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PRESENTATION ULF 2015

Practice Areas Review: Land

Practical Aspects of the Registration of Agricultural Land Lease Agreements

Bate C TOMS

Bate C TOMS

Managing Partner, B.C.Toms & Co. Legal education: Yale Law School (J.D., 1975); Magdalene College, Cambridge University (Law Tripos I; 1972-1973). Mr. Toms admitted to legal practice in the District of Columbia, Virginia and in France

Maksym BORODCHUK

Maksym BORODCHUK

Associate, B.C. Toms & Co. Maksym’s practice focuses on M&A transactions, general real estate, land and corporate issues. His experience includes advising major investment banks and financial institutions on M&A and cross border transactions, in particular for agricultural and real estate investments. He received his LLM degree from the Lviv National University of Ivan Franko and LLM degree from the Catholic University of Lublin

Maksym KOLODII

Maksym KOLODII

Associate, B.C. Toms & Co. A graduate of the Kyiv National Taras Shevchenko University, Institute of International Relations and Northwestern University School of Law (LL.M.). Mr. Kolodii specializes in real estate, corporate and M&A, in particular, acquisitions in the agricultural sector

PROfile

B.C. Toms & Co

Address:
18/1 Prorizna Street, Suite 1,
Kiev, 01001, Ukraine
Tel.:
+380 44 490 6000
Fax:
+380 44 278 6508

B.C. Toms & Co is a multinational law firm of Ukrainian and Western lawyers specializing in Ukrainian law. It was the first Western law firm to open a Kiev office, having focused its practice on Ukraine at its independence in 1991. It is currently among the largest law firms in Ukraine. The firm has recruited and trained its Ukrainian lawyers from among the highest-ranked students at Ukraine’s leading law schools, most of whom have also studied at UK and US law schools as Chevening, Pinchuk, Fulbright and Muskie fellowships. Based on the firm’s practical experience, it has written numerous articles on Ukrainian law, including the legal section of the American Chamber of Commerce sponsored book Doing Business in Ukraine.

The principal practice areas of B. C. Toms & Co include oil and gas and natural resources, agriculture, banking and finance, M&A, Kyoto Protocol and environment, labor, real estate, bankruptcy and administrative law. In addition, the firm has a successful litigation and arbitration practice. The firm also regularly advises on Ukrainian tax law, including from a multinational tax planning perspective. B. C. Toms & Co has prepared a wide variety of documentation for clients, including Ukrainian law share purchase agreements, asset purchase agreements, joint venture agreements, construction contracts, project financing documentation, production sharing and oil and gas sales agreements, airport investment and management agreements, hotel management agreements, private placement agreements, real estate acquisition agreements, loan agreements, leases and corporate acquisition, agency, distribution, franchise and licensing contracts.

The firm has handled, for example, the first as well as most IPOs in the energy sector and the most recent IPO in the agricultural sector. Based on its 21 years of experience in Ukraine, the firm can provide practical commercial advice on how to establish and develop a business in Ukraine.

It has been over a year since the new land lease registration procedure has been implemented in Ukraine. Despite an intention to make the registration faster and more effective, the new procedure has so far made registration much more difficult and time consuming in practice. This article describes some practical aspects of the current registration process for agricultural land lease agreements in Ukraine, showing how it looks from the inside. 

The Key Authorities Responsible for the Registration of Agricultural Land Leases

All title documents previously issued to the owners of land (i.e. Certificates and State Acts) under the previous registration procedure should continue to confirm title to land, and all land lease agreements previously registered should remain effective. However, in order to sign and register a new land lease agreement after 1 January 2013, a landowner or lessee must register a lease right under the new procedure.

Instead of one land registry, managed by the State Agency for Land Resources of Ukraine (formerly the State Committee for Land Resources of Ukraine) (hereinafter — the Land Agency), the new registration procedure introduces two new registries, and thus unfortunately divides the registration of land ownership and lease rights into the following two stages: (1) first, the land plot should be registered at the State Land Cadastre (hereinafter — the Cadastre); and (2) second, the ownership and lease rights should be registered at the State Registry on Proprietary Rights to Immovable Property and its Encumbrances (hereinafter — the Registry of Rights), either directly at the Registry of Rights or, alternatively, by doing this through a notary.

Cadastre Registration

The Cadastre is managed by the Land Agency, which is now responsible only for the first stage of the registration process. This begins with, at request of a landowner (or a person authorised by the landowner), a land management organisation being engaged to develop the required technical documentation for the land plot and to prepare electronic records during the “formation” of theland plot. The land plot can then be registered by the appropriate local branch of the Land Agency by entering the records on the land plot into the Cadastre. The land plot is deemed to be “formed” from the moment of the assignment for it of a cadastre number and the recording of its specified data into the Cadastre. After the “formation” of the land plot, the Land Agency issues an extract that certifies certain information on the land plot as recorded in the Cadastre.

Registration at Registry of Rights

The second stage of the process, which includes registration of both ownership and lease rights, is based on registration at the Registry of Rights that is managed by the State Registration Service of Ukraine (hereinafter — the Registration Service)1 and its local branches. The registrars of the Registration Service record proprietary rights (i.e. of ownership and lease) after (1) a landowner2  files an application (with a Cadastre extract from the Land Agency) and (2) the Land Agency transfers the respective Cadastre records on this land plot to the Registration Service. The registration of ownership and/or lease rights should then be confirmed by the issuance of the relevant extract by the Registration Service.

The total cost of lease registration at all stages may exceed UAH 400 in official fees, plus the expenses for the development of technical documentation, which can vary depending on the number of land plots currently being “formed”, the location of the land plot, potential problems with the land plot’s coordinates, the quality of the technical equipment possessed by the land management company, etc. As mentioned above, this registration can be carried out through a notary, including to register a lease right, however, the price is usually higher than if this registration is done directly at the Registration Service.

Difficulties with Registrations and Attempts to Cure Problems

As a matter of practice, the process for such registration presently is being hampered by a number of legal deficiencies and other factors. Attempts are presently being made within the Government to facilitate a quick resolution of these problems in order to speed up the registration process.

One of the most serious problems is that required technical data on land privatized by individuals is often absent in the Cadastre. Much of this technical data was developed with old-fashioned mechanical methods and reflected in archaic plans and maps, and it has not been entered and needs to be verified first. Hence, if the technical data on a particular land plot is absent in the Cadastre, such data must be verified or developed by a land management organisation (or by the Cadastre itself) in order for the ownership and leasing of the land plot to be registered. Agricultural companies wishing to lease land plots from landowners usually bear the expenses for the development of such technical documentation and completion of the registration process.

Under the recent amendments to the On the State Registration of Proprietary Rights to Immovable Property and its Encumbrances Act of Ukraine of 1 July 2004, No.1952-IV (hereinafter — the Registration Act), effective as of 1 January 2014, a state registrar must accomplish the registration of a lease right within five business days. Previously, the registrar had 14 business days to complete registration. However, in practice, it usually takes much more time, due to an insufficient number of registrars in some local branches of the state bodies involved, insufficient quantity and poor quality of scanning and copying equipment and other material support, the massive filings of applications in some local branches recently in response to the new requirements for registration, the poor working practices by the Registry of Rights and procedures that are burdensome for the Registry of Rights (thus, the actual registration of one lease agreement can take a registrar at the Registry of Rights a full hour or sometimes much longer).

One of the principal reasons why registrars in local branches of the Registration Service cannot provide effective registration quickly is the inefficient distribution of registrars. For example, some districts that have fewer land plots and many fewer registration applications have many more registrars than those districts having much more land and many more registration applications. The Order of the Ministry of Justice of Ukraine of 1 August 2013, No.1582/5 was introduced to solve this problem, as it permits registrars of local branches to join registrars in other local branches of the same region (oblast’) where necessary to timely process applications due to an insufficient number of registrars or the temporary absence of registrars in a particular branch.

Another practical way to speed up the registration process has been provided for by the “Procedure for State Registration of Proprietary Rights to Immovable Property and its Encumbrances”, approved by the Resolution of the Cabinet of Ministers of Ukraine, No.868 of 17 October 2013 (hereinafter — the Procedure), which entered into force on 12 February 2014. This Procedure provides for the possibility for the simultaneous registration of an ownership right and a lease right to a land plot, whereas previously ownership had to be separately registered first, followed by a second procedure to register a lease. In case a landowner already has a state act containing the cadastral number, there should be no need to “re-register” the title (ownership right) to such land plot in order to lease it — it should only be necessary for the lease right to be registered. In addition, the Procedure permits the mailing or delivery by courier of registration applications, a useful alternative to the prior requirement for all applications to be physically filed by an applicant with the registrar.

A continuing cause of difficulty in the registration process is the software of the Registration Service that was recently developed and is subject to repeated malfunction. By contrast, the software developed much earlier by the Land Agency for the registration process has been recognized as being among the best in the world, and could be the basis for the entire registration process. Many groups opposed moving the final stage of the registration process to the Registration Service, and one solution to now simplify and greatly speed up the registration process would be to again place it all under the unified regulation of the Land Agency, using their previously developed software. Records of encumbrances, etc., could also be managed by the Land Agency, whose software is able to comprehensively store and provide records on legal as well as technical aspects of land plots and buildings and other real estate thereon (e.g. on the location of gas pipes, electricity lines, sewers and other utilities, current usage and gradients of land plots, etc.).

Another problem is that presently most registrars, as required by law, spend significant time scanning and copying registration documentation, using equipment that functions relatively slowly. Simple changes in legislation regulating the registration process, such as to permit applicants to file electronic copies of their applications and supporting materials or to permit registrars to delegate scanning and copying to assistants, would greatly speed up registrations.

Thus, the new procedure for the registration of agricultural land leases during the past year has revealed significant problems. It is hoped that further measures will be urgently undertaken to improve the legislation and administrative procedures governing lease registration.  


1 A governmental body the activities of which are coordinated by the Cabinet of Ministers of Ukraine (hereinafter — the CMU) through the Ministry of Justice of Ukraine.

2 When registering a lease right, the lessor as well as the lessee can file an application.