On 1 January 2012, a new property title registration system comes into effect in Ukraine. There is likely to be a suspension in the registration of property rights during the transition period, which might affect pending real estate transactions.

The new title registration system will be based on the Procedure for the State Registration of Property Rights to Real Estate and Their Limitations and the Procedure for Issuance of Extracts from the State Register of Property Rights to Real Estate, which were approved by Resolution No. 703 of the Cabinet of Ministers dated 22 June 2011, as well as Law of Ukraine No. 1878-VI "On Amendments to the Law of Ukraine “On State Registration of Property Rights to Real Estate and Their Limitations”.

The main changes introduced in the title registration system are as follows:

• The State Register of Property Rights to Real Estate (the “Register”) is created. It will contain information about the property, rights to real property, limitations thereto, and holders of such rights. The Register will be administrated by the newly formed State Registration Service of Ukraine (Ukrderzhreyestr) acting under the Ministry of Justice of Ukraine;
• The following types of rights to land and buildings (including unfinished construction) will be subject to registration in the Register:

1. The right of ownership;
2. The right of possession; the right of use, including for agricultural purposes; construction leasehold rights; the right of commercial maintenance and operative administration [of property]; lease rights; mortgage; property trust management;
3. Tax pledge and other encumbrances (e.g. arrest on the basis of court decisions, decisions of law enforcement authorities and the State Enforcement Service, etc.).

The rights specified in sub clauses (b) and (c) above are recognized as accessory to the ownership title and can be registered, subject to certain minor exceptions, only if ownership title to the relevant property has already been registered;

• Registration of the ownership and other rights to real property (or refusal to register such rights) should be completed within 14 business days, while the registration of mortgage (or refusal) should be done within 1 business day following the application date;
• Registration of the rights to a real estate item will be based on its unique registration number, which will be automatically generated for each immovable property when the right to the property is registered for the first time;
• The Register records will not be publically available. Extracts from the Register will be issued within 2 business days to limited persons only, namely: (a) the property owner; (b) the property owner’s successors or heirs; (c) the beneficiary of encumbrances registered regarding the property. Information regarding the property record may also be issued to certain authorities in cases expressly provided by law. Notaries and banks will also be able to use records of the Register subject to regulations to be adopted by the Ministry of Justice of Ukraine.

The launch of the long-awaited unified system for the registration of rights to and encumbrances over real property is seen as a major development in the Ukrainian legal system. It is yet to be seen how the new system will operate in practice. Bringing the new registration system into operation is likely to result in delays in the registration of property rights during the transition period. Accordingly, it is advisable to complete pending real estate transactions before the end of 2011. For those investors whose property transaction will be completed after 01 January 2012, we recommend determining with their Ukrainian counsel how the new registration rules apply in their individual cases in order to comply with the new rules once they come into effect.

Additional notes

This LEGAL ALERT is issued to inform Baker & McKenzie clients and other interested parties of legal developments that may affect or otherwise be of interest to them. The comments above do not constitute legal or other advice and should not be regarded as a substitute for specific advice in individual cases.