How to check office space before buying in Ukraine?
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Every day, new companies are popping up in Ukraine, and as they grow, the question of where to set up shop becomes crucial for efficient business operations.
But what does a business need to know to safely purchase an office space?
An office is a commercial space with a specific address where a business operates. It could be a standalone building or a unit located in a residential or commercial structure such as an office building or business center.
A space is considered non-residential when it is not suitable for permanent residence as per legislative norms. This means that it cannot be used as a place to live in.
Confirmation of the non-residential status of a space should be included in the sales contract or other legal document, as well as in registration documents that describe the object of the legal relationship as a non-residential space. In the extract from the electronic registry, the column "residential real estate object" must necessarily indicate "NO". Additionally, the technical passport for the real estate object will also indicate its status as non-residential.
However, just meeting the legal definition of an office isn't the only requirement when it comes to buying one in Ukraine. Depending on your type of business, there could be additional rules to follow. For instance, dental clinics can only be located on the first or second floor, and pharmacies must have a minimum area of 50 square meters. If your commercial space is over 300 square meters, you'll also need to make sure your entrance and exit meet fire safety regulations.
Furthermore, there are basic safety requirements for the transaction itself, such as ensuring the legality of the property, ownership rights, and relevant documents.
Today, we'll be discussing how to verify an office space and keep your business safe in the future.
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What documents should you see before buying an office?
When purchasing a commercial office space, the seller is required to provide certain documents to the notary in order to complete the transaction. These documents include:
1) A legal document proving ownership of the commercial property (such as a sales contract, exchange contract, donation contract, inheritance certificate, sales contract of property rights, investment contract, court decision, property division agreement, etc.);
2) A document confirming the state registration of property ownership rights for the office (informational reference from BTI or extract from the electronic register);
3) An expert appraisal of the market value or balance sheet value of the office (if owned by a legal entity);
4) A technical passport for the office space;
5) Certificates confirming the absence of debts for utilities and other services;
6) Consent of the authorities for the protection of children's rights (if the commercial property is owned by a minor);
7) Documents proving ownership or usage rights to the land plot (if selling a standalone building);
8) Documents of the office owner:
- For individuals:
b) tax ID;
c) notarized consent of the spouse (if officially married).
- For legal entities:
a) extract from the state register of legal entities;
c) order appointing the director or power of attorney in the name of another representative;
d) passport and tax ID of the director or another representative by power of attorney;
e) certificate of VAT payer (if the legal entity is a VAT payer).
It's crucial to have every document available and thoroughly checked.
When purchasing an office, it's important to note that the procedure may differ depending on whether you're buying from an individual or a legal entity. Additionally, the verification process for the office's owner will also vary. Let's examine both scenarios in more detail.
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What's the difference between buying an office from an individual or a legal entity?
Buying an office from a legal entity can be much more complicated than buying from an individual. In addition to standard checks, it's necessary to delve into corporate law and carry out additional checks on the legal entity and its representative's powers before finalizing the transaction.
When purchasing office space from an individual, we recommend checking for the following:
- Authenticity and registration of property ownership documents
- Presence of any encumbrances, such as arrests, bans, or mortgages
- Authenticity of the seller's passport and tax identification number to prevent fraud or identity theft
- Verify whether the seller is on the debtor register, as this could prevent the transaction from proceeding
- Look out for any debts, legal disputes, and enforcement proceedings against the office and its owner.
When buying an office from a legal entity, it is necessary to understand its corporate structure to ensure that the transaction is conducted in compliance with corporate procedures. Additional checks need to be carried out on the legal entity itself to ensure the following:
- there are no ongoing legal proceedings against the company for bankruptcy;
- the company has no outstanding tax debts;
- the authority of the signatory of the sale-purchase agreement is verified.
If the property is being sold by an individual, they make all decisions independently, such as whom to sell to, at what price, and whether to sell at all. Such decisions are reflected directly in the contract and do not require additional documents.
In contrast, when dealing with a legal entity, decisions are made according to its organizational and legal form, and in accordance with its charter. Therefore, in addition to documents confirming the right of ownership of the office and the registration of the company, the seller must provide a decision, made in accordance with the norms of the current legislation, on the sale of a specific property, and specify the authorized person to sign the agreement.
In addition, the company's charter may include restrictions on the alienation of property (for example, the director may have the right to sign deals for an amount not exceeding 1,000,000 UAH). If such a limitation is specified in the charter, the legal entity is required to "authorize" the director to sell the property for a specific amount exceeding the limit set in the charter. Failure to comply with this requirement may lead to the invalidation of the sale-purchase transaction in court.
It should also be noted that only a specifically authorized person can fulfill the company's decision, not just anyone who has an employment relationship with the company. This may include:
- The director
- A person authorized to sign without a power of attorney (the details of which must be registered in the state register)
- A person authorized by power of attorney (either an employee of the company or a third party). If a person acting on behalf of the seller – a legal entity – is using a power of attorney, it is necessary to verify the scope of authority specified in the document.
We once had a case where a power of attorney from a company for the sale of a non-residential property allowed the representative to sign only a preliminary agreement for the sale, not the final one. We refused to let our client buy the property under those conditions and insisted on a power of attorney with the necessary level of authority for the representative. As it turned out later, the company had no intention of selling its property, and the employee who had the documents was trying to cause trouble for their former employer.
Buying an office from a legal entity can be more complex than buying from an individual, but it's also a more common occurrence. So let's dive into this process in more detail.
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What do you need to check when buying an office from a legal entity in Ukraine?
When preparing for a deal to buy an office from a legal entity, it is necessary to study a number of documents of the company and its executive bodies, as well as to verify the completeness of the decision on alienation of the object and the authority of the signatory.
Another feature of buying an office from a legal entity is the payment terms. In transactions between individuals, cash payments prevail. However, in transactions with a legal entity, payment can only be made in non-cash form to the seller's bank account, and under no circumstances "in hand" or to the account of a representative of the company who signs the contract. Otherwise, the transaction may be declared invalid by the controlling authorities or even by the seller company itself in court.
In Ukraine, it's common practice to pay for real estate before signing the contract, with the seller confirming receipt of payment at the time of signing. When dealing with individuals, it's often easiest for both parties to open accounts at the same bank branch to speed up the process of transferring funds for the purchase. But when the seller is a legal entity, things can get complicated.
If you're buying from a corporate seller, you'll typically receive confirmation of payment in the form of a certificate issued by the seller. Failure to obtain or provide this certificate can lead to the transaction being declared invalid due to non-payment.
We've even seen cases where the seller dragged their feet on issuing the certificate, and it took our specialists' intervention to get it sorted out and avoid any unpleasant consequences.
At our company, we specialize in conducting property transactions on location at the seller's bank branch. We open an account for the buyer at the same branch in advance, and we don't leave until the funds have been transferred to the seller's account and confirmed by a bank representative.
As a result, our clients walk away from the transaction with a signed contract, registered ownership rights, an original receipt of payment, and no financial obligations or disputes with the buyer.
If you're considering purchasing property from a legal entity and you're unsure of what to look out for during the inspection and signing of the contract, you could overlook crucial details and end up losing money and experiencing unnecessary stress.
Don't take the risk. Let our team of professionals prepare a reliable report for you, assessing the safety of the transaction and whether it's worth your time.
Our company offers a full range of services for safe purchasing of office or other commercial real estate:
- Analysis of the selected property for compliance with your plans and requirements;
- Development of an action plan for acquiring the office you need;
- Verification of the office space itself;
- Verification of the office owner;
- Review of the sales-purchase agreement for the office, making amendments if necessary;
- Assistance in concluding the deal and transferring funds as payment for the office;
- Registration of ownership rights to the office, depending on whether you are purchasing it as an individual or legal entity.
You can check out the cost of our services here, or contact our specialists to create a personalized package of services.
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