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THE POWERS OF THE GDIP AS TO REAL ESTATE TRANSACTIONS

Foreign business entities, i.e. non-resident companies, are active participants in transactions as to Kyiv real estate - they purchase and sell real estate, they can be property lessors, as well as property lessees.

Foreign business entities, i.e. non-resident companies, are active participants in transactions as to Kyiv real estate - they purchase and sell real estate, they can be property lessors, as well as property lessees. In July 1997 certain legal restrictions had been introduced as to the rights of a foreign entity to freely purchase or rent real estate. This could only cause disappointment and frustration on the part of foreign companies; particularly companies involved in property investment, since many real estate experts and lawyers consider a non-resident company to be an efficient vehicle for real estate investment, especially in terms of property title holding.

New legal regulations were introduced on 17.07.97. by the Resolution of the Cabinet of Ministers # 670 of 28.06.97. (the Resolution ) "On the changes and additions to the Regulations "On the procedure of accommodation of diplomatic missions, consular offices of foreign states, representative offices of international and foreign organizations in Ukraine" (The Regulations). Under the new version of the Regulations General Directorate of the Services to Foreign Missions (GDIP) was vested with certain powers regarding regulation of real estate transactions in Kyiv involving foreign entities. Before the adoption of the Resolution of the Cabinet of Ministers # 670 foreign entities were free to buy or rent what they wish. After the Resolution had come into force foreign entities were imposed certain restrictions, with the GDIP becoming the regulatory body authorized to regulate the compliance with the new regulations with regard to Kyiv real estate. One should be aware of the fact that as of the moment the Resolution # 670 came into force foreign entities do not have absolute right to purchase or rent real estate in Ukraine.

So let us analyze the nature of the above restrictions, what GDIP is and what its powers are as to the real estate market.

GDIP is a municipal commercial entity within the structure of the Kyiv City State Administration established to provide various services to foreign entities, such as diplomatic and consular missions, offices of international and intergovernmental organizations, representative offices of foreign business entities, as well as non-governmental organizations and representative offices of foreign non-profit organizations. The services GDIP provides comprise accommodation, construction, recruitment of personnel, translation, estate agency services, entertainment and many other various services.

Under the Regulations "On the procedure of accommodation of diplomatic missions, consular offices of foreign states, representative offices of international and foreign organizations in Ukraine" GDIP is authorized to regulate real estate transactions of the following foreign entities and their representative offices:

foreign business entities, i.e. companies, banks; non-governmental organizations (NGO); non-commercial entities, i.e. charity funds, religious organizations, etc. In compliance with article 4 of the Regulations if a foreign entity or its representative office wishes to obtain accommodation in Kyiv, i.e. office premises, it is to apply to the Kyiv City State Administration represented by GDIP. Under article 5 of the Regulations accommodation to foreign entities is to be provided by GDIP, which means to say that foreign entities are to apply to GDIP to obtain accommodation, with the latter offering properties for lease or sale. Although some foreign entities obtain accommodation from GDIP, many of them prefer to buy or lease properties independently, i.e. on the open market.

If a foreign entity is going to act independently, i.e. without GDIP’s assistance, in accordance with article 8 of the Regulations a foreign entity is obliged to notify the GDIP in the event the foreign entity intends to be involved in the following sectors of real estate operations in Kyiv:

property purchase; property lease; land lease; free use of property; reconstruction of a property; change of use of a property. One has to consider that the above types of operations have to relate a property a foreign entity is or is going to be accommodated at.

Based upon such notification GDIP takes decision as to the possibility of the location of a foreign entity at a particular property. GDIP’s decision is taken based upon the official opinion of a number of state institutions. A positive decision is the basis for GDIP’s consent as to a particular real estate operation by a foreign entity.

Under article 9 of the Regulations a foreign entity has the right to implement its intention as to the purchase, rent, use or reconstruction of real estate only after GDIP’s consent has been obtained. We have to consider that in some situations GDIP’s consent may be subject to certain conditions.

According to article 10 of the Regulations notaries certify property purchase contracts only provided that GDIP’s consent has been obtained. "GDIP’s consent" rule applies to the registration by the Bureau of Technical Inventory and commodity exchanges.

Article 11 of the Regulations reads that if a foreign entity purchased, rented, constructed or used a property with a violation of the Regulations, GDIP is entitled to require that this foreign entity waive its right as to the real estate or cease usage of such right.

So, summing up the above a foreign entity or its representative office can buy, rent, reconstruct, use or implement change of use as to real property it is using or is going to use for accommodation only subject to GDIP’s consent. From the legal point of view it is important to understand that GDIP is authorized to regulate the location of a foreign entity, i.e. territorial position. That is why GDIP’s powers are relevant to real estate which a foreign entity is using or is going to use for its own accommodation. Technically GDIP can’t prohibit the transaction itself. But GDIP has the power to prohibit the location of a foreign entity in a certain property. But the mechanism of implementation of these powers is structured through the system of granting consent as to various types of operations relating to real estate.

The above restrictions of foreign entities’ rights with regard to real estate are not unique to Ukraine. The Head of Foreign Representative offices Accommodation Department of GDIP Vladimir Melnichenko explained to us that similar rules exist in the USA, Turkey, Greece and in a number of other countries. Generally, GDIP has a rather flexible and constructive policy. As Vladimir Melnichenko explained nine applicants out of ten normally obtain GDIP’s consent.

As to the application itself the normal term of processing and consideration is one month with a fee of 50 hrivnas. If you wish your application to be considered within 10 days the fee would be 100 hrivnas. And if you wish the application to be considered within 5 days you would have to pay 150 hrivnas.

Regarding property purchase currently it is virtually impossible to circumnavigate "the GDIP’s consent" rule since you will not be able to notarize a property purchase contract and register it with the Bureau of Technical Inventory. As to property lease rather often foreign entities either are not aware of "the GDIP’s consent" rule or tend to ignore it, both of which we would not recommend to do, as a foreign entity will always be running the risk of being required to leave the rented premises. In our view it would be cheaper and quicker in the end just to apply to GDIP, obtain its permission and occupy the premises on totally legitimate grounds.

© 2000 Peter Hackett and Partners (10.08.2000)


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