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Changes in Ukrainian Real Estate Regulations in 2019

Changes in Ukrainian Real Estate Regulations in 2019

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Ukrainian commercial and residential real estate markets continue to be dynamic and are becoming more and more attractive to both local and foreign investors. The new Ukrainian Parliament, elected in summer 2019, has already passed some laws necessary for the development of the real estate sector and attracting investments to it. Below you will find an overview of the most significant changes in Ukrainian real estate legislation regarding buildings and construction in 2019.

New Concession Legislation

On October 20, 2019, the Law of Ukraine “On Concession” No. 155-IX (the “Law on Concession”), vital in attracting more than USD 30 billion in investments to modernize Ukrainian infrastructure, entered into force.

The Law on Concession envisages that a concession term should be not less than five years (ten years for concessions of highways) and should not exceed 50 years. 

A private legal entity-resident of Ukraine can be a concessionaire if complies with: (i) applicant and participant guidelines, approved by the grantor, and (ii) restrictions on participation in concession tenders prescribed by the Law on Concession.

The Law on Concession provides for three separate private partner selection procedures, namely: (i) a concession tender, (ii) competitive dialog, and (iii) direct negotiations with a tenant of state property. Generally, these procedures may last from six to 18 months.

According to the Law on Concession, parties to the concession agreement may: (i) provide for the application of foreign law, and (ii) choose a dispute resolution venue and procedure.

Despite some controversial provisions of the Law on Concession (,  a questionnable mechanism of terminating third party rights to the land plots, which are required for  concession projects, and the impossibility of changing the concessionaire except through a new tender) we believe that the Law on Concession will enable the successful implementation of concession projects in Ukraine.

New Legislation on Lease of State and Municipal Property

On October 3, 2019 the Ukrainian Parliament adopted the draft “On Lease of State and Municipal Property” law (the “Law on Lease”). The Law on Lease is expected to become effective on February 2, 2020 with some provisions to enter into force on October 1, 2020.

The Law on Lease sets a new framework for leasing state and municipal objects, by: (i) revising the categories of landlords and tenants, and establishing restrictions for the latter; (ii) providing that state and municipal property may be leased based on a competitive (via eletronic auctions) or non-competitive basis; (iii) expanding the list of objects that may not be leased; and (iv) elaborating on the main aspects of the procedure of transfer of state and municipal objects into lease. 

However, the detailed procedure for state and municipal property leases is expected to be set by a resolution of the Ukrainian Government, and none has yet been adopted. 

Possibility to Privatize New Kinds of State and Municipal Objects

On October 20, 2019, the Law of Ukraine “On List of State Objects that are Not Subject to Privatization” No. 847-XIV expired. Thus, privatization of more than 500 state-owned objects (e.g.,  the Boryspil International Airport in Kyiv, JSC Ukrzaliznytsia (i.e.,  “Ukrainian Railways”), and JSC Ukrposhta), which was prohibited for 20 years, is now possible (although state property located in temporarily-occupied territories is not subject to privatization until the full restoration of the constitutional order of Ukraine within such territories is established).

Abolition of Social Development Contributions for Developers

As of January 1, 2020, developers will not be obliged to contribute to the development of social infrastructure in order to commission the object. 

Currently, local self-government authorities determine the amount of a mandatory contribution, which may not exceed: (i) 10% of the construction value for commercial objects, and (ii) 4% of the construction value for residential objects.

The abolition of the mandatory social development contribution was prompted by: (i) the absence of effective legal mechanisms to ensure that collected sums were used specifically for the development of social infrastructure (i.e.,  and not for other purposes of local self-government authorities), and (ii) an insufficient number of developers complying with the obligation to pay it to local budgets.

Conclusions

We believe that Ukraine will not only successfully implement the necessary reforms in the real estate, infrastructure, and construction sectors, but also that measures will be taken to make sure these reforms cannot be reversed.

By Maksym Maksymenko, Head of Real Estate, Avellum

This Article was originally published in Issue 6.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Ukraine Knowledge Partner

AVELLUM is a leading Ukrainian full service law firm with a key focus on Finance, Corporate, Dispute Resolution, Tax, and Antitrust.

Our aim is to be the firm of choice for large businesses and financial institutions in respect of their most important and challenging transactions.

We build lasting relationships with our clients and make them feel secure in new uncertain economic and legal realities.

We incorporate the most advanced Western legal techniques and practices into our work. By adding our first-hand knowledge, broad industry experience, and unparalleled level of service we deliver the best results to our clients in their business endeavours. Our partners are taking an active role in every transaction and ensure smooth teamwork.

AVELLUM is recognised as one of the leading law firms in Ukraine by various international and Ukrainian legal editions (Chambers, The Legal500, IFLR1000, The Ukrainian Law Firms, and others).

Firm's website: www.avellum.com

 

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