Kyiv Post Legal Quarterly - - News -

De­spite all the dif­fi­cul­ties con­nected with po­lit­i­cal in­sta­bil­ity, the Rus­sian oc­cu­pa­tion of Ukraine’s Crimea, and Rus­sia’s war on Ukraine in the east, cer­tain branches of the econ­omy are show­ing growth. Con­struc­tion is one such branch. Notably, in a sit­u­a­tion in which one third of all banks were de­clared bank­rupt in the last few years, a sig­nif­i­cant num­ber of ci­ti­zens pre­fer keep­ing their sav­ings in the form of real es­tate. That has only in­creased the num­ber of in­vestors and strength­ened the at­trac­tive­ness of the con­struc­tion mar­ket for na­tional and for­eign in­vestors.

On the ba­sis of knowl­edge re­ceived from sup­port­ing con­struc­tion projects since 2010, and ex­pe­ri­ence of par­tic­i­pat­ing in con­struc­tion in­vest­ment projects of var­i­ous de­grees of com­plex­ity, a short list of re­ally use­ful rec­om­men­da­tions has been pre­pared, high­light­ing the is­sues nec­es­sary to pay at­ten­tion to when mak­ing de­ci­sions about con­struc­tion in­vest­ments.

1. Check the records con­cern­ing the in­vest­ment fa­cil­ity care­fully.

When choos­ing an in­vest­ment fa­cil­ity, it is nec­es­sary to pay at­ten­tion not only to its le­gal sta­tus to date, but also to make a ret­ro­spec­tive study: to ob­tain an ex­tract from Town Plan­ning Cadaster, and data from the Prop­erty In­ven­tory and Reg­is­tra­tion Author­ity con­cern­ing his­tory of con­struc­tion ob­ject/ con­struc­tion in progress lo­cated or pre­vi­ously lo­cated on the land plot; to an­a­lyze ti­tle trans­fers and va­lid­ity of grant of a land plot; to know if the land plot de­tailed plan draw­ing-up was started, to size up the pos­si­bil­ity of its ap­proval, as well as pos­si­bil­i­ties of al­ter­ing a land plot’s des­ig­nated pur­pose.

Mala fide pos­ses­sors use widely dif­fer­ent ways to put a gloss or to ster­il­ize the his­tory of real es­tate.

Vi­o­la­tions that took place in the past can be suc­cess­fully con­cealed or hid­den, in­ten­tion­ally or oth­er­wise. Spe­cial at­ten­tion should be given to the data from old (pa­per-based) reg­is­ters con­cern­ing own­er­ship, as well as the mort­gage and en­cum­brance reg­is­ters.

2. Ver­ify con­trac­tor data

It is best to start with get­ting in­for­ma­tion about part­ner com­pa­nies and ben­e­fi­ciary own­ers, and study the reg­is­ter of debtors and bankrupts. The way the con­trac­tor has be­haved in the past can re­flect how the part­ner may be ex­pected to be­have in course of your re­la­tions.

Be­sides, it is nec­es­sary to un­der­stand that this in­for­ma­tion will be stud­ied not only by you, but also by po­ten­tial pur­chasers of your prod­uct, as pro­ject in­vestor cred­i­bil­ity is of great im­por­tance in Ukraine.

If you don’t ac­quire as­sets but en­ter a part­ner­ship for a cer­tain pe­riod, we rec­om­mend you to use an in­stru­ment which is new for Ukraine – an agree­ment to ex­er­cise par­tic­i­pant’s (share­holder’s) rights:

3. En­gage es­crow agents to ar­range pay­ments

You must have been long used to one con­ve­nient and trusted pay­ment mech­a­nism – the es­crow ac­count. But up to December last year, such a mech­a­nism was not present in Ukrainian leg­is­la­tion. Now things have changed. A trusted bank, bro­ker, no­tary, lawyer, etc. can act as an es­crow agent in any trans­ac­tion, in­creas­ing its re­li­a­bil­ity both for seller and pur­chaser.

4. Con­sider the use of in­vest­ment funds in the trans­ac­tion struc­ture

The use of mod­ern in­vest­ment mech­a­nisms in a trans­ac­tion struc­ture en­ables the op­ti­miza­tion of ex­penses on the pur­chase of an as­set, its hold­ing and di­vesti­ture.

This will also al­low you to ob­tain ad­di­tional guar­an­tees and tax pref­er­ences over the whole in­vest­ment cy­cle.

This is cer­tainly not a com­plete list. And of course your lo­cal le­gal ad­vi­sor will give you many other use­ful rec­om­men­da­tions. But these hints are a ba­sic set of rec­om­men­da­tions based on long-term ex­pe­ri­ence and should be used to en­sure a suc­cess­ful and se­cure in­vest­ment.

Kornev Ihor part­ner, at­tor­ney at law and HEAD OF LAND, CON­STRUC­TION, REAL ES­TATE IN­DUS­TRY

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