It will no longer be possible to buy state property “for a song”: The Cabinet of Ministers has changed the rules for small-scale privatization
25 May 23:55
The Cabinet of Ministers of Ukraine has updated the rules for the small-scale privatization of state- and municipally-owned property that is currently leased. From now on, properties in which tenants have invested funds through repairs or modernization will be sold not through non-competitive buyouts, but through open online auctions on the Prozorro.Sales platform.
This was reported by the government and the Ministry of Economy, according to "Komersant Ukrainian"
The resolution implements the provisions of Law No. 4360-IX and changes the approach to the sale of leased state and municipal property with so-called inalienable improvements.
What exactly did the Cabinet of Ministers change?
The government has made open online auctions mandatory for the sale of leased state and municipal property in which tenants have carried out repairs, modernization, or other inseparable improvements.
Previously, a non-competitive buyout mechanism was often used: property was leased, funds were invested in repairs or modernization, and then the tenant could buy out the property without open competition.
Prime Minister Yulia Svyrydenko explained that this approach is now changing.
“It will no longer be possible to buy out state or municipal property ‘for a song’ through leasing and repairs,” Svyrydenko stated.
Why the old model was changed
According to the government, the previous practice often created risks of non-transparent sales of property at below-market prices. A tenant could carry out repairs or modernization, after which they were given the opportunity to purchase the property without real competition.
As a result, the state and local communities could lose out on revenue.
Svyrydenko noted that, according to estimates by Transparency International Ukraine, in such cases, budgets received on average 45% less than they could have received through open auctions.
How leased property will now be sold
From now on, leased state and municipal property that has undergone repairs or modernization will be sold exclusively through open online auctions on the Prozorro.Sales platform.
This means that the price of the property will be determined not by closed-door agreements, but through competition among bidders.
The new rules provide for:
- sale through electronic auctions;
- transparent price formation;
- equal access for participants;
- open analytics in the electronic trading system;
- the opportunity for businesses and citizens to participate;
- compensation for the tenant’s verified investments;
- a mechanism for the current tenant’s right of first refusal.
What will happen to the tenant’s investments
A separate set of new rules concerns the protection of bona fide tenants who have genuinely invested in the repair or modernization of the property.
Verified essential improvements will be compensated or credited during the final settlement for the property.
Compensation will be provided only for confirmed and verified improvements in accordance with a construction appraisal.
In other words, the tenant does not lose the funds invested, but also does not gain the opportunity to purchase state or municipal property without competition.
What are inseparable improvements
Inseparable improvements are works or investments that cannot be separated from the property without damaging it or causing a loss in value.
For example, these may include:
- major repairs;
- reconstruction;
- upgrading of utility systems;
- structural reinforcement;
- upgrading heating, electrical, or water supply systems;
- other work that increases the value of the property.
It was precisely the valuation of such improvements that often led to conflicts in the past, as their value could serve as grounds for purchasing the property without an auction.
How the tenant’s right of first refusal will work
The new rules retain the mechanism of the current tenant’s right of first refusal. This means that a tenant who has made confirmed, integral improvements may exercise the right to purchase the property at the highest price determined at an open auction.
According to legal publications, an investor who has made such improvements may purchase the property at the highest bid price, confirming it in the electronic system.
If the tenant does not exercise this right, the property may be transferred to another auction participant, and the tenant will receive compensation for the confirmed improvements.
