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Sunday, January 21, 2007

Ukraine real estate tips - How to check and buy

To purchase a building, or office or residential premises within a building, the buyer should verify the seller's title by reviewing the title documents. Traditionally, most state notaries and the Title Registry, where titles are currently registered, would ordinarily only register a transfer of title based on short-form types of contracts, which typically merely state brief details on a transaction without providing for contractual protections for the buyer. However, as the legislation on misrepresentation and fraud is not yet well developed in Ukraine, it is strongly advisable to have more elaborate agreements like those common in the West guaranteeing, for example, the transfer of absolute and unconditional title, the good physical condition of the premises and the absence of any encumbrances, adverse claims and defects or any knowledge thereof.

(a) Information on the Seller

Turning to the title documents that should initially be presented by the seller, ordinarily this includes (1) a certificate of privatization, a purchase contract (usually notarised), evidence of inheritance or gift, or other documents as provided by the law, (2) an extract from the Title Registry confirming the seller's title to the property and (3) certificates from the State Register of Mortgages, the Unified Register of Prohibitions on the Disposal of Immovable Property and other appropriate state registries on the absence of mortgages, arrests, liens and other encumbrances. An individual should also show his or her passport and personal tax number. A corporate seller will need to prove that it validly exists and that its representatives are duly authorized to conclude the purchase transaction.

(b) Documents Required of the Buyer

On the buyer's side, an individual needs to show his or her passport and a corporate buyer must prove its valid existence and the authorization of its representatives. In addition, a foreign company should have a permit from the General Direction for Services to Representative Offices (based in Kiev and known as GDIP) or from the regional state administrations (depending on whether the transaction is in Kiev or elsewhere in Ukraine) for the particular purchase. The notary involved should require the submission of receipts confirming that the state duty and pension fee (each constituting 1 % of the amount of the transaction) have been duly paid. The parties can negotiate who pays the state duty, but the buyer must pay the pension fee.

(c) Due Diligence for Purchases

Before a purchaser completes any acquisition of real estate in Ukraine, a complete due diligence of title, starting with the original transfer from state ownership (if applicable) should be conducted. If a building or other construction was built by the owner, the necessary construction documentation (permissions for construction, and project approvals documentation including the Government Act) should be verified, since the absence of any of the required documents may subsequently lead to a prohibition of any use of the structure that was constructed without proper permissions. The technical description of the property being purchased should correspond exactly to all official records (the technical passport for the property), which should be confirmed in the extract from the Title Registry. This is often a problem in Ukraine where improvements to premises have been made by an owner without the required permissions. The importance of exhaustive due diligence, including practical verifications, for title transfers in Ukraine cannot be overemphasized.

(d) Completion of the Purchase - Notarisation and Registration of Contracts

According to Article 657 of the Civil Code, the purchase contract must be executed in a notary, and the transaction should be listed by the notary in its register of notarial acts. The buyer should then apply for the transfer of the property to be registered at the appropriate Title Registry. Note that under the Civil Code, a purchase contract for real property enters into force only upon its registration by the state.

According to the Resolution of the Cabinet of Ministers of Ukraine of 26 May 2004 On Approval of the Temporary Procedure for the State Registration of Agreements (Temporary Procedure), the registration of a contract for the purchase and sale of real estate must also be carried out in the State Registry of Agreements by the notary who notarises such a contract. The notary should submit the necessary information concerning the contract to the State Registry of Agreements simultaneously with the contract's notarisation, assuming that the notary is for this purpose a registrar and is connected to the state registry's computer system. If the notary does not have access to the State Registry of Agreements' computer system, such a notary should send one copy of the agreement to this State Registry of Agreements on the same day when the agreement is notarised.