Crux (#01-02 January-February 2013)

From Stagnation to New Growth

Despite a deficit of funding and debt restructuring taking place in the Ukrainian real estate sector, the past year has seen some revival of the industry. International and Ukrainian retail operators demonstrated development of their networks through property and land lease, widening trade floors and construction of new hypermarkets. The EURO 2012 football championship in Ukraine attracted the interest of international hotel operators, which are gradually stepping into the Ukrainian market and still negotiate with local hotel owners. New regulations on transactional work came into effect in 2013, while judicial practice receives new trends. Our current panel highlights the key points of recent novelties and examines activity in the sector over the past year.

Tymofiy Sikorskiy, senior associate, Salkom

Tymofiy Sikorskiy, senior associate, Salkom

What changes in the procedure for registration of rights to real estate property are expected in 2013? How would the novelties affect transactions in early 2013?

According to the new rules that will come into effect on 1 January 2013, notaries will have the power to register rights to real property transferred in the transactions that result in the accrual or change in such rights. Other administrative bodies, including the Technical Inventory Bureau, will longer be more involved in the process. Besides, changed layouts will not constitute an impediment to the disposal of real property. Upon the execution of a transaction, a notary will register the property right in the register. No other documents are required to be filed with the Technical Inventory Bureau. Hence, the notaries are to become a one-stop registration office for all the transactions with real estate on the secondary real estate market.

Certificates of ownership are issued to new properties. In the past, bodies of local self-government issued such documents. As of 1 January 2013, these administrative bodies will no longer have such powers; instead, uniform certificates will be issued both to land plots and new buildings. In Kiev such uniform certificates will be issued by the Registrar Office of the Chief Justice Department in the city of Kiev at the time of registration of ownership in a new building/structure. Therefore, all rights arising in connection with the construction of new buildings/structures (the primary real estate market) will be registered solely by the territorial bodies of the registration office.

This is a very general description of the new system of registration of rights to real property. So far, the new mechanism has been tried in test mode only and appeared imperfect. In the view of many notaries, the system is far too complicated and the electronic registration database of property rights is not complete. Hence, at the moment, it is unlikely that there will be any steep rise in transactions with real estate in early 2013; however, the market may pick up by the mid-year.

Viktoriya Demydenko, associate, Asters

Viktoriya Demydenko, associate, Asters

What type of development projects have been implemented in Ukraine in 2012? What players have been the most visible, and why?

As of 2009 due to the economic downturn, many real estate developments in Ukraine were suspended. This primarily concerned the loan-backed developments. In 2012 a number of commercial properties were commissioned; they were, predominantly, those built by major developers, financed by their own capital and having significant competitive potential. The names include KAN Development, Ukrainian Development Partners (UDP), Arricano Group, Merged Company SG (Stolitsa Group).

The largest retail projects are Ocean Plaza, developed by UDP jointly with KAN Development as a managing partner and SC Ray ON developed by Arricano Group. On the residential real estate market the projects of KAN Development, UDP and Stolitsa Group appear to have attracted the interest of substantial buyers. Major office buildings commissioned in 2012 such as 101 Tower BC and Gulliver BC were developed by KAN Development and UDP, respectively.

Kiev’s historically existing demand for quality hotels became more intense due to the EURO 2012 football championship hosted jointly by Ukraine and Poland. Many hotel projects were carried out this year in order to accommodate a growing number of visitors (some others, although not yet complete, remain in progress). The largest hotel projects include the Fairmont Grand Hotel Kyiv opened under the Fairmont Hotels & Resorts brand, Ramada Encore Kyiv opened under the Wyndham Hotel Group brand, Sheraton Kiev Olympiysky opened by Starwood Hotels & Resorts Worldwide, Inc.

Alexander Tretiakov, senior lawyer, Antika Law Firm

Alexander Tretiakov, senior lawyer, Antika Law Firm

In what instances it is necessary to obtain a permit for concentration from the AMCU when a leaseholder invests in commercial real estate? Have there been instances of the regulator imposing fines?

Considering the requirement to obtain approval of the Antimonopoly Committee of Ukraine on concentration in the form of purchasing or leasing property, one should consider two key points. Firstly, the Committee developed its own approach to define “integral property complex” (IPC), which differs from the term used in the legislation. According to the approach of the AMCU an integral property complex is a property on the basis of which a person is able to produce goods or services.

Secondly, the Committee always estimates the deal on actual status of the object, rather than on the wording of the agreement and so that is why it does not matter how the object was defined in the agreement as IPC, or simply as a property. The agreement may still comply with legal requirements to obtain a permit for concentration if the AMCU considers the object as an integral property complex.

It should be mentioned that the Committee established practice to bring to liability for purchasing and leasing property without permission, although this practice is restricted. In particular, in most cases of AMCU investigations, the violations are related to purchasing and leasing of petrol stations. Thus, according to the Committee’s point of view even leasing petrol stations as a set of equipment (i.e. not even as property) is subject to the requirement to obtain permission for concentration.

There is no practice of investigating violations regarding trade and commercial property. However, taking into account the size of fines for violations of the legislation on protection of economic competition, it is necessary to study the issue of obtaining permit for concentration while concluding property agreements.

Natalia Yavorskaya, judicial practice manager, Law Firm Constructive Lawyers

Natalia Yavorskaya, judicial practice manager, Law Firm Constructive Lawyers

Please, describe the key trends in judicial practice regarding real estate transactions.

Analysis of judicial practice indicates that the majority of disputes concerning real estate arise from credit relationships. The most common claims in this area have been claims to recognize mortgage and surety agreements invalid, and to terminate them. Such disputes are caused by both objective and subjective reasons. On one hand, the gradual growth of foreign exchange rate and lower incomes of debtors became the reasons why they are not able to meet their contractual obligations under secured credit agreements and, on the other hand, it is the usual reluctance of debtors to fulfill terms of agreements. The failure to fulfill requirements, compliance with which is necessary for a transaction to be valid, no liability for non-compliance, inadequate legislation, and various judicial practices provide debtors a great opportunity to launch long lasting litigations and to delay enforcement of court judgments. Many real estate disputes are cases on invalidation of purchase and sale agreements, deeds of a gift, and agreements on lifetime support. People’s incompetence and credulity contribute to a larger number and improvement of fraudulent schemes when real estate alienation agreements are concluded each year. Claims on termination of agreements on participation in construction of real estate are still topical in judicial practices. They are caused by developers violating the terms of agreements, particularly those regarding deadlines for construction and commissioning.

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