Ukraine real estate tips - Mortgage and lease

Mortgages (Hypotheck)

The Mortgage Act defines a mortgage as a type of performance security for an obligation, whereby (1) real property which remains in the possession and use of the mortgagor is used as security, and (2) in the case of non-performance of the obligation secured by the mortgage, the mortgagee has a priority right to satisfy its claim from the mortgaged property.

Parties wishing to establish a mortgage agreement should bear in mind that, to be effective, a mortgage agreement must be concluded in writing, certified by a notary and registered in the State Registry of Mortgages. A mortgagee should be aware that, although the mortgagee's rights under a mortgage contract take effect from the moment of its notarisation, the priority right of the mortgagee over other possible registered claims to the mortgaged property, including under other mortgages, only takes effect from the moment of the state registration of the mortgage agreement and applies only with respect to subsequently registered claims. The state registration of mortgages is governed by the Resolution of the Cabinet of Ministers of Ukraine of 31 March 2004 On the Temporary Procedure for the State Registration of Mortgages (Mortgage Registration Procedure).

Under Ukrainian law, a mortgage may be enforced based on: (1) a contractual agreement on the settlement of the mortgagee's claim; (2) a decision of a court; or (3) an endorsement on enforcement by a notary. Banks typically enforce their mortgages by contractual agreement or through a notary in order to avoid the time and expense required for court enforcement.

Lease

Leases of offices, residential dwellings and buildings may be validly granted, including to and by foreigners. Leases must be made in writing in the Ukrainian language (but may also exist in dual or multi-language versions). Furthermore, the Civil Code requires a lease agreement for a term of one year or more to be notarised and registered in the State Registry of Agreements.

However, because of some procedural complications and the requirement to pay 1% of the state duty for such registration, many lessors adopt practices intended to avoid this lease contract registration requirement.