Buying Property in Ukraine
Initial agreement between the buyer and seller - Preliminary contract
1 - What form can this agreement take? Preliminary contract?
An initial agreement between the buyer and seller may take the form of a preliminary contract. The parties may sign a preliminary contract that generally comprises the essential terms of the main sale agreement.
2 - With whom must the parties (buyer/seller) formalise the initial agreement? Is a legal form imposed?
In order to formalise an initial agreement, the parties must turn to a notary, since in accordance with the law in force in Ukraine, the preliminary contract has to be established in the same form as the main agreement. Since a sale agreement needs to be notarised in accordance with the law, then the preliminary contract too has to be notarised.
3 - What are the legal effects of this preliminary contract? Is a preliminary contract necessary?
One legal effect of the preliminary contract is the signature of the sale agreement by a given deadline. If one of the parties fails to sign the foregoing agreement as set out in the preliminary contract without a valid reason, then the same party will be required to compensate the other for the damage caused by the delay, unless provided for otherwise in the preliminary contract or in civil law rules.
The law does not establish the mandatory requirement to sign a preliminary contract. Very often, it is not signed at all. According to the preliminary contract, the parties merely undertake to sign the main sale agreement in the future, subject to the conditions set out in the preliminary contract.
4 - Are there amounts to be paid, and to whom? Can these amounts be repaid?
According to the agreement reached by the parties when signing a preliminary contract, the buyer may pay the seller a certain sum by way of guarantee of the latter’s commitments.
In the contract, the parties may establish how the aforementioned sum will be used, that is to say:
- in case of cancellation or failure to comply with the commitment to purchase the property by the deadline fixed in the preliminary contract, the sum paid by the buyer when the contract was signed is kept by the seller by way of compensation and is not returned to the buyer;
- in case of cancellation or failure to comply with the commitment to sell the property by the deadline fixed in the preliminary contract without a valid reason, the seller is required to return to the buyer the sum received by way of advance payment and pay the latter the same additional amount by way of compensation for having failed to comply with the terms of this agreement.
5 - Are there any consumer protection measures (cooling-off period, right of withdrawal)?
There are no special conditions or consumer protection measures in the field of real estate.
In general, a seller has to transfer the merchandise, the quality of which has to fulfil the terms of the sale agreement. In the absence of said conditions in sale agreement, a seller is obliged to forward the merchandise for the purposes it is generally used for.
As far as real estate is concerned, a consumer is entitled to file claims, if defaults are identified within three years from the date of transfer to the consumer.
6 - How can I obtain financing? Directly from the banks? Through brokers?
In Ukraine there is no legislation regulating brokering activities in the field of loans, the borrower has to apply directly to a bank. To request financing from a bank, the borrower has to apply in person and have an ID document (passport).
7 - What form does the financing agreement take?
The financing contract is drafted as a private agreement, the notarised form or the notarial certification of signatures are not mandatory. However, if the loan is secured by a mortgage, then the mortgage loan contract is subject to notarial certification.
8 - What do I need to do once I have obtained financing? Who draws up the loan agreement? To whom will the loan be paid?
Usually, a representative of the banking institution prepares the loan agreement. Generally, banks fix certain conditions to secure loans against tangible and intangible assets. In this case, a loan contract and a pledge contract are drafted concurrently.
The pledge contract has to be drawn up in writing and if the loan is secured against property or motor vehicles, then the contract has to be notarised.
The borrower obtains the sum of the loan directly. In case of a loan for the purchase of motor vehicles or real estate, the sum of the loan is generally paid directly to the seller.
9 - What are the usual types of guarantee requested to finance a residential real estate purchase?
The most common guarantees to finance a purchase is a mortgage and/or surety.
10 - How do I constitute a mortgage/other type of security?
A mortgage is constituted on the basis of a notarised mortgage loan agreement following the signature of a loan contract. The mortgage is registered at the national registry of rights in rem in immovable property.
11 - What are the consequences of this mortgage for me?
In general, a mortgage loan agreement contains a clause whereby the creditor has the right to acquire the right of ownership of the mortgaged property if the debtor fails to pay back the debt. The creditor also has the right to ask the notary to impose an enforcement clause (without the need to prove the existence of a loan in court) for the compulsory deduction of the mortgage or to immediately register his right to the property at the registry either through the notary or any other public registration body.
12 - What types of information/documents are required for a real estate sale? Concerning the parties? Concerning the property sold?
For the sale of real estate, it is necessary to provide information on the property, the seller and the buyer.
Concerning the seller/buyer:
1) in the case of a person:
- an ID document (passport, birth certificate, permit of stay);
- a taxpayer card in accordance with the law in force in Ukraine;
- document attesting the powers of the agent acting on behalf of the owner (e.g. power of attorney);
- consent of the other spouse if the property sold or the money used for its purchase is owned jointly.
2) in the case of a legal entity:
- incorporation documents confirmed by the information provided by national registers;
- documents confirming the powers of the bodies and/or officials (e.g. procedure for the election of the head, an employment contract, appointment order, etc.);
- ID document of the person authorised to represent a legal entity.
Concerning the property:
- ownership titles (e.g. contract of sale, deed of gift, certificate of inheritance, ownership title certificate, court decision, landed property deed, etc.);
- document confirming registration of the right of ownership in the relevant registers (e.g. extract of the national real estate register, property registration extract, registration of landed property, etc.);
- report or opinion of experts on the evaluation of the property (to assess taxes and other mandatory payments);
- document confirming the identities of the persons registered as residing in a lodging (so that the notary may check the rights of children, minors, the disabled and persons with diminished capabilities). If among this category there are persons having the right to live in the property up for sale, the authorisation of the guardianship authorities is needed;
- in the case of sale of land, information from the land registry is required on the absence/existence of liens/charges over the land in question;
- information from the land registry on the absence of a property sale ban or seizure of property.
13 - Who collects the information/documents?
The contracting parties have to submit the required documents concerning themselves. Furthermore, a seller has to provide documents on the property sold. Public registry information is collected by the notary who has direct access to data electronically.
14 - How long does it take to obtain this information?
The time needed to collect the information depends on the current situation of the owner. If the seller has the original documents concerning the property and his right of ownership, then obtaining the additional documents may take 3 to 5 days. If the documents regarding the property or the contracting parties are not prepared correctly, the time need to draft the contract of sale can be quite long (one month or more).
Signature of the act
1 - Is there a compulsory form for the sale agreement (e.g. notarised)?
Generally, real estate sale agreements have to be drafted in the form of notarised acts.
If the contracting parties fail to comply with the requirement of a notarised act, then the transaction is void.
By way of exception, a contract of sale regarding real estate used as a tax lien has to be made in writing and its notarial authentication is not mandatory.
2 - If several forms are possible, are some more secure or more risky than others?
Notarised sale agreements are more secure than others.
3 - What is involved in the signature of the act?
To obtain a notarised sale agreement, the parties must apply to a public or private notary and provide all the necessary papers. The authentication of real estate sale agreements is performed either in the place where the property is situated or in the place of residence (place of incorporation) of one of the contracting parties.
The notary establishes the identity of each of the parties to the transaction, determines the civil capacity of persons, checks the legal capacity of legal entities, verifies the powers of attorneys, establishes the actual intentions of each of the contracting parties, as well as the lack of objections to any of the terms of the agreement, etc.
After having accepted all the terms of the sale agreement, the parties sign it in front of the notary. Later, the notary records it in the register of notarised acts, thus attesting the transaction.
The notary makes the notarised act following the payment of fees and, in some cases, following payment of personal income tax and other payments the day when all the necessary documents are submitted. In the absence of the contracting parties or their agents, the performance of notarised acts is not authorised.
4 - What are the resulting rights and obligations?
The seller is entitled to the payment of the sale price and has to hand over the property to the buyer as well as all related accessories and papers (keys, technical passport, etc.). If the right of ownership is transferred to the buyer before the property is actually handed over, then the seller is required to assure the upkeep of the property and prevent its deterioration.
The buyer has to pay the price at the conditions established in the agreement is entitled to take possession of the sold property.
Performance of the contract
Implementation of a certain number of public rights applicable to the sale
1 - What rights must generally be implemented for a real estate sale? Right of first refusal? Preferential right? Compulsory administrative document or authorisation? Etc...
A preferential right is applicable in case of sale of a part of a property owned jointly. In this case, the co-owner has a preferential right over others for the purchase of the foregoing part at the declare sale price, excluding pubic auctions. The seller has to inform the other co-owners of his intention to sell his part, specifying the sale price and terms. If the other co-owners decline their preferential right to purchase or fail to exercise it (within a deadline of one month in the case of immovable property and of ten days since the receipt of the message in the case of movable property), the seller has the right to sell his part to another person.
In case of interdiction, the transaction concerning the sale of property encumbered by debts can only be authenticated with the agreement of the creditor and the buyer concerning the transfer of the debt to the buyer.
Contracts for the sale of property (right of ownership) by a taxpayer whose assets are covered by tax guarantee have to be authenticated and are subject to the written authorisation of the competent tax authority.
In case of contracts involving minors, the disabled and persons with a partial capacity having the right to use or the right of ownership of the property in question, a special authorisation from the guardianship authorities is required.
In the case of a contract for the repurchase of privately owned land for public purposes (in the absence of property, buildings, other real estate or plantations), the notary requires that the decisions of the authorities or the local government be submitted.
2 - Who fulfils the formalities for the implementation of these rights?
The notary fulfils all the formalities for the implementation of these rights.
3 - How and at what point does the buyer become the owner of the property?
The buyer becomes the owner as soon as his right of ownership is recorded in the public register of rights in rem.
4 - At what point is the payment made? By the buyer? To the seller?
The payment of the price is made according to the specific agreement between the parties set out in the contract of sale.
The payment options may be the following:
1. The buyer pays the whole or part of the price prior to receiving the property (advance payment);
2. The buyer pays the full price immediately after the seller hands over the property or following receipt of the title of ownership of the property;
3. The buyer pays the price some time after the property is handed over by means of deferred or staggered payment.
5 - How must I make the payment?
The buyer can pay in cash (if the sum does not exceed 150,000 Hryvnias) and non-cash (for contracts having a value exceeding 150,000 Hryvnias).
6 - How can I guarantee that the mortgages taken on the property against the seller will disappear?
The seller receives the sum regardless of whether the buyer purchases the property with his own funds or by means of a loan. If the property is acquired by means of a loan, the buyer acquires the ownership right, but according to the terms of the mortgage loan contract; the notary has to record the charges and mortgages in the national register of real estate rights, which makes the sale of these assets impossible until the sum is paid back fully to the creditor.
7 - What taxes are usually payable on a real estate sale? Are the rates available on an official website?
When buying or selling real estate, the contracting parties have to pay the following taxes and expenses:
1. In all cases of purchase of real estate (excluding land) the buyer has to pay 1% of the sale price as a compulsory retirement insurance fee;
2. the seller has to pay military taxes and duties, in the cases provided for and the relevant sums are fixed under article 172 of the Tax Code in force in Ukraine.
The sale of immovable property more than once in the course of the fiscal year ,(including land, within the limits of the rules on free privatisation, apartments, rooms, houses, garden houses or parts thereof, including the land on which the asset is found), is not subject to taxation, providing that the seller has owned it for more than three years (with the exception of inherited property).
In all other cases, and for all other assets, the revenue from the sale of real estate is subject to a 5% tax for residents and an 18% tax for non-residents. Furthermore, when calculating the tax, a military tax of 1.5% is added.
Moreover, the parties have to pay at least 1% of the sale price for the services provided by the notary.
All the tax rates can be found on the website of the Verkhovna Rada in Ukraine, and on the websites of the tax authorities.
8 - How and by whom are the taxes calculated?
The taxes for compulsory retirement insurance are calculated and paid by the buyer.
Taxes and the military duties are calculated and paid by the seller of the property.
9 - When and where is the tax payment due?
In accordance with the law in Ukraine, the notary certifies an agreement for the sale of real estate after payment of all the taxes and fees by the contracting parties. These taxes and fees have to paid to the local authorities and the State.
10 - At what point can the new owner take possession of the property (handing over of keys) ?
Based on the agreement reached by the contracting parties, the property can be handed over to the buyer (handing over of keys) when the notarised sale agreement is signed or shortly afterwards.
11 - What is the procedure for publication of the sale agreement?
The acquisition of ownership rights is subject to their entry in the national register of rights in rem in immovable property. The notary who certifies a sale agreement records the rights in the national register. Registration of ownership may be made immediately once the sale agreement is notarised or after the complete fulfilment of all the requirements by the buyer.
12 - Who conducts the formalities of publication of the new ownership?
As of 1st January 2016, the issue of the property title certificate has been abolished in Ukraine. The sale agreement is published by registering the ownership right in the national register. Notaries and individuals accredited with the national register have direct access to the register and record ownership rights. Information on the registration of ownership rights can also be found on the official website of the Ministry of Justice, which everyone has access to.
13 - What are the consequences of this?
Publication establishes the transfer of ownership from the seller to the buyer.