Real estate due diligence in Ukraine


The first most vital step to buy any real estate in Ukraine (residential, commercial, industrial, etc.) is to verify appropriate title documents form the seller (however even Ukrainian corporate entities and private persons in most case have no enough legal knowledge and experience for doing this and normally this work is done by Ukrainian lawyers).

Mainly there are should be at least three documents presented by the seller for verification (due diligence) as regarding the property, namely:

- appropriate title document for the real estate in the issue (it could by certificate of privatization, sale and purchase, exchange (barter), gift, etc. contract of valid form, a judicial award, etc.);

- appropriate reference (extract) from the Uniform State Registry of the Real Estate Rights showing that the seller is owner of the real estate in the issue (such extract can be received at the local Bureau of Technical Inventory (BTI));

- appropriate reference from the Unified State Registry of Encumbrances showing that the real estate is not mortgaged, arrested and has no other encumbrances.

Therewith should be mentioned that this is responsibility of the seller to provide the buyer with all the required and enough title and other documents as concerning the real estate in the issue in order to prove to the buyer and his lawyer his title of ownership and absence of encumbrances. In other words buyer and his lawyer do not have to collect such documents instead the documents are to be collected by the seller (or his lawyer) and presented to the buyer for check-up and verification.

Together with the above documents a wise buyer (and the lawyer at his side) would also require from the seller to present his valid passport and tax number (copies of these documents together with originals of the same in order to be sure that the copies are the exact copies of the originals) – if the seller is a private individual; and accordingly the above documents (valid passport and tax number) of their first manager and appropriate documents proving his powers to sale the real estate – if the seller is a corporate entity (a good lawyer knows exactly which documents are required in this regard).

Another important aspect of the real estate due diligence in Ukraine is the issue of property encumbrances as far as existence of an encumbrance can cause problems at acquisition of the property or later on for acquirer of the same (especially if the acquirer is a foreign corporate entity of a foreign private individual).

Accordingly, while making the real estate due diligence, the main points of the same should include:

- verification (due diligence) of title documents for the real estate provided by the seller. Purpose of such verification first of all is to check if the documents are valid and to analyze entire contents of such documents comparing the same with data available from the state registries;

- verification (due diligence) of the real estate itself (it normally includes verification of the real estate background (history) and check-up for existence of any encumbrances related to the real estate in the issue). Verification of the real estate history is very important when buying the real estate on the secondary market (i.e. the real estate, which was previously owned by several owners and accordingly there is appropriate chain of transactions, which have finally led to its acquisition by the present owner). Each cell of such chain (i.e. each transaction) is important to be verified as far as any "legal defect" in any separate element of this chain can lead to serious problems for the new buyer, the more "elements" in the chain we have, the higher is the possibility that either of such "elements" has a "legal defect", which in general can lead to restitution of the real estate from the last buyer. There are possible situations, when after the purchase there can be a judicial award recognizing the right of ownership for the real estate in the issue belonging to some one of the previous owners of the same or to a third party and obligating the last seller to return the money received for the last sale and purchase of the real estate in the issue. Accordingly, the first part of such judicial award is easily enforceable as far as the judicial award is recognized to be the title document and grounds for the state registration of such title. But the other part of such judicial award prescribing to return the money to the last buyer can be practically impossible to be implemented if the last seller has no enough money and other assets to return appropriate money amount to the last buyer.

- verification of seller's background and if the seller is a corporate entity – accordingly due diligence is to include also verification of powers of the person, which acts for and on behalf of the corporate entity, if such persons were criminally liable earlier, and accordingly if the corporate entity exists and stands good (i.e. is not in the process of termination, bankruptcy, etc.).

- and finally the entire due diligence of the proposed transaction scheme (i.e. to be sure that such scheme practically does not allow fraud against the client and if the same allows – then the lawyer has to propose the other scheme for the planed transaction, which prevents possibility of a fraud or significantly minimizes risks of the same).

Once the due diligence is finished the customer is provided with appropriate written report with reasonable findings, risks evaluation and some practical legal advices. The same also can be accomplished with verbal explanations and subsequent legal advices and consultations if required.

Sought full due diligence is vitally required when considering purchase of the real estate in Ukraine (especially on the Ukrainian secondary real estate market), the client can order only either part of full due diligence as well.

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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