Transactional real estate matters during martial law in Ukraine
The restrictions imposed by the Ukrainian Government in relation to real estate matters immediately following the russian aggression against Ukraine on 24 February 2022 have been recently softened to enable basic transactions on the market. This note outlines which transactions are possible and which are not on the real estate market during martial law as of late May 2022. Importantly, further changes should be expected as the situation develops in Ukraine.
As a general remark, martial law in Ukraine does not directly address real estate transactions and so the current restrictions are mostly due to limited operation of the state registers being fundamental for real estate market, i.e. State Register of Proprietary Rights to Real Estate and State Land Cadaster.
- acquisitions and disposals of various real estate assets, including buildings, premises and other properties (the “real property”), construction-in-progress, as well as proprietary rights to the future real property;
- real estate leases, including long term (3+ years) which are subject to notarization;
- mortgages and related transactions such as cession (assignment) under credit and/or mortgage agreements, settlement of mortgagee’s claims;
- establishment of trust in relation to the real property;
- partition (allotment) of the real property, determination of shares in joint ownership;
- any amendments with respect to the above-mentioned agreements, PoAs for disposal of the real estate assets.
Generally, the above list of permitted transactions extends to land. However, due to a number of practicalities (e.g. limited access to the State Land Cadaster by notaries, deficiencies in interaction of public registers, etc.) delays with formalization and implementation of land transactions are not excluded.
- any transactions involving russian nationals, russian companies as well as any other companies having russian nationals as their UBOs or owners of 10 and more per cent interest in the company’s charter capital (the above restriction is not applicable to those russian nationals who are legal residents of Ukraine);
- disposal of the real property within one month since its acquisition (subject to certain exceptions, including as to inherited real property);
- contribution of the real property to charter capital of legal entities as well as transfer of the real property owned by legal entities to shareholders withdrawing from such entities;
- enforcement of a real property collateral securing an individual’s consumer credit (subject to certain conditions and exceptions as established by law);
- use of PoA for disposal, mortgage or establishment of trust in relation to the real property (though, this restriction is not applicable to representatives of legal entities as long as they act under notarized PoAs).
Other important remarks:
- Under general rule, real estate transactions are subject to notarization. During martial law, such notarization may be carried out exclusively by the authorized notaries included into the list of notaries approved by the Ministry of Justice of Ukraine. Notably, there may be individual restrictions for certain notaries as stated in the above list. The list appears to be updated on a rolling basis.
- The Ministry of Justice of Ukraine has approved the list of administrative units which are temporarily not controlled by Ukraine or are battlefields, where the transactions marked above as permitted are still banned. The list appears to be updated on a rolling basis.
- Extra-territorial operation of notary procedures has been temporarily limited as follows. Agreements on disposal and acquisition of the real property, mortgage or establishment of trust in relation to the real property may be entered into and notarized only in notarial districts covering location of the relevant real property. As to the real property located in Kyiv or Kyiv region, the mentioned agreements may be entered into either in notarial districts covering location of the relevant real property or in notarial districts in Kyiv or Kyiv region covering places of registration of parties to the respective agreements.
- Transactional costs (i.e. registration and notary fees, mandatory duties, etc.) have not been affected by martial law.
- During martial law, cross-border settlements between parties to the permitted transactions (as relevant) providing for transfers of money from Ukraine to abroad are banned.
- Structuring of real estate transactions as share deals appear to be complicated, at least at the local level, due to the specific restrictions on corporate registrations and transfers of securities. While this does not directly affect share deals taking place outside Ukraine (and such structures generally remain viable), a number of legal and practical issues may pertain, for instance, to merger filings (as operation of the Antimonopoly Committee of Ukraine remains limited), local disclosure requirements (e.g. impossibility to update UBOs data in the Ukrainian Companies Register following change of control as required by law), complex taxation rules, etc. Such transactions require sophisticated structuring at all levels.