Contributed by Avellum.
1 Real Estate Ownership
1.1 Legal Framework
The key principles of protection of property rights are provided in the Constitution of Ukraine. These include the inviolability of private property rights, ensuring owners cannot be arbitrarily deprived of their possessions. The Constitution further emphasizes the equality of all property rights subjects, guaranteeing all owners the same legal protections, and underscores the state’s role in protecting these rights, acting as a safeguard against unlawful interference. In essence, the Constitution guarantees the right to own, use, and dispose of real estate freely.
The Civil Code, Commercial Code, and Land Code of Ukraine all establish a framework for property rights protection. These codes emphasize the owner’s freedom to exercise their rights, with only specific, limited restrictions in place. The state generally refrains from interfering in the owner’s exercise of these rights. Furthermore, these codes reiterate the principle of equality, ensuring all owners receive the same legal protections.
The rights of real estate owners are generally equal in Ukraine, regardless of whether they are Ukrainian citizens or foreigners. However, there are specific regulations and restrictions that apply to foreign individuals and entities regarding the acquisition of certain types of real estate, particularly agricultural land. In Ukraine, foreigners are prohibited from owning agricultural land. However, they can purchase non-agricultural land, subject to certain legislative restrictions for both individuals and legal entities. Namely, they may purchase land plots within the boundaries of cities and towns for construction purposes. To purchase land outside the boundaries they must own real estate located on such land.
Ukraine has clear rules for the expropriation of ownership during martial law or a state of emergency. The government and local authorities may forcibly expropriate private or municipal property in exceptional circumstances such as natural disasters, epidemics, other emergencies, or due to public necessity.
Expropriation requires a formal act, and the property must be evaluated beforehand. Based on this evaluation, the government provides full compensation in advance. However, during martial law, the government may provide compensation after the expropriation.
It is important to note that the ongoing war has had a substantial impact on the real estate market. According to the updated joint Rapid Damage and Needs Assessment (RDNA3), as of December 3, 2023, over 2 million housing units were damaged, resulting in over USD 55.9 billion in damages. The housing reconstruction needs are estimated at USD 68.6 billion.
Approximately 6 million internally displaced people have moved from the eastern to central and western regions of Ukraine. Their migration has prompted Ukrainian developers to focus on constructing new housing complexes.
To support Ukrainian citizens, the government introduced the eOselya program, which provides affordable housing loans with the possibility of buying housing on a mortgage at 3-7% per year, depending on the category of participants (e.g., defenders of Ukraine, internally displaced persons). The program stipulates that the housing should be commissioned within at most 10 years, or three years in some instances, before the time of the loans. Additionally, a reform of housing policy is upcoming in the form of a new housing law, which should replace the outdated legislation and introduce concepts of affordable housing that align with EU regulations.
The relocation of enterprises to safer regions of Ukraine has also increased interest in various state-supported legal frameworks such as industrial parks and projects with significant investments. This creates a market for companies that can provide the necessary infrastructure for businesses. Private companies operating under such frameworks may enjoy various state incentives, such as exemption from CIT, VAT, and customs duties, as well as reduced land and real estate taxes.
Overall, the Ukrainian real estate market is facing a period of adjustment due to the war. However, there are also opportunities for growth in specific sectors, particularly those that cater to the needs of displaced people and relocated businesses.
1.2 Registration of Ownership
The rights to real estate are registered in the State Register of Property Rights to Real Estate (Real Estate Register), which is maintained by the Ministry of Justice. The registration of rights to real estate and encumbrances is carried out by a state registrar or a notary.
The key regulations on registration of rights to real estate are:
(i) Law of Ukraine “On State Registration of Property Rights to Real Estate and Their Encumbrances” No. 1952-IV dated July 1, 2004; and
(ii) “Procedure of State Registration of Property Rights to Real Estate and their Encumbrances”, approved by Resolution of the Cabinet of Ministers of Ukraine No. 1127 dated December 25, 2015.
The following rights to real estate must be registered in the Real Estate Register:
(i) the ownership rights to real estate, including land plots;
(ii) servitude, emphyteusis, superficies, lease rights to land plots and buildings if the lease term is at least three years, other special property rights; and
(iii) encumbrances of real estate such as mortgages.
1.3 Publicity of Real Estate Register
Entries in the Real Estate Register are publicly available, which means that every person can get information about real estate from the Real Estate Register in paper or electronic form.
1.4 Protection of Ownership
The entries in the Real Estate Register in Ukraine are considered binding.
The protection of real estate ownership in Ukraine has seen some improvements despite ongoing challenges. Judicial reforms since late 2017 have led to more unified approaches in applying legislation to property rights cases, which is a positive development.
The Civil Code of Ukraine provides several remedies available to an owner claiming protection of their property rights, including:
(a) Recognition of Ownership Rights
An owner can file a lawsuit to recognize their ownership rights if these rights are disputed or not properly registered. This recognition also obliges others to respect these rights and refrain from actions that could hinder the owner’s lawful exercise of their property rights.
(b) Return of Property from Illegal Possession
An owner can file a vindication claim to reclaim their property from someone who possesses it without legal grounds. This applies even if the possessor was a bona fide purchaser.
(c) Removal of Obstacles to the Exercise of Ownership and Disposal of Property
An owner can file a negatory claim to remove any obstacles or restrictions that prevent them from using or disposing of their real estate.
(d) Prohibition of Actions that Violate Property Rights or Taking Certain Actions to Prevent such Violations
Owners can seek court orders prohibiting any actions that violate their property rights, such as unauthorized construction or trespassing.
(e) Compensation
Owners may also seek compensation or damages for any losses incurred due to the unauthorized disposal or use of their real estate. This includes financial losses as well as damages for any harm caused to the property itself.
2 Real Estate Acquisition
2.1 Share Deal or Asset Deal?
Acquisitions through share deals are the more common way to invest in real estate. It is generally faster and usually allows the parties to choose foreign law and opt for arbitration in contractual disputes. Share deals are also more prevalent due to their tax advantages. Additionally, they allow the investors to continue the business as before without any need to re-enter into the agreements related to the real estate, etc.
However, if the investor identifies substantial risks related to the company itself or prefers not to continue business operations as before, selectively acquiring assets rather than purchasing shares in the owner company may be more advantageous. Asset deals provide greater control over the selection and transfer of individual assets, allowing for a strategic acquisition tailored to the investor’s objectives, and do not require as comprehensive due diligence as share deals.
The choice between purchasing real estate through a share deal or an asset deal typically depends on the investor’s objectives and the existence of any substantial risks identified during due diligence that may affect the decision.
2.2 Share Deal
Share purchases are a popular choice for real estate investment, especially for income-producing properties. Share deals can be faster and more flexible than asset deals, but they are also more complex.
First of all, share deals require more comprehensive due diligence compared to asset deals. During this stage, the parties usually enter into a non-binding agreement, such as a term sheet or letter of intent, to outline the planned transaction and key conditions for both parties (for example, the absence of substantial risks identified as a result of the due diligence).
Once negotiations and due diligence are complete, a binding legal contract like a share purchase agreement (SPA) is signed to formalize the deal. This comprehensive document addresses potential risks by incorporating various clauses, like warranties, conditions precedent, indemnities, etc. SPAs are often governed by foreign law for greater flexibility and to ensure a fair balance between buyer and seller interests. Arbitration clauses specifying dispute resolution outside Ukraine are also common.
If a foreign holding sells shares in a Ukrainian company, the gains are generally subject to a 15% withholding tax (WHT). However, there are exceptions to this rule, such as those provided by certain double-tax treaties with specific countries. Additionally, share deals are not subject to VAT.
2.3 Asset Deal
Asset deals are subject to mandatory terms of Ukrainian law and, thus, are more straightforward in execution than share deals. This fact ensures adherence to local legal norms and procedural requirements, promoting legal certainty and clarity in contractual obligations. It is important to note that due diligence and legal scrutiny are imperative for investors to mitigate different types of risks effectively.
At the same time, the investor should be mindful that Ukrainian law ostensibly grants parties freedom of contract permitting the inclusion of any provisions therein, yet not all provisions may ultimately be deemed lawful. For example, courts usually invalidate liquidated damages clauses, since they are not recognized under Ukrainian law. Typically, the principal remedies available to the buyer involve conditions precedent for mitigating remediable risks and imposing penalties for contractual breaches. There is also a very limited case law on warranties application in asset deals.
The buyer usually pays for the following: registration fees, pension fund duty, notarial fees, the costs of the due diligence investigation, and the buyer’s agent’s fees.
In an asset deal between legal entities, the seller is subject to an 18% corporate profit tax, while the buyer has to incur a 20% VAT (excluding the sale of residential premises, where only the first sale is subject to VAT) and a 1% pension fund duty.
2.4 Disposal Process
In share deals, notarization is not mandatory; a simple written form is sufficient for the SPA. However, a notary must authenticate signatures on the share transfer acts or similar documents, and changes of shareholders must be registered in the Unified State Register of Legal Entities, Individual Entrepreneurs, and Non-Governmental Organizations.
At the same time, contracts for the sale and purchase of real estate must be in written form and notarized. During the notarization process, the notary verifies not only the title documents and the authority of the individuals signing the contract but also ensures that the transaction complies with legal requirements and reflects the parties’ intentions. Typically, the notary fee, including property rights registration, ranges from 1-2% of the real estate’s assessed value.
Regarding approvals, it is important to note that consent may be necessary in certain cases. For instance, if the asset is mortgaged, the mortgagor’s consent is required for the transaction. The transfer of the title to the real estate must be registered in the Real Estate Register.
While the law does not specify a list of documents that must be transferred with the real estate, it is common practice to include the transfer of necessary technical documentation and copies of utility agreements in the relevant contracts.
2.5 Registration of Change of Ownership
A change of ownership rights is registered by a state registrar (usually a notary). In most cases, the change is done under notary-certified agreements, when the notary registers the changes a few moments after certifying the agreement. The notary also verifies all the submitted documents ensuring compliance with applicable laws.
The registration fee for registering a change varies from approximately USD 7 to approximately USD 370, depending on the registration timing (from five business days to two hours). If the registration is done by the notary, the latter also charges fees for its services. The notary fees are freely negotiated between the notary and the client.
2.6 Risks To Be Considered
Tenants, joint real estate owners, and holders of a subsoil use permit hold a right of first refusal to purchase the real estate. Real estate may also be subject to various encumbrances such as mortgages, liens, tax liens, restrictions on alienation, etc. Special regulatory regimes, such as protection zones or cultural heritage sites, impose additional limitations that must be considered.
Typically, a purchaser can only claim defects in acquired real estate if these defects were latent and could not have been discovered at the time of transfer. However, specific regulations governing this issue vary based on the terms of the contract that was concluded.
3 Real Estate Financing
3.1 Key Sources of Financing
Under current circumstances, most construction projects are financed by the developers themselves. However, large companies often secure funding from local banks or international financial institutions, such as EBRD, by using their assets as collateral through pledges or mortgages.
In the residential market, new constructions are typically financed by selling future real estate assets (e.g., apartments, parking spots, garages) to prospective owners. To protect the interests of buyers in such cases, a new law “On guaranteeing property rights to real estate to be constructed in the future” No. 2518-IX dated August 15, 2022, was adopted. This law introduced various mechanisms and guarantees, including the mandatory state registration of titles to future real estate assets and registration of a guaranteed share in the construction that must be financed by the developer’s own funds.
3.2 Protection of Creditors
Standard security measures typically involve mortgages and pledges. In more complex transactions, additional components may be incorporated such as condition precedents in project agreements, and pledges of bank accounts with provisions for automatic withdrawal. Besides, Ukrainian law allows the execution of shareholders agreements with third parties, which is sometimes used as a security.
4 Real Estate Taxes
4.1 Transfer Taxes
Please see to Sections 2.2. and 2.3. regarding taxation of real estate disposal.
4.2 Specific Real Estate Taxes
There are separate taxes on real estate property and land plots in Ukraine.
The land tax is determined by local authorities and, under the general rule, may not exceed 3% of the normative monetary value of the land plot. However, the exact rate depends on whether the normative monetary valuation was conducted, what is the designated use of the land plot, and what is the title to the land plot.
The real estate property tax is also determined by the local authorities. Its rate may not exceed 1.5% of the minimum wage (as of January 1 of the relevant calendar year) per square meter of real estate property. In 2024, this is UAH 35.5 (approximately USD 0.87) per square meter.
5 Condominiums
5.1 Legal Framework for Condominiums
In Ukraine, the common property of a multi-apartment building, including technical premises, attics, basements, and other shared areas, is jointly owned and managed by all owners of the apartments and non-residential premises.
Until recently, the joint ownership of common areas in condominiums was often not formally registered. However, since October 2022, co-owners no longer need to take steps to register ownership of common property, as it is automatically done following the acquisition of apartments or non-residential premises in the building.
The management of these shared spaces typically falls under the responsibility of a management company or condominium association. The land plot beneath the building and the adjacent territory is also considered the common property of the co-owners. If the building is located on a state or municipal land plot, the land may be transferred:
- to a management company or condominium association with the right of permanent use; or
- directly to the co-owners with the right of ownership (free of charge) or permanent use (currently unavailable due to the lack of secondary legislation governing such procedures).
If the land plot is privately owned by the developer, the terms of use are determined by mutual agreement with the co-owners. However, a co-owner’s rights to use the land plot cannot be restricted under any circumstances.
5.2 Rights and Duties of Co-Owners
Co-owners in a multi-apartment building can manage common property through either a management company or a condominium association. In a management company setup, co-owners generally have less direct involvement in decision-making, whereas, in a condominium association, they typically enjoy more rights to participate in managing common areas and facilities.
5.3 Liability of Co-Owners
Co-owners in a multi-apartment building may manage common property through either a management company or a condominium association. In a management company setup, co-owners generally have less direct involvement in decision-making. In contrast, within a condominium association, they typically enjoy more rights to participate in managing common areas and facilities.
5.4 Rights and Duties of Condominium Associations
Condominium associations in Ukraine handle the administration of common property, including maintaining payments to be made by the co-owners, managing expenses, contracting with facility management firms, overseeing repairs, leasing out common areas, and pursuing legal actions.
6 Commercial Leases
6.1 Form and Contents of a Lease Agreement
The real estate lease agreement (excluding land plots with separate regulations) must be in writing. If the lease term exceeds three years (or five years for state or municipal property), the agreement must be notarized, and the lease rights must be registered with the Real Estate Register.
If a lease agreement is concluded between two private individuals, it must specify the object of the lease, the rent, and the lease term. The parties are free to set other terms at their discretion.
If one of the parties is a legal entity, the lease agreement must include the following mandatory provisions: (a) the object of the lease (composition and value of the property, including its indexation), (b) the lease term, (c) the lease payment, including its indexation, (d) the procedure for applying depreciation deductions, and (e) the procedure for restoring the leased property and the terms of its return or purchase.
In response to the large-scale invasion of Ukraine by the Russian Federation and the associated risks of property damage or loss, lease agreements now frequently include detailed force majeure clauses, clearly defining how such events as war impact lease obligations and the conditions for suspension or termination.
Furthermore, there is an increased focus on comprehensive pre-termination procedures, specifying the conditions under which a lease can be ended early without penalty. Insurance requirements have also become more stringent, mandating coverage for war-related damages to ensure financial protection.
Additionally, mechanisms for adjusting rent in response to significant disruptions or changes in property conditions are becoming more common, allowing for rent reductions or suspensions when necessary.
6.2 Regulation of Leases
The legal rules governing leases vary based on the property’s ownership type. State and municipal property leases are subject to stricter regulations according to Law of Ukraine “On Lease of State and Municipal Property” No. 157-IX dated October 3, 2019. In these cases, lease agreements are primarily concluded through electronic auctions and must use a sample form approved by the relevant state or local authority. While this sample form serves as a recommended template, parties can mutually agree on amendments to its provisions.
6.3 Registration of Leases
If the lease term exceeds three years, the lease right must be registered with the Real Estate Register.
6.4 Termination of Leases and Renewals
The lease agreement is automatically terminated by law in the event of the death or liquidation of either party.
Under general rules, the parties to a lease agreement can mutually terminate the lease unless the agreement specifies otherwise. The Civil Code of Ukraine outlines specific grounds for terminating a lease agreement:
1) by the landlord if the tenant:
- fails to pay rent for three consecutive months.
- uses the property in violation of the lease agreement or its intended purpose,
- allows another person to use the property without the landlord’s consent,
- neglects the property in a way that poses a risk of damage, or
- fails to undertake required capital repairs when such repairs are the tenant’s responsibility.
2) by the tenant if the landlord:
- provides property that does not meet the quality standards specified in the agreement or its intended use, or
- fails to perform necessary capital repairs as required.
These grounds for termination apply whether or not they are explicitly stated in the lease agreement. Additionally, under the“freedom of contract” principle, the parties may include other grounds for terminating the lease agreement beyond those specified by law.
If either party breaches the lease agreement as outlined above, the affected party may request termination of the lease. Should the other party refuse, the affected party can pursue termination through the courts.
The lease agreement will be automatically renewed if the tenant continues to use the property for up to one month after the lease’s termination, provided the landlord does not object.
In addition, a tenant who complies with the lease agreement has a pre-emptive right to renew the lease. To exercise this right, the tenant must notify the landlord of their intention before the current lease expires. The landlord may, however, propose changes to the terms of the new lease.
6.5 Rent Regulations and Rent Reviews
The parties involved in the lease agreement determine the rent at their discretion. The lease agreement or applicable laws (specifically for leasing state and municipal property) may allow for periodic review and adjustment (indexation) of the rent.
If circumstances beyond the tenant’s control significantly reduce their ability to use the property, the tenant is entitled to request a reduction in rent. Additionally, the tenant may be exempt from paying rent for the period during which they could not use the property due to circumstances beyond their control. In both cases, the tenant is responsible for proving the impossibility of using the property.
6.6 Services To Be Provided Together With the Lease
In practice, landlords commonly handle utility payments (water supply, sewerage, electricity, gas supply) directly, subsequently invoicing tenants for reimbursement. In commercial leases, landlords frequently include supplementary services beyond rent and utilities, charging exploitation (operation) fees. These services typically encompass security, cleaning, maintenance of ventilation and air-conditioning systems, maintenance of common areas, etc.
6.7 Fit-Out Works and Their Regulation
The tenant may only make improvements to the leased property with the landlord’s consent. If the landlord grants consent, the tenant is entitled to reimbursement for necessary expenses or may offset these costs against the rent payments.
If the improvements are separable from the property without causing damage, the tenant has the right to remove them.
Should the improvements result in creating a new asset with the landlord’s consent, the tenant becomes a co-owner of this new asset. The tenant’s ownership share shall correspond to the investments made for improvements unless otherwise stipulated by the lease agreement or law.
If the leased property is used for the tenant’s business operations, expenses incurred for fitting out the property (including depreciation) can be deducted from taxable income, contingent upon meeting specific criteria.
6.8 Transfer of Leases and Leased Assets
Under the general rule, the new owner of the leased property automatically assumes the role of landlord. However, the parties to the lease agreement may determine that disposing of the property to another party can terminate the lease agreement.
7 Zoning and Planning
7.1 How Are Use, Planning, and Zoning Restrictions on Real Estate Regulated?
Town planning in Ukraine is regulated by the Law of Ukraine “On Regulation of Town-Planning Activity” No. 3038-VI dated February 17, 2011. The law sets the hierarchy of town planning documentation and regulates the application of each type.
The law requires that acquiring title to municipal or state land plots for construction, changing the land plot’s designated use, and obtaining initial data for construction should strictly comply with the town planning documentation covering the respective territory.
Town planning documentation is distinguished based on the territory coverage, namely state (general planning scheme), regional (planning schemes of the regions), and local. The state and regional ones are generally rather broad and do not directly influence the way in which a particular land plot or real estate is used.
There are the following types of local town planning documentation:
(i) a complex plan (covers a territorial community);
(ii) a general plan (covers a town or a village); and
(iii) a detailed plan (details a part of a complex or general plan). A detailed plan is usually developed to enable a particular construction project. It determines the planning, organization, and development of a part of a given territory. It also defines the spatial composition, parameters for construction, and landscape organization of a given territory.
7.2 Can a Planning/Zoning Decision Be Appealed?
Applicable town planning documentation can be challenged in court once its provisions or adoption procedure contradicts the law.
The most common grounds for challenging are procedural violations during public hearings or inconsistencies with the superior town planning documentation.
If the town planning documentation is declared invalid, depending on the project’s stage, this may result in:
(i) cancellation of the land plot’s transfer into the developer’s ownership/use or challenging the change of the land plot’s designated use; or
(ii) considering the construction which began on the land plot as a squatter development with subsequent cancellation of the construction permitting documents.
