Due to its peculiar characteristics for being the territorial basis for location of various business entities in the last few years, land has been one of the most cost-effective and reliable investment targets in Ukraine. Considering this, one of the most important aspects for creating an investment-favorable environment in Ukraine is improving national policy within the land relations sector, in particular, updating the regulation of the land market with the purpose of establishing transparent, comprehensible, and stable rules of the game on this market, and also ensuring the inviolability of land ownership rights of bona fide owners.

Recent changes in legislation regulating land relations this year highlight the following major trends:

Introduction of a Competitive Sales Mechanism for Privatization Targets and their Related Properties

The privatization mechanism that existed until 2006 provided for the sale of state-owned properties which did not include the land plots on which they were located.

According to the State Budget for 2006 Act of Ukraine, which is aimed at increasing the investment attractiveness of privatization targets, the introduction of competitive sale mechanisms for land plots on which state-owned properties are located, and increasing revenues to the state budget, a series of changes were introduced to land legislation in 2006, which institutionalized privatization of entities and their related land plots*. Under this arrangement, the sale of specified land plots is to be carried out by state privatization bodies at auctions using the procedure established by the Cabinet of Ministers of Ukraine.

In September 2006, the Cabinet of Ministers of Ukraine approved the land plot sale procedures. In particular, these procedures regulate the decision-making process regarding the sale of land plots in conjunction with their respective privatization targets, the improvement of land plots prior to the sale, the procedure for making public information on the privatization target being put up for auction, the auction outcome monitoring and registration procedure of sales results, and the settlement of the acquired property.

In general, the introduction of the privatization mechanism and the new regulations can be considered to be a positive achievement. However, there are certain aspects that remain either unresolved or disputable and a proper adjustment of the latter considerably depends on the efficient functioning of the privatization mechanism, in particular:

(a) State-owned properties to be privatized together with land plots, on which the properties are located, include, most notably, unfinished construction property. At the same time, the existing Land Code of Ukraine links the right of foreign legal entities and joint ventures to acquire land plots for non-agricultural use, located outside built-up localities, exceptional to acquisition of real estate properties, located on such land plots.

Real estate property and unfinished construction property are considered to be different properties of civil use.

Considering the aforesaid, it can be concluded that in accordance with the applicable legislation there are limitations on foreign legal entities and joint ventures to privatize unfinished construction property together with the land plots allotted for them and located outside built-up localities.

Such legislative restrictions do not correspond to the actual conditions of the Ukrainian land market. This situation with the principles of privatization and is not instrumental for achieving privatization goals.

Therefore, it is necessary to introduce changes to the legislation governing foreign legal entities and joint ventures which would grant the right to acquire land plots on which the property of unfinished construction are located regardless of the location of such land plots (be it within the limits of built-up localities or beyond);

(b) Existing legislation makes it obligatory for foreign legal entities and joint ventures to coordinate any issue regarding the sale of land plots, with any state owned property subject to privatization, with the Cabinet of Ministers of Ukraine, and the Supreme Council (Parliament) of Ukraine.

At the same time, existing legislation does not provide any procedure for granting such approval, which contradicts the principle of transparency of rules of the game within the land market.

Consequently, it is very important that issues be resolved that are related to obtaining approval for state-owned property and sales of land plots from the Cabinet of Ministers of Ukraine and the Supreme Council of Ukraine by foreign legal entities and joint ventures (in particular, to fix a stage within which the receipt of the necessary permits and the establishing of relevant procedures, etc, is required.).

Liberalizing the Procedure for Obtaining Approval Documents for Land Plot Development

In September 2006, the Supreme Council of Ukraine introduced changes to the Planning and Land Development Act of Ukraine, which simplified the procedure for obtaining affirmative documents on land development.

Before the corresponding changes were introduced, there had been a procedure for obtaining initial data for urban development and carrying out design and exploration works which was given only to those persons who managed to officially register their ownership right for respective land plots (e.g. they obtained the official document of right to ownership of the land plot and concluded a leasing agreement for the land plot).

Since the corresponding changes came into force, the right to obtain initial data for urban development and the carrying out - of design and exploration works was also granted to legal entities which received approval for the location of such properties by the decisions of respective local councils or their executive bodies.

The changes also stipulated that for designing properties defined as preferential built-up types within a separate area, the general conditions and restrictions on the development of land plots established by local development norms shall be applied as initial data instead of an architectural-design statement.

Recognition of Unfinished Construction Properties as Civil Law Properties and Commissioning them into Civil Circulation

The previous procedure stipulated that prior to the completion of construction works, commissioning and state registration of any real estate property, the person that is carrying out the construction works is considered to be only the owner of materials and equipment used during construction and, therefore, has the right to undertake any legal transactions in respect to such materials and equipment only.

The specified legal legislative restraints do not support the development of mortgage lending and mechanisms of financing house-building through construction financing funds and real estate transaction funds. Obviously, such a state of affairs *did not meet the expectations of financial institutions that play a leading role within this market and were lobbying the introduction of the relevant changes.

The changes to the Civil Code of Ukraine have established a rule according to which any person, who intends to carry out any activity related to an unfinished property, has the right to register the ownership right to the property and undertake any legal transaction in respect thereof.

In May 2006, the Ministry of Justice of Ukraine made certain comments regarding the documents that are used as a basis for registration of the ownership right for unfinished construction properties and procedures for such registration and in conjunction with this legal terms were created that include - infinished construction properties into civil circulation.

Improvement of Moratorium Efficiency on the Alienation of Lands Intended for Commodity Agricultural Production Business Activity

In February 2006, changes were made to the "Transitional Provisions" of the Land Code of Ukraine, which improved the moratorium efficiency on the alienation of lands intended for carrying out commodity-agricultural production business activity.

Prior to the making of the corresponding changes, Clause 15 of the "Transitional Provisions" of the Land Code of Ukraine prohibited any sale or alienation of land plots intended for carrying out commodity agricultural production business activity other than through inheritance and confiscation for public needs.

In fact, there have been many occasions when participants of land relations evaded the corresponding prohibition by issuing power of attorneys (including irrevocable ones) for alienation of the above-mentioned land plots for the future.

In order to put an end to such practices, the introduced changes imperatively establish that any agreement (including power of attorneys) entered into during the moratorium as related to alienation of land plots, intended for carrying out commodity agricultural production business activity, as well as to transfer of rights on alienation of such land plots for the future, shall be deemed void from the moment that they are signed (entered).

This review of basic tends in regulations within the Ukrainian land relations sector in 2006 is indicative of national policy for this sector. Although it is slow moving it is, nevertheless, moving towards the development of a civilized and competitive land market.

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* This institution will remain important in 2007 as well, since the Draft On the State Budget for 2007 Act of Ukraine stipulates the same provisions