Generally, the real estate market is attractive to investors and there have been some positive changes in construction regulation in the past 12 months. These changes have significantly simplified the construction process and made it more transparent. In particular the Law on Regulation of Town Planning Activity and all relevant subordinate legislation:

The registration system for property rights to real estate and land plots has been unified. The new registration procedure is expected to be launched on 1 January 2013. This reform is expected to partly align national legislation with international best practice.

It is expected that investment by retail companies into their retail chains, including those who entered the market in 2011, will increase demand for retail property, which will in turn boost the development of similar projects.

The Union of European Football Associations (UEFA) Euro 2012 football championship is expected to encourage infrastructure projects in the Ukrainian host cities, particularly in the hospitality sector.

However, investors are not generally considering other project development in the near future and due to concerns about a second global financial crisis and political instability and inconsistency in Ukrainian legislation.

The structure most commonly used for real estate investment is a special purpose vehicle (SPV) typically a limited liability company as there:

The incorporation procedure is also simpler and less time consuming compared to other corporate vehicles (such as Joint Stock Companies, Additional Liability Companies, General or Limited Partnerships) and the:

Investment through SPV companies is also typically used due to the:

To invest in land plots, foreign investors usually use a multi-stage structure, involving incorporation of a joint venture in an offshore jurisdiction that owns a Ukrainian company which holds the Ukrainian real estate. These structures are aimed to bypass restrictions on foreign ownership of the land plots (see Question 22).

Real estate investment trust (REIT) structures are not available Ukraine.

Legislation provides for quasi-trust mechanisms for funds deposited by the settlor with the managing company when financing housing construction. Financing of housing construction is performed through special vehicles such as Construction Financing Funds and Real Estate Transactions Funds operated by financial institutions acting as trustees. However, such vehicles have little in common with the common law concept of trust.

Institutional investors (corporate investment funds and mutual investment funds) commonly invest in housing construction as institutional investors can invest in the few investment mechanisms for housing construction available, which are strictly limited by law. Investment and financing of housing construction through private funds from individuals and legal entities can only be done through one of the following:

Institutional investors can invest funds into real estate subject to certain diversification criteria prescribed by law. Diversified investment funds cannot acquire or otherwise invest into real estate more than 10% of the total value of their assets. Non-diversified investment funds cannot acquire, or otherwise invest into real estate, more than 50% of the total value of their assets.

The most commonly used forms of contractual regulation for private investment are:

Investment agreements were developed in practice as a legal instrument for construction financing but cannot be used in housing construction. They are:

Foreign investors and joint ventures, that is, companies established under Ukrainian laws with the participation of foreign and domestic investors, must consider certain restrictions similar to restrictions on foreign ownership of real estate (see Question 22).

The primary sources of law relating to real estate are the:

The following are considered real estate:

Real estate and underlying land plots are considered as having separate ownership rights. The owner has two separate titles:

However, recent legislation establishes in principle the unity of the real estate and the land plot underlying it. According to this principle a transfer of title to the real estate leads to transfer of the title to the land plot underlying it. Therefore, if a house, building or structure is acquired, and the seller owns the freehold title to the underlying land plot it will be transferred to the buyer, with the same designated purpose (Land Code).

If the seller has leasehold title to an underlying land plot, when the house, building or structure is sold, the leasehold title to the underlying land plot will be transferred to the buyer on the same terms and as pertained to the previous tenant. However, in practice, landlords may adjust land lease rent payments.

Title to land plots is not transferred automatically. In leases of state and municipal land, the transfer of leasehold title is done based only on the landlord's decision. However, the buyer has a right to claim transfer of the title to the underlying land plot. The buyer can revert his claim to the courts if the seller/landlord refuses to transfer title to the land plot.

Currently, title (freehold and leasehold) to land plots and other real estate is registered with different authorities, in various registers (information systems) and under different procedures.

From 1 January 2013, all registration of title to land plots and other real estate is scheduled to be done by one authority, the Ministry of Justice and its local offices. Title to land and other real estate will be registered in one register, called the State Register of Property Rights to the Immovable Property and Encumbrances (State Property Register).

Freehold and leasehold title are subject to compulsory state registration and are evidenced by title documents, including:

Freehold and leasehold title to real estate (other than land plots) currently must be registered with the local Bureau of Technical Inventory (BTI), in the State Register of Ownership Rights to Real Estate (State Ownership Register).

From 1 January 2013, all registration of real estate is scheduled to be under the Ministry of Justice and its local offices (see Question 4).

Freehold title to land and land leases are subject to compulsory state registration and are evidenced by title documents, including:

Freehold title to land and land lease agreements are currently registered with the Department for Land Resources, in the State Land Register.

Information on title to land plots and other real estate is not publicly available. It can only be given as an excerpt from the relevant register to the following persons:

Other third parties cannot receive information from the registers.

The following information and documents are included in the State Ownership Register:

The following information and documents are included in the State Land Register:

Information on encumbrances over the real estate (including land plots), such as mortgages, prohibitions on disposal and tax liens, is publicly available and included in the following registers:

The information from the above registers can be obtained by any third party. However, all encumbrances need not be registered by law. Therefore, the public registers only contain the information on registered encumbrances.

Confidential information is protected from disclosure, to the extent that there is limited access to state registers (see Question 6).

The Constitution guarantees that no one can be illegally deprived of his ownership title, since title is inviolable. Forced disposal of property can only be enforced in limited circumstances (see Question 24) and subject to full preliminary compensation of its value. However, state registration does not guarantee inalienability of title, and merely evidences title based on the title documents.

Title insurance is available but not commonly used. Insured events are usually related to the risk of forfeiture of title due to bad faith conduct of previous owners of the real estate.

Legislation provides for the following types of tenure:

Marketing of real estate is mainly done by brokerage agencies, both international and local. The market leaders are CB Richard Ellis, Colliers International, DTZ, Knight Frank and Jones Lang LaSalle. There are no restrictions and legal requirements for brokerage agencies, and no special licence is required to launch a brokerage agency.

Up-to-date information on marketing trends is easily accessible through online sources and the media.

Commercial negotiations are usually arranged at the parties' mutual consent.

Pre-contractual arrangements can be formalised as:

Preliminary agreements bind the parties and create an obligation to enter into a definitive agreement, under the terms of the preliminary agreement.

Parties must conclude the definitive agreement no later than within one year from conclusion of the preliminary agreement, provided however, that the preliminary agreement is between two business entities. If either party to the preliminary agreement does not conclude the definitive agreement, the other party can claim execution of the definitive agreement in court, although this is hardly enforceable in practice. This means, that despite the legal background for such claims, the courts are usually reluctant to satisfy them if there is insufficient proof that a party evaded conclusion of the definitive agreement.

Letters of intent are not binding on the parties and do not create any obligation to enter into a definitive agreement.

Other issues to be considered before entering the sale contract include:

Sale contracts are negotiated and executed by the parties' mutual agreement.

There are no legislative requirements on timing, except where the parties have concluded a preliminary agreement (see above, Pre-contractual arrangements).

The parties become legally bound on notarisation and registration of the sale agreement in the State Deeds Register.

The change of title (the new title) is typically registered within 14 business days from conclusion of the sale contract. In practice, registration may take longer.

A change of title to real estate (other than land plots) is registered by the local BTI in the State Ownership Register. A change of title to a land plot is registered by local offices of the State Agency for Land Resources in the State Land Register.

More complicated procedures apply if state and municipal lands are acquired, due to the involvement of public authorities and lengthy permission procedures.

From 1 January 2013, all registration of real estate title is scheduled to be under the Ministry of Justice and its local offices (see Question 4).

Sale agreements of real estate must be:

State Registration of sale agreements in the State Deeds Register is carried out by a notary, as of the date of notarisation.

The buyer must then submit the sale contract for state registration of title in the State Ownership Register.

Registration of title in the State Ownership Register is compulsory by law. However, under the Civil Code, ownership title arises on notarisation and state registration of the sale contract in the State Deeds Register.

From 1 January 2013, only state registration of title will be required by law and the moment of title transfer will occur at the moment of state registration of ownership title. State registration of sale agreements (State Deeds Register) will no longer be required (see Question 4).

The seller has a statutory obligation to disclose information on any third party rights to the real estate (including tenant rights and pledgee rights). If the seller fails to do so, the buyer is entitled to claim a reduction in the purchase price or termination of the sale contract, provided that the buyer was not aware and could not be aware of the third party rights. If a third party brings a claim against the buyer, about matters that arose before the sale, the seller must participate in the court hearings on the buyer's side.

Real estate transferred by the seller to the buyer must comply with quality requirements as detailed in the sale agreement. The period for bringing a claim for breach of these quality requirements is three years from the date the contract entered into force, unless the contract provides for a longer period.

Before acquisition the seller or the buyer usually carries out due diligence. The scope of due diligence varies depending on the type of deal.

In an asset deal, due diligence usually covers the following:

In a share deal, due diligence is usually more extensive and, in addition to the above, includes:

Information for due diligence can be partly obtained from the following registers:

Information in certain registers can only be obtained by the seller or its authorised representative (see Question 6).

The following real estate warranties are typically given by the seller:

In a share deal, the seller also gives warranties covering all aspects of the target company's good standing.

The enforceability of representations and warranties may be arguable in court, as they are not regulated by Ukrainian law.

Generally, in asset deals the new owner of the real estate is not liable to third parties for matters relating to the real estate if they occurred before it bought the real estate, unless such matters make the sale agreement invalid.

However, the concept of a good faith buyer is underdeveloped in Ukraine. Therefore, the state and municipal authorities' can claim against the current owner of the real estate, regardless of whether the owner has changed after the claimed violation occurred. The new owner must pay any fines and arrears due to environmental damage or compulsory payments that accrued before the sale. The buyer can then file an action for compensation against the seller.

If a seller obtains ownership of real estate through an agreement that is declared invalid the concept of a good faith buyer may be ineffective. In such cases the:

In addition, the buyer must observe third party property rights attaching to the real estate, irrespective of a change of the property's owner. For example, the buyer:

In share deals the target company remains liable for matters relating to the real estate, whether or not they occurred before the sale.

The seller can be liable for matters relating to the real estate if they occurred before the property was sold (see Questions 11 and 14).

Pension fund duty is paid by a buyer of real estate at 1% of the real estate value (excluding VAT), as stated in the sale agreement. In practice, notaries require that the value used to levy pension fund duty is at least its inventory or book value, as stated in the extract from the State Ownership Registry.

State duty is charged at 1% of the contractual value of the real estate.

However, the value used to levy state duty must be at least its inventory or book value, as stated in the extract from the State Ownership Register. State duty is charged by the state notaries and private notaries charge a notary fee, which cannot be less than the amount of state duty.

State duty is usually paid by the seller but can be shared by the contracting parties by their mutual agreement.

Additional costs occur if the sale agreement is administered by real estate brokers and legal advisors. On average, real estate brokers charge about 3-5% of the purchase price. Legal advisors usually provide their services based on the hourly rates of the associates involved in the project. The fees of legal advisors depend on the individual case and on the agreed scope of services.

Direct purchases of real estate in an asset deal are normally subject to VAT. However, the sale of undeveloped plots of land and residential real estate (apart from the first sale) is exempt from VAT. The buyer can fully recover input VAT provided the buyer is registered as a VAT payer and the VAT is attributable to sales subject to VAT made in the course of normal business activities.

Non-residents cannot be registered for VAT other than through their representative office registered in Ukraine. If a non-resident directly, in its name, acquires real estate, VAT charged by resident sellers is a non-resident's cost that cannot be recovered.

The buyer does not pay VAT on an indirect acquisition of real estate through purchasing shares in a company holding real estate. VAT does not apply to share purchases where cash or share-for-share consideration is paid.

In direct purchases of real estate, state duty (notary fee) and pension fund duty are charged (see Question 16).

In a share deal a nominal amount of state duty is paid to the registrar maintaining the State Register of Legal Entities and Individuals-Entrepreneurs for registering changes in shareholding of the charter capital (that is, the aggregated contributions of the company's participants) of the target company holding the real estate. In addition, for joint stock companies, fees are payable to the company's registrar for entering the relevant record in the shareholders' register, if it is maintained by a third party.

There are different tax planning tools for real estate deals, for example:

State construction norms set out requirements aimed to reduce energy consumption. A construction project must fulfil requirements relating to construction materials, including their insulation, wind resistance and technical completion, to ensure energy efficiency.

Legislation also provides technical requirements for greenhouse gas emissions in designing construction documentation, which are verified in the course of state complex expertise of the construction project (state expertise is approval of documentation granted by special expert organisations regardless of their form of ownership, which match with the criteria set forth by the Ministry for Regional Development, Construction and Housing Economy of Ukraine), where such expertise is required by law or performed at the customer's application.

It is not common to outsource real estate management functions. Outsourcing may develop in future, especially considering the growing number of companies providing such management services.

Foreign companies and joint ventures established under Ukrainian laws with foreign and domestic investors intending to directly acquire land plots through asset deals:

Foreign investors and joint ventures purchasing non-agricultural municipal land must obtain approval from the government. The purchase of non-agricultural state land requires approval from parliament.

Acquisition of non-agricultural public land plots (those in state or municipal ownership) by foreign companies is subject to registration in Ukraine of its permanent establishment with a right to conduct business activity. Other temporary restrictions apply to certain types of land.

The State Agency for Land Resources and the courts adhere to the position that acquisition of land plots by Ukrainian companies that are 100% foreign owned is not prescribed in Ukrainian land legislation. Also, it is arguable whether such companies have a legal right to purchase and possess land in Ukraine under current legislation.

Foreign individuals intending to directly acquire land plots through asset deals:

Foreign companies that intend to lease or purchase premises for representative offices in Ukraine must notify in advance the relevant regional state administration or its authorised municipal enterprise (in Kyiv, the General Directorate of Accommodation of Foreign Representative Offices, GDIP). A letter of approval must be obtained before proceeding with the lease or purchase.

A company's change of control can affect its holding of land plots if it becomes a joint venture, which triggers the restrictions on foreign ownership (see Question 22). If a company holding agricultural land becomes a joint venture as a result of a change of control, the company must sell the land plot within one year.

Compulsory purchase by the state is possible in the following circumstances:

The occupation of business premises is not subject to municipal taxes.

The standard options to finance acquisitions of real estate or companies holding real estate are either:

In practice, equity financing is the most commonly used option.

Owners of real estate usually raise finance that is secured by mortgages over the real estate. Alternatively, banks can accept security over real estate rental income from borrowers to secure debt used to buy, construct or reconstruct the real estate.

Mortgages are the only type of security over real estate provided for by legislation.

Mortgage agreements must be in writing, signed and sealed by the parties and notarised. Mortgages over real estate must be registered in the State Mortgages Register.

Failure to comply with the registration requirement does not lead to invalidation of the mortgage agreement, however a mortgagee's unregistered claim will not get priority over registered mortgages and claims of the third parties.

Real estate securitisation is not common.

Leases must contain the essential provisions required by law and cannot conflict with the mandatory provisions prescribed by law, including for example the:

Essential provisions must be included in the lease agreement, such as, for example, the:

Essential provisions vary depending on the leased object (land plot or other real estate) and the contracting parties (business entities, state or municipal authorities acting as a landlord).

If parties fail to agree on all the essential provisions, a lease can be deemed as non-concluded or invalid.

Contractual leases are regulated by the:

In leases of state or municipal property, the essential provisions of the leases are typically defined by the landlord. Leases must contain all essential provisions required by law, and comply with the model land plot lease agreement prescribed by the government.

The legal requirements to execute a lease are that:

The lease right to the real estate, which arises under the lease agreement concluded for the term of not less than three years, is subject to state registration with the BTI.

A lease of a land plot must be:

Notarisation of land plot leases is not required by law but may be required by local regulations.

Review of rent levels is done by the parties' agreement in private real estate leases.

Rent can be reviewed by the parties' agreement in state or municipal land leases, provided that the rent complies with the minimum and maximum rent levels prescribed by law. Rent cannot be more than 12% of the standard valuation and:

Rent for a lease of state or municipal land plots is subject to annual indexation linked to the normative monetary valuation of the land plot. The indexation is based on the indexation co-efficient defined by the State Agency for Land Resources. VAT is payable on rent.

The maximum term of leases of real estate (other than land) is not restricted under law. However, the lease term of land plots cannot be more than 50 years.

Parties prefer to sign leases of less than three years, with a pre-emptive right of renewal, because leases for more than three years require notarisation and state registration. Transaction costs are also minimised. However, international companies tend to execute long-term leases, especially in the retail sector.

By law, tenants have pre-emptive rights to renew the lease at the end of the contractual lease term. Landlords can initiate negotiation of new contractual terms during renewal of the lease. If parties fail to agree on new contractual terms the tenant's pre-emptive renewal right is forfeited.

The assignment of tenant rights is conditional on the landlord's preliminary approval, unless otherwise prescribed in the lease. However, leases of state or municipal land plots cannot be:

The tenant can sublet the lease object with the landlord's approval. Parties can specify the tenant's right to sublet the lease object in the lease.

Sharing business premises with companies in the same corporate group is not common. There is no legislation regulating shared offices.

Minor repairs are usually done by the tenant, unless otherwise prescribed in the lease.

Major repairs are usually done by the landlord, unless otherwise prescribed in the lease.

The tenant is usually responsible for insuring the leased premises.

The landlord can terminate the lease in court in the following circumstances (which can be extended in the lease):

The tenant can terminate the lease in court in the following circumstances (which can be extended in the lease):

Unilateral termination of a lease is prohibited by the Commercial Code.

If the tenant is liquidated (including in case of its insolvency) the lease is terminated.

State and municipal authorities (for example, the Ministry of Regional Development, Construction and Housing Economy, State Architectural and Construction Inspectorate, local municipal councils and local state administrations) (see box, Real estate Organisations) have wide powers to regulate planning issues and legislation.

Local authorities can:

Generally, planning issues are regulated by a number of national laws and regulations as well as regional or local regulations.

Among the most important laws are the:

At the initial stage, the applicant (the owner or tenant) must apply to the executive body of the local municipal council. The following consents are required:

See Question 41.

Any third party whose rights are breached during the construction process through a decision, action or inaction, can seek a remedy in court. Depending on the defendant (including an applicant, state or municipal authority) the claim is heard at the administrative, commercial or district court.

Public inquiries take place to explain local town planning documentation, including:

Public inquiries are organised by local councils and their executive committees.

Town planning conditions and restrictions, and technical specifications, must be issued within ten business days. However, in practice the procedure may take longer.

Any decision, action or lack of action by the state and municipal authorities can be challenged in the administrative courts by applicants. The general limitation period is six months. The procedural details are prescribed in the Code of Administrative Proceedings.

Ukraine is currently reforming land regulation, particularly regulation of the land market and procedures for maintaining the State Land Cadastre. The land moratorium, which currently implies temporary prohibition on alienation and change of designated purpose of certain types of agricultural lands, will be probably annulled along with implementation of the land regulation reform and the land market will become more transparent.