Ukrainian Lease Agreements in 2024

As a rule, foreign investors who own real property in Ukraine have to either create a Ukrainian legal entity in order to lease their property or, alternatively, lease their real property though a resident intermediary (registered as a private entrepreneur or a legal entity), who becomes a representative on the basis of a written contract and acts as the tax agent of the non-resident for such income.

It is also important to note that during martial law, lease payments cannot be transferred to a nonresident’s bank account abroad, as cross-border payments from Ukraine are restricted by the National Bank of Ukraine and may be carried out only in exceptional cases, which does not include lease payments.

Immediately below we briefly review three most common types of lease agreements in Ukraine: residential, commercial and land lease.

I. Residential Lease Agreement
Residential lease agreements can range from simple 2-page standard agreements that set out only the basic terms to extremely detailed and highly negotiated documents that protect the tenant’s rights in all situations.

The Ukrainian Civil Code and Residential Code regulate residential leases. Generally, lease provisions are not strictly regulated and are freely negotiable, but the agreement must contain certain essential terms, including amount of rent payment, property description, responsibilities of landlord and tenant, term and termination provisions, among others.

Residential lease agreements are usually entered into on a yearly basis, subject to an automatic renewal, and do not require a notary seal (unless concluded for a term of over three years).

If a foreign investor decides to lease out its property, the income is subject to the same taxation rules and tax rates as Ukrainian residents. The general income tax rate (tax on income of individuals) is 18%. The tax amount based on the amount of rent provided for in the lease agreement.

II. Commercial Lease Agreement
Most commercial offices and retail stores, as well as industrial spaces, are available through a commercial lease. A standard commercial lease agreement contains a detailed description of the leased property, term, amount of rent and currency (and rent indexation), renovation of the property, utilities and service charges, improvements to the leased property and their compensation, security deposits, lease term extensions and early termination provisions, liabilities of the parties, conditions for return of the leased property to the landlord, etc. The lease agreement may also contain a provision that allows tenants to sub-let some or all of the premises (with or without prior written consent of the landlord).

As elsewhere in the world, payment terms in commercial leases are subject to negotiations between the parties. The lease agreement usually requires a tenant to pay basic rent plus service charges, utility and common area maintenance charges, and a management fee. In a retail lease agreement, a tenant’s rent may include a fixed amount of rent plus a percentage of annual sales.

While rent must be paid in Ukrainian hryvnia, it is often pegged to its equivalent in freely convertible currencies such as USD or EUR. If the rent is expressed in hryvnia, however, the parties often agree on monthly indexation based on the exchange rate of USD/EUR to hryvnia. As a protection against inflation, the parties also often agree that for each subsequent year, the rent amount will increase based on the consumer price index or another index they choose. Another option is to adjust the rent every 3-5 years based on independent assessment of fair market price at the time.

With reference to lease term, two types of commercial leases exist: fixed-term leases or leases for an indefinite period. Short-term leases (less than three years) do not need to be notarized, but if the lease term exceeds three years, the agreement must be notarized and the lease has to be registered with the State Register of Proprietary Rights to Real Estate. In order to avoid additional expense and hassle associated with notarization and state registration of lease rights, commercial leases are often concluded for up to three years with a right of automatic extension.

In any lease transaction, prior to signing the agreement, the tenant’s lawyers usually review the title to the property and any encumbrance-related documents, as well as all other agreements related to the transaction, such as property management, utilities and service contracts, etc. A quick review of these documents could have a significant impact on the lease agreement terms and conditions (especially the payment terms).

III. Land Lease Agreement
Foreign citizens and foreign legal entities may lease private, municipal, and state-owned lands for agricultural activity and residential and/or public construction.

Land lease agreements can be short-term (up to 5 years) or long-term (up to 50 years) and can be renewed just prior to or upon expiration. The tenant can lease a land plot for various purposes, including construction and further operation of buildings as well as agricultural production. The lease term for commercial agriculture, farming, and personal agriculture should not be less than 7 years, 10 years for enriched land, and 25 years for planting and/or growing perennial crops.

Additionally, a foreign investor can sub-lease land rights in accordance with Law No. 161-XIV “On Land Lease”, dated October 6, 1988, and Article 774 of the Civil Code, which allow the sub-lease of land plots, including agricultural land. In order to sub-lease the land, however, the lease agreement must have a sub-lease clause; otherwise, the tenant must obtain written consent from the landowner for sublease.

Ukrainian legislation provides the material terms and conditions which must be included in all land lease agreements, including:

(1) The object of lease (location and size);
(2) The validity term of the lease agreement;
(3) The lease payment (amount, indexation, form of payment, payment terms and procedures, and liability for late payments or failure to pay);
(4) The terms and conditions of use and the purposeful designation of the land plot;
(5) The terms for maintaining the condition of the plot;
(6) The conditions for the transfer of the plot to the lessee;
(7) The conditions for the return of the plot to the lessor;
(8) Any existing limitations and encumbrances with regard to the use of the land plot;
(9) The party (lessor or lessee) that bears the risk of accidental damage or destruction of the leased object, or any part thereof; and
(10) The liability of the parties.

The absence of any one of these essential terms may serve as grounds for the refusal to register a lease agreement, and such lease agreement may thereafter be deemed invalid by a court of law.
In addition to the mandatory terms and conditions, the parties may include any other provisions concerning the quality of the land condition, the procedure for carrying out the obligations of the parties, the obligation to procure insurance for the land, security measures, circumstances which can change or terminate the lease agreement, among others. Thus, lease agreements can be quite flexible, as long as the above obligatory terms are contained therein.

By Frishberg & Partners, Ukraine, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact ukraine@transatlanticlaw.com

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 84 Brook Street, London W1K 5EH, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.