Land lease by a legal entity in Ukraine: how to draw up a safe contract?
It is no secret that land in Ukraine is almost the most valuable resource along with other natural resources. And with the opening of the land market this resource will become even more valuable, and thus - attractive for unscrupulous landowners. In this material we will talk about how to save the land plots that you lease and not to end up on the so-called “greenmail” (land blackmail).
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What are the risks of concluding a land lease agreement in Ukraine by a legal entity?
Most cases of loss of a land plot by a company (a leaseholder) occur because the leaseholders do not have correctly drawn up agreements. This usually leads to one or even both of the following problems:
- Late payment of rent or indexation, which leads to termination of the agreement;
- Errors in agreements or during the signing of agreements due to incorrect wording or “amateurism” of other employees, including in-house lawyers or other personnel.
Let’s talk about the risks these situations may lead to:
Late payment of rent or indexation.
As a rule, the rent is paid once a year. And if a one-time late payment is unlikely to bring your landowner to court, two overdue payments may already result in termination of the agreement.
Another problem associated with the payment of indexation is that the land-holder must perform continuous indexation, taking into account the level of inflation or the monetary valuation of the land. The problem had not previously been so significant, but the most recent practice of the Supreme Court, Case No.732/1709/16-z, shows that failure to make such a payment will lead to the termination of the agreement and thus to the loss of the shareholder.
In its position, the Supreme Court equated the non-payment of indexation with the partial payment of rent under the agreement, which was a significant breach of the agreement.
If you have already found yourself in such a situation and understand that you will have to defend your interests in court, we will take care of the reliability of your position.
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Errors in the lease agreement with a legal entity.
The most common mistakes in lease agreements are as follows:1. When signing the agreement, many leaseholders think that it is worthwhile to include a clause in the agreement whereby the shareholder shall apply to the leaseholder to receive money or any other asset for the land lease. But as court practice shows, timely payment is still the responsibility of the company, which rents the land, and, unfortunately, you can’t organize the payment in such a way as not to “run” after a shareholder.
Of course, our lawyers can offer you a couple of alternatives, for example, to open a special account in a bank or at the notary to transfer a monthly certain amount there, which will be considered a payment, but this point must be correctly specified in the agreement and agreed with the landowners. To be safe, you can send the payment by special transfer using postal services. In this case you will have a couple of “tricks up your sleeve” in case of lawsuits.2. Lease agreements sometimes have another “dangerous wording”: they may stipulate that in case of the landowner change (in case of death or transfer of rights to another person), it is necessary to re-sign the agreement. We recommend avoiding such wording, for example by adding a little to the amount of the agreement, but avoiding any further loss of shares for good.
What to consider when drawing up a land lease agreement with a company?
Our land and real estate lawyers recommend that you take into account the following issues when signing a land lease agreement:
- It is not uncommon for a member of the owner’s family to sign a land lease agreement instead of the land owner. We recommend avoiding such situations and checking the signatures on the passport. Who will believe the bare word in court?
- Following the signing and registration of the agreement, we recommend that you check it in the register. The registrars are also people, and may make a mistake when entering the data, which then may also become an additional argument in court for your competitors. Legally, even the difference in one letter can mean that this is a completely different person.
- When signing an additional agreement, firms with large land banks often delay the registration of the agreement, collecting a stack of additional agreements, in order to save their money and time. But due to the constant delay in the registration of agreements, your Client may be visited by a competitor, and if the latter has a competent lawyer, they will be the first to register a new agreement. And in such a situation, you can say goodbye to the money and the Client, and the land.
We advise you not to save money on a lawyer and take care of the quality of the agreement at the very beginning. It is extremely irresponsible to hope that if this agreement is signed somehow, then everything will go well.
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Reliable agreement is your protection against any situation with negative consequences.
If you want to protect your business activity, don’t hesitate to call us. We will both help you with the competent development of the land lease agreement, and provide legal support of the transaction.
Learn more about the Land Law practice here.
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