Making Sense of Real Estate Transactions
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Ukraine's real estate sector has experienced rapid growth in recent years, and with this growth has come a variety of fraudulent real estate transactions. Recent changes in the law have been aimed at curbing these abuses. Timur Bondarev, attorney-at-law and a partner in Arzinger and Partners international law firm, gives practical advice to anyone considering purchasing real estate in Ukraine
In recent years, Ukraine has experienced substantial investment inflow to finance real estate. With increased investments in real estate, the number of fraudulent transactions in this area has also grown. Many of these bogus sales occur because the buyer often fails to verify the identity and powers of the seller and the authenticity of their ownership documents.
This kind of approach towards real estate transactions may often result in the same asset being sold multiple times to different individuals, each of whom considers himself the sole owner. Obviously, this creates disastrous consequences. To avoid such problems, this article will highlight the most important aspects to consider when buying real estate.
The fact that Ukrainian laws impose no limitations on who can purchase real estate means that foreign legal entities and individuals have the same rights as Ukrainian citizens to purchase, own and dispose of real estate assets within Ukraine. But if you have decided to buy real estate in Ukraine, you will face a number of questions related to this important decision. A real estate purchase transaction should begin with assessing the title deed and verifying that the persons trying to sell the real estate actually have the legal right to do so.
The Right of Ownership
Ukrainian law does not stipulate the format or appearance that a title deed should have. This ambiguity has given rise to a wide variety of documents that require detailed study and examination. To further complicate matters, the range of ownership documents includes not only real estate purchase/sale agreements, but also judicial decisions recognizing ownership, certificates of ownership, etc.
In order for a document of ownership to be valid, it must first be registered with the Bureau of Technical Inventory (BTI), the entity that administers the Registry of Ownership Rights to Real Estate in Ukraine. The BTI also issues confirmation certificates specifying the ownership and value of a piece of real estate. The confirmation certificate must be presented to the notary public when a transaction is pending.
The seller submits the original title deed to the notary when concluding the agreement, and this original is kept in the notary?s records to prevent future fraudulent transactions with the real estate transactions. After the purchase/sale agreement has been signed, it becomes the new title deed and must be registered with the BTI.
The Current State of Real Estate Asset
When considering the purchase of a piece of real estate, the potential buyer should pay particular attention to the state of the real estate asset concerned and should verify that it conforms to all technical documents attached to the title deed. This caution is especially important in cases were the previous owner may have remodeled the real estate asset without getting approval from the proper authorities. In these cases, the new owner can be held liable for violating applicable laws. Moreover, such unauthorized remodeling can jeopardize the structural integrity of the building, resulting in serious damage and possible loss of property and/or life.
The Seller's Powers
When preparing a real estate transaction, one should always verify the powers of the parties involved in general, and especially with respect to the transaction at hand. Whenever the seller is a legal entity, you should check out its Articles of Association and other internal documents that regulate the management bodies of the legal entity in question.
For instance, if the asset to be sold belongs to a legal entity that is a joint-stock company, it is always a good idea to give a close read to the provisions of its Articles of Association that deal with the authority of its management bodies. Also check to see who has the right to make decisions on real estate transactions or to carry out transactions exceeding the amount specified in the Articles of Association.
If the Articles of Association specify that decisions on the sale of real estate are to be made by the general assembly of the supervisory board of the company, the seller must submit the original of the decision made by the company's complement body. This decision should grant the director power to conclude the real estate purchase/sale agreement and should specify the sale price.
Based on our experience, we recommend that issues related to the sale of real estate assets be placed completely under the control of the general assembly or the supervisory board as a safeguard against the unauthorized sale of assets belonging to the company. If a director exceeds his/her authority to conduct a real estate transaction, the buyer can face negative consequences, since the sale agreement can later be ruled invalid.
Whenever the seller is an individual, one should take into account the following: article 65, paragraph 3 of the Family Code of Ukraine says that in order for one spouse to conclude an agreement that requires certification by a notary and public registration, the consent of the other spouse must be given in written form. In addition, a notary must certify the consent of the other spouse. If the other spouse has not given his/her consent to the transaction in question, it can be found invalid.
However, keep in mind that a good notary will thoroughly research the powers of the parties in question and will not allow a party to sign the agreement if they do not have the appropriate powers to execute the given transaction.
Checking with the Prohibitions Registry
When preparing a purchase/sale agreement for a real estate asset, the notary checks with the Prohibition Registry to make sure the real estate asset is not tied up in another legal process (such as collateral for a loan, confiscation for a crime, etc.). The notary will only certify the purchase/sale agreement if there are no charges of this nature against the property.
Notary Certification a Must
Prior to January 1, 2004, real estate asset purchase/sale agreements between legal entities did not require notary certification. Accordingly, the parties involved in such an agreement were able to save money on the state duties levied upon concluding the agreement. Notary certification of an agreement was required only when an individual was involved. However, this practice generated a number of problems related to fraudulent transactions, namely, the same real estate asset being sold several times.
When a notary certifies a real estate purchase/sale agreement, the notary keeps the original title deed, as we already mentioned, making it impossible for any further transactions to take place. The new Civil Code of Ukraine came into force on January 1, 2004. Its Article 657 states that all real estate purchase/sale agreements, regardless of the nature of the parties involved, shall be subject to notary certification and public registration.
State Duties
After a notary certifies a real estate purchase/sale agreement, the parties involved must pay 1% of the sale price in state duties plus another 1% as a contribution to the Pension Fund. These payments are made at the time of the transaction and are paid directly to the notary who certifies the purchase /sale agreement.
According to existing practices, the above-mentioned expenses are shared equally between the parties. However, depending on the situation, the parties may agree on an alternate way to split the expenses. If they do, this change should be clearly stated in the purchase/sale agreement.
Registration of a Real Estate Purchase/Sale Agreement
A real estate purchase/sale agreement must be registered in the BTI. Until it is, it is invalid.
Panorama 9/2004
