry. Therefore, in order to minimize this risk, a purchaser needs to apply for registration of the purchase contract immediately after the execution of the contract. Of course it\'s better to stipulate that full payment is made only after the registration.

The state registration of a real estate agreement is performed by a notary who must submit the necessary information regarding the very agreement to the State registry of agreements computer system. If an agreement on alienation of property must be registered, then, a purchaser acquires the title to such property as of the moment of registration which is carried out by the State Real Estate Ownership Rights Register.

To get full picture of the real estate deal one should pay attention to the Land Code of Ukraine and Commercial Code of Ukraine (both effective as of 1 January, 2002), the Law on Mortgages of 5 June 2003, the Law on State registration of proprietary rights to real property and their limitations. Besides the sale and purchase agreements the Codes, for instance, introduced some new types of real estate agreements such as rent agreement and management agreement. The main difference between them is according to the rent agreement the title to real property passes to the rent payer whereas it remains with the settler of the management under the management agreement. So, the nature of the management agreement is similar to trusts and beneficial ownership under common law.

In any case all potential problems concerning real estate deals under existing legislative rules are successfully solved by professionals.