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NEW SYSTEM OF REGISTRATION OF PROPRIETARY RIGHTS AND ENCUMBRANCES OVER REAL PROPERTY
DLA Piper Ukraine, Kyiv, Ukraine, Monday, January 28, 2013
On 1 January 2013, a new system of registration of proprietary rights and encumbrances over real property entered into force pursuant to the restated Law of Ukraine “On State Registration of Proprietary Rights to Real Property and Their Encumbrances”, No. 1952-IV, dated 1 July 2004 (the "Law") .
The new system represents a comprehensive reform in the field of registration of proprietary rights and encumbrances over real property; that has been implemented by the Ukrainian government in recent years to harmonise the system with EU standards.
The key idea underlying the new system is to incorporate into one unified register information about all existing rights to and encumbrances over real property (right of ownership, use (lease) right, pledge/mortgage/seizure of such property, etc.) and the land plot on which that real property is located.
For this purpose, the information about real property which was previously maintained in four different registers (Register of Ownership Rights to Real Property, Unified Register of Prohibitions of Alienations of Real Property, State Register of Mortgages and State Register of Encumbrances Over Movable Property (which dealt with tax liens on real property)), with effect from 1 January 2013, should be transferred to the new unified register, i.e. the State Register of Proprietary Rights and Encumbrances Over Real Property (the "State Register").
The State Register has already been established and certain information has already been transferred to it (please see our comments below). A newly created body, the State Registration at the Ministry of Justice of Ukraine, is in charge of maintaining the State Register. The bodies that were previously authorized to register the relevant rights, i.e. municipal Bureaus of Technical Inventory ("BTI") being sub-divisions of the State Agency of Ukraine for Land Resources, and notaries to an extent, have lost their powers for registration of title documents, proprietary rights and encumbrances.
Below, we address the principal issues and novelties to be considered in connection with introduction of the new system of registration of proprietary rights and encumbrances over real property.
Proprietary Rights and Encumbrances Subject to Registration
As a result of the introduction of the new registration system, from 1 January 2013, registration of title documents to real property (ownership certificates, state acts, lease agreements, etc.) was replaced by the registration of the relevant proprietary rights and encumbrances.
The Law defines real property as "land plots and facilities located on a land plot, which cannot be removed without their devaluation or change of their designated use". According to the Law, green plantations and small architectural forms shall not be treated as real property.
The following proprietary rights and encumbrances over real property shall be subject to mandatory registration:
1) ownership right to real property (including land plots);
2) right of possession; right of use (easement); right to use land plot for agricultural needs; right to develop land plot (superficies); right of economic management; right of operational use; right of permanent use and right to lease a land plot; right to use (lease, rent) a building or other capital structures, their parts; mortgage; property trust;
3) other proprietary rights according to law;
4) tax lien imposed on real property and other encumbrances.
The proprietary rights specified in clauses 2-3 above represent secondary rights and shall be subject to registration, upon registration of the ownership right to real property in the State Register. Theoretically, encumbrances over real estate (for example, mortgages) can be registered prior to registration of the relevant right with a special section of the State Register; however, in practice such registration is still refused before registration of the ownership right.
According to the Law, all of the above listed rights and encumbrances over real property come into existence at the time of their state registration. However, rights and encumbrances accrued before 1 January 2013 shall still be effective if, at the time they were created, they were registered according to applicable legislation unless such legislation did not require mandatory registration of the relevant rights.
Therefore if a proprietary right has not been registered in the State Register, it will be impossible to undertake any notarial acts with real property, such as to sell real property or to mortgage it.
Note that the Law requires the registration of all lease rights in respect of real property and not just for leases of more than 3 years, this is inconsistent with the Civil Code of Ukraine.
In addition, please note that from 1 January 2013 registration of mortgages with the State Register shall be a pre-condition to its effectiveness but not its priority, as it was before. The priority would depend on the time of registration of the mortgage.
As far as land is concerned, proprietary rights or encumbrances over a land plot can be registered with the State Register upon registration of such land plot with the state land cadaster pursuant to the procedure envisaged by the Law of Ukraine "On State Land Cadaster" No. 3613-VI dated 7 July 2011 and by the Procedure of Conduct of the State Land Cadaster approved by the Resolution of the Cabinet of Ministers of Ukraine No. 1051 dated 17 October 2012.
However, the ownership right to real property, other than land plots, may be registered irrespective of whether or not the ownership right to the land plot underlying such property has been registered. Also, the ownership right to a part of real property (for example, apartment or non-residential premises) may be registered irrespective of whether or not the ownership right to the entire building has been registered.
Bodies in Charge of Registration
From 1 January 2013, proprietary rights and encumbrances over real property shall be registered by state registrars of the State Registration Service, as well as notaries as special subjects of registration of rights and encumbrances.
However, the state registrars are generally responsible for "initial" registration of proprietary rights (for example, in case of registration of rights to a constructed real property), while notaries register the proprietary rights which arise/change/terminate on the basis of the deeds certified by such notaries. Also, notaries, unlike the state registrars, are not authorized to maintain registration files and issue ownership certificates to real property.
Currently, BTIs remain in charge of technical inventory of real property. Sub-divisions of the State Agency of Ukraine for Land Resources are responsible for maintenance of the state land cadastre, evaluation of lands, etc.
Registration Procedure
As indicated above, although the legislation does not require re-registration of existing proprietary rights and encumbrances over real property with the State Register, in practice this may be necessary.
The existing procedure of registration of rights and encumbrances in respect of real property is stipulated by the Procedure of State Registration of Proprietary Rights to Real Property and Their Encumbrances approved by the Resolution of the Cabinet of Ministers of Ukraine No. 703 dated 22 June 2011 and, theoretically, it is transparent and straight-forward.
In particular, in order to register a proprietary right to real property, an applicant shall provide the state registrar or notary the following documents: application for registration of rights; a document confirming origination/change/termination of rights; a document confirming payment of state duties for issuance of extract on registration; identification documents and documents confirming authority of the applicant. Similar procedure is set out for registration of encumbrances.
The state registration of proprietary rights is performed at the registration authority where the real property is Iocated; encumbrances may be registered at any registration authority, irrespective of the location of the real property.
A decision on registration of rights or a refusal of such registration should be made within 14 business days from the date of submission of the relevant package of documents to the registration authority; on registration of encumbrances - within 10 business days; on registration of mortgage - within 1 business day. These time limits should not be extended.
The Law provides for an exhaustive list of grounds for refusal of registration of rights and encumbrances. Such list includes the following grounds: the right or encumbrance is not one which is registrable according to the Law; real property is located in the territory of a different registration authority; the applicant is not the appropriate person to apply for registration; the documents submitted for registration do not comply with legislative requirements, etc.
Technical errors committed due to incorrect transfer of information from previously existing registers shall not serve as a ground for refusal of registration of rights/encumbrances under the new Law.
In addition, notaries are not entitled to refuse registration of rights or encumbrances on the grounds that the information on the ownership right to the respective real property has not been transferred to the State Register. Nevertheless, this practice is rather widespread at present.
Please note that the rate of state duties for registration of new proprietary rights or encumbrances over real property on the State Register is currently UAH 119 per application (there is no requirement to pay this duty if the right or encumbrance existed before 1 January 2013 and is simply being transferred to the State Register), the fee for issuance of an extract from the State Register is UAH 120; a notary fee of UAH 68 is set if you would like a notary to search for information in the State Register on your behalf.
Receipt of Information from the State Register
Information from the State Register may be received in the form of an extract, summary of information or excerpt.
According to the Law, the right to receive information from the State Register on registered proprietary rights in the form of an extract shall be vested in owners/rights holders, as well as their successors or assignees. Any individual or legal entity is entitled to receive an extract on registration of encumbrances over proprietary rights.
Thus, despite the declaration about publicity of the new registration system the State Register is not fully public.
A summary of information may be received by state government or local government bodies (for example, court, prosecutor's office) in the implementation of their respective mandates.
An excerpt from the State Register shall be provided to an owner or rights holder to inform them about who has received information from the State Register in respect of the ownership or proprietary rights over that real property.
As indicated above, under the Law it is not possible to receive information from the State Register on secondary rights to real property (for example, on pledge or seizure of such property) in cases where the ownership right to it has not been registered (except that state government or local government bodies will still have a right to request a summary of information).
Also, please note that notaries are no longer entitled to provide information from the State Register of proprietary rights (other than during performance of a notarial act with real property); beginning from 1 January 2013 this is a prerogative of the state registrars.
Introduction of a Public Cadastre Map
Another novelty directly related to registration of rights to land plots, effective in the new year, has been the introduction of a public cadastre map.
Such a map is a publicly available database in respect of all land plots located in the territory of Ukraine. The public cadastre map is available at the website of the State Land Agency at http://map.dazru.gov.ua/kadastrova-karta. This map should contain the following information about each land plot registered with the state land cadastre: area and boundaries of a land plot, designated use and cadastral number. However, at present, information on many land plots is either missing or inaccurate.
The State Agency of Ukraine for Land Resources, which is the administrator of the public cadastre map, continues to correct inaccuracies of data contained in it (mainly based on the information obtained from the land owners/users who revealed inaccuracies of data in the cadastre map).
As before, more detailed information on a land plot can be received in the form of an extract from the state land cadastre. Please note that the new procedure of maintenance of the state land cadastre has expanded the scope of persons entitled to receive such extract to include notaries and land surveyors.
Summary
The legislation on registration of proprietary rights and encumbrances over real property, effective from 1 January 2013, currently contains numerous inaccuracies and internal contradictions.
As a result of these inaccuracies and contradictions, as well as due to technical drawbacks of the new registration system, it does not function properly. It seems that it will take at least several months to ensure that the new system operates properly. Nevertheless, the introduction of a unified system of registration of rights to real property and its encumbrances is a necessary and positive step in general. One of the negative aspects is that the new system is not fully public.
Currently, the main problem of the new registration system is an almost complete lack of information in the State Register, which continues to get filled based on declarative principle. As a result of this situation, on practice the rights holders cannot perform any actions with real property prior to registration of ownership rights and other proprietary rights to such property with the State Register.
This situation has arisen because most of the BTIs maintained registration files in hard copies, while the State Register is an electronic database. Accordingly, hardly any information from the BTI's was transferred to the State Register.
We continue to monitor the implementation of the new system of registration of rights and encumbrances over real property and we will keep you up-dated on any developments.
We hope that the information contained in this newsletter will be of service to you.
Please do not hesitate to contact us should you have any questions on the above.
Natalia Kochergina
Partner, Head of Real Estate practice
E natalia.kochergina@dlapiper.com
Sergiy Portnoy
Associate
DLA Piper ukraine llc is part of DLA Piper, a global law firm.
The matters covered in this newsletter are intended as a general overview. This newsletter is not intended, and should not be used, as a substitute for taking legal advice in any specific situation. DLA Piper Ukraine LLC will accept no responsibility for any actions taken or not taken on the basis of this newsletter. If you would like further advice, please contact our Kyiv Team at +380 44 490 9575.
