Whenever a foreign investor wants to buy any privately owned piece of real estate, including apartments, freestanding buildings, factories or land plots for construction, certainty about the property's title and the ownership rights to be acquired predominate the agenda. Before handing over any advance payment, an investor is well-advised to perform legal due diligence - the ultimate test for establishing a seller's ownership rights and liabilities. Immediately below we present the key issues of general interest to any foreign investor.
Apartments
In all cases an investor must demand to see the following documents, confirming the seller's (or third persons') rights to the property and the absence of liens and encumbrances:
1. A duly notarized sale-purchase or gift agreement or privatization certificate for the property;
2. A certificate of "technical characteristics" provided by the local Bureau of Technical Inventory (BTI);
3. A certificate from a notary public, evidencing that the property is not secured by collateral or subject to encumbrances;
4. A statement from the municipal utilities bodies that there are no debts for utilities (heat, electricity, telephone services, etc.); and,
5. A certificate from the local residential committee (ZHEK), containing information on all persons registered at the property's address (particularly when a residential apartment is concerned).
In case the alleged owner is a legal entity, the seller's founding and registration documents, among others, are most helpful. If the alleged owner is a natural person, his or her passport and identification must be verified. The potential buyer should also examine whether major alterations not reflected in the BTI's documentation were made in the apartment or building. If so, there may be hitches in the sale-purchase transaction.
Free-Standing Buildings
Today, foreign investors have the right to purchase the land under their privately owned production and storage facilities (provided such land is not designated as agricultural). Therefore, legal due diligence in cases of freestanding buildings is not limited to title search concerning the building. The legal status of the relevant land parcel must also be examined.
Contrary to popular misconception, property ownership records may be found in meticulous order somewhere in the state archives. In fact, we once tracked a complete set of documents dating as far back as 1944 that granted land rights to a Soviet army general, whose children wanted to sell his house to a foreign investor before emigrating. Various excuses, such as lost documents necessary to confirm ownership rights or that a particular document original is somehow inaccessible, are an indication of a potential problem. Insistence on an up-front deposit with a subsequent document review is a common request that we always decline.
In addition to the above documents, whenever purchasing a free standing building, the seller should provide for verification a State Act on ownership of the privatized land plot and an appraisal certificate from the local land resources authority (if the land is sold together with the building thereon). To confirm there are no liens or other encumbrances on the building and the land underneath, just ask for a certificate from the Unified State Register of Liens on Immovable Property, which is accessible by any notary public.
If the real property was acquired during a marriage, other documents may be necessary, such as a spouse's written consent to alienation (unless the land plot was acquired via privatization). If any of the lawful property owners are not of legal age or are legally incapacitated, written consent from a legal guardian must be obtained. Alternatively, the acquisition may be deemed invalid by a court of law sometime in the future.
After reviewing the above documents, any competent real estate lawyer could easily draft a legal opinion confirming or rejecting the ownership rights to any given property.
Acquiring Corporate Rights
In many cases, buying real property can be a time-consuming procedure, especially in cases of large office or residential buildings, prime land for construction purposes or industrial premises (factories). As an alternative to acquiring a building or a factory (or land under construction, which is inalienable until project completion) an investor often prefers to purchase the company that owns the desired real estate object.
This method has significant tax advantages and offers an investor a simpler way to formalize its ownership of large real estate objects in Ukraine. For instance, by purchasing corporate rights (via a sale-purchase agreement) the investor does not have to re-register title to the real property under its control. Structuring such transactions in light of taxation and currency regulations provides additional tax benefits. Naturally, before acquiring corporate rights in any company, a wise investor should perform extensive legal due diligence to examine such company's financial obligations and verify its ownership rights.
In conclusion, successful investment in real property is always grounded in accurate, professional due diligence.
KIRILL ANDRIANOV is a senior associate with Frishberg & Partners,
10 Gorky Street, Suite #8, 3d floor, Kyiv.
Tel: 380 44 585 84 64
/www.frishberg.com
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