Land issues in Ukraine (general overview)

Land relations in Ukraine it's rather complex and complicated from the legal point of view issue especially as concerning sale and purchase of land plots in Ukraine.

Main legal regulations covering sale and purchase of land plots in Ukraine as well as land rental and use in Ukraine are stipulated by several base legislative regulations as follows:

- the Land Code of Ukraine effective as of January 01, 2002 with numerous subsequent amendments, which are continuously included into the same by Ukrainian Parliament (Verkhovna Rada of Ukraine);

- the Civil Code of Ukraine effective as of January 1, 2004 with numerous subsequent amendments, which are continuously included into the same by Ukrainian Parliament (Verkhovna Rada of Ukraine);

- the Law of Ukraine "On Land Lease" effective as of October 22, 1998 with numerous subsequent amendments, which are continuously included into the same by Ukrainian Parliament (Verkhovna Rada of Ukraine);

- the Law of Ukraine "On Land Fees" effective as of July 01, 1992 with numerous subsequent amendments, which are continuously included into the same by Ukrainian Parliament (Verkhovna Rada of Ukraine);

- the Decree of the Cabinet of Ministers of Ukraine from April 19, 1993 No. 284 "On Procedure of evaluation and indemnification of losses of landlords and land users".

Besides the above regulations there are a lot of other bylaws in Ukraine covering various land issues.

Ukraine is already independent state with established relations of private property for over then ten years, but even after this period of time a lot of people in Ukraine do not realize the real value of property they use, namely the land. We had the same situation with real estate in Ukraine, when most part of the same was belonging to state, but now most part of it is already privatized.

The principal legal regulations covering the land issues are provided in the Land Code of Ukraine as far as it has finally set the land as the object of private ownership rights. So now landowners have the right to sell, exchange, donate or pledge their land plots in Ukraine. This Code also provides the possibility for Ukrainian citizens to privatize a land plot for free (i.e. to get a piece of land into their ownership).

The process with privatization of residential in Ukraine passed much faster then the process of privatization of land due to three main factors:

1) mentality of Ukrainians (privatization is free, but requires to perform certain legal procedure and payment of some minor state duties; in fact it is almost free, but most Ukrainians do not want to be disturbed by performing the required legal procedures and paying any, even symbolic duty, while they can use something for free, until the moment they want to sale this property) | in former USSR flats and houses even being state property were considered as a tradable good; but not land, which was newer traded in former USSA.

2) At the moment we do not have a developed land market in Ukraine as well as do not have effective land regulations.

3) Many Ukrainian people especially those who live in villages are too poor and cannot allow themselves to spend even symbolic money to complete procedure of privatization of their land. Also many people, who do not plan to sale their land do not want to disturb themselves with privatization, because at they moment they anyway can use the state land.

Also here in Ukraine we have a very interesting situation with land within limits of cities: it is very very expensive, but nobody of developers want to buy it (however construction of sky scrapers is very profitable business in Ukraine), because once bought the owner then have to pay the land tax (fee) each year. Therefore developers in Ukraine use to rent such land for a small period of 2 — 3 years, which is required to finish construction of a new building and they return the land in order to have no further unnecessary duties.

No doubt, the adoption of the above Code together with other vital regulations gave the strike for the foreign investment into Ukraine. The most progressive innovation of the Land Code of Ukraine is the concept of private ownership of land. The concepts related to the land use classifications and zoning. Ukrainian lands are divided into a few major categories: residential, industrial and agro-industrial.

Residential lands include land plots used for construction of residential buildings within populated areas, public constructions and other structures of public use. Industrial land includes lands provided for allocation and exploitation of principal and auxiliary buildings and structures of industrial, mining, transportation and other enterprises, including their means of access, communication networks, administrative-infrastructure buildings and other structures.

Another innovation introduced by the Code is the right to pledge (mortgage) privately owned land. The Code also introduces some new concepts in land relations: land servitudes and good-neighborliness.

At the moment the Land Code of Ukraine establishes some limitations mainly regarding sale-purchase of agricultural purpose lands. The Land Code of Ukraine strictly prohibits foreign citizens, foreign corporate entities and governments from acquiring agro-industrial lands. Land lease agreements are the only way foreign investors may get access to the agricultural land. Agricultural land inherited by foreigners must be sold within one year after the inheritance. So, agricultural land may be privately owned by corporate entities and individuals, with exception of the foreigners.

Only members of farmer organizations and former members of collective agricultural enterprises enjoy the right to privatize agricultural land. The agricultural land may only be sold to Ukrainian citizens with a degree in agriculture or work experience in agriculture or who conduct agricultural production activity as well as to Ukrainian corporate entities engaged in such activity.

Nonagricultural land can be acquired by any corporate entity or individual, except for beaches, roads, and strategically important state-owned lands (e.g. lands of railways, airports, pipelines, nuclear energy). There are no significant limitations imposed on a nonresident's ownership of nonagricultural land other than those imposed on Ukrainian residents.

The Land Code of Ukraine together with other Ukrainian regulations in fact provides three types of grounds for using the land plots in Ukraine:

1) the right to use land, which is based on the grounds of ownership of the land (i.e. ownership of land includes the right to use it);

2) the right of permanent use of the land, which is based on appropriate decree of the state authorities (i.e. the right to use the state owned land or the same owned by the municipality);

3) the right to use land on the grounds of the land lease contract (agreement).

The right of permanent use of the land provides the right to possess and use the land plot under state or communal ownership without an expiration term. Unfortunately, this right may only be acquired by enterprises, institutions and organizations, which are state or municipally owned.

Therewith foreign entities and individuals can consider possibility to use the land on the grounds of a land lease contract. The Land Code of Ukraine divides the land lease onto the short-term land lease (not more than five years) and the long-term land lease (not more than 50 years). The Land Code also allows the lessee to sublet the land plot upon consent from the lesser.

Talking about land relations in Ukraine one should keep it in mind that use of land in Ukraine is not free but paid. This rule is set by clause 2 of the Law of Ukraine "On Land Fees", which provides that the land fee is collected either in form of the land tax or in form of lease payments, which is to be established proceeding from the monetary appraisal of the land.

Land tenants have to pay the lease payments and the landlords have to pay the land tax accordingly.

Clause 13 of the Law of Ukraine "On Land Fees" provides that the land tax is collected on the grounds of the state land registry and the land lease payments for the land, which is owned by the State or a municipality, are collected on the grounds of appropriate land lease contract.

The above information is provided herein in educational and informative purposes only. It is provided that you have to get appropriate legal advice as regarding the legal and other issues of your interest in Ukraine in order to have the exact, extensive and up-to-date legal and other related information.

Do not hesitate to contact us if you have any questions or issues of legal nature, our Law Firm is working for you and our experienced legal specialists are always ready to help providing the client with appropriate legal consultations, legal reports and summaries, reasonable legal advices and all the other required legal support, assistance, coverage and protection.

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