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Real Estate Reform

Date of publication: 26 February 2013

Maksym Kopeychykov, Partner, Attorney at Law
Leonid Gilevych, Lawyer

Source: The Lawyer

Ukraine is entering 2013 with new rules for the registration of real estate rights. On 1 January 2013 the new procedure for registration of corporeal rights to real estate and their encumbrances, as approved by the Law of Ukraine «On State Registration of Corporeal Rights to Real Estate and their Encumbrances», finally became effective.

The declared purpose of the legislative amendments is to make Ukrainian laws and formalities more consistent, attractive and open for business, as well as more simple and clear for individuals, and to wipe out the bad memories related to the highly bureaucratised registration of real estate titles.

The new rules are intended to make life easier for buyers and sellers of real estate in the secondary market, as well as facilitate the processing of documents in the primary market. From 1 January 2013 the title to real estate will be formalised (by issuing a certificate) and simultaneously being registered by the bodies of the State Registration Service. It means that the owner should not have to go through various authorities to register the title and get the necessary documents.

Up to 31 December 2012, a person selling a property would have to obtain a substantial suite of documents before coming to notary to conclude the sale and purchase agreement. When the agreement was concluded and notarised, it had to be registered by the notary with the State Register of Deeds. The buyer would then have to register the title with the bureau for technical inventory. Ukraine was, perhaps, the only European country where such complicated double registration existed.

The changes are indeed substantial. First of all, the state registration of rights to real estate will now be carried out not by the bureau of technical inventory and the State Agency for Land Resources, but by bodies of the Ministry of Justice (the State Registration Service) and notaries, which is believed to increase the level of comfort and ease with respect to the registration procedure. The State Registration Service will register initially appeared rights, while notaries will register those rights and encumbrances emerging as the result of notarial acts in relation to real estate.

Second, from now on there is a unified procedure for registration of rights to land plots and real estate objects situated on such land plots. Third, all information of registration of real estate rights and their encumbrances must be brought together in the unified State Register of Rights to Real Estate, including all rights and encumbrances in relation to land plots, buildings, structures and parts thereof.

In addition to the above, the amended laws provide for submission of documents for registration by electronic means, possibility to carry out registration of rights simultaneously with notarisation of deeds and other novelties.

Under ideal conditions it will be possible to register ownership of a right to real estate within an hour (although only subject to prior registration of the relevant real estate object with the State Register of Corporeal Rights to Real Estate). Before 2013 the same required at least a week.

The costs for formalisation of deeds related to real estate should also be reduced, since a notary registering a title now requires extracts from only two state registers and not from three, as it did earlier. Thus, the relevant expenses may be about 30 per cent less. However, this will work only after all the real estate is registered in the new register.

It is expected that the simplified registration procedure should positively influence the real estate market in Ukraine.

At the same time, certain downsides of the reform are already visible. For example, the cancellation of an obligatory procedure for technical inventory of real estate objects (absence of requirement to inspect real estate before its alienation to reveal illegal alterations) may be the basis for abuses. Also, the purchase of real estate in accordance with the new and simplified procedure may result in owning a property that has been altered illegally so it will be necessary to «legalise» the alterations made by previous owners.

In addition, because a lot of objects were not included in the Register of Ownership Rights to Real Estate, the sole confirmation of the existence of rights to such objects is papers kept in bureau of technical inventory, so should anything happen to these archives there is a risk of losing the ownership, as it would need to be proved afresh.

Last but not least, the State Registration Service currently faces serious problems with the newly acquired powers related to registration of real estate rights, including a lack of employees and experience and a large amount of applications. These, however, are expected to disappear in due course.