Anti-Crisis Support Measures for Residential Real Estate Developers Are Modified and Extended by the Ukrainian Parliament

The Extension Law extends and modifies some emergency measures first introduced by the Law to Prevent the Influence of the World Financial Crisis on the Development of the Construction Sector dated 25 December 2008 (the "2008 Anti-Crisis Law").

The most important change introduced by the new Extension Law is the extension of restrictions on withdrawal of investments made by individuals and legal entities into residential construction. The Anti-Crisis Law prohibited customers of residential real estate developers from terminating agreements with developers when the completion of the building was delayed, unless this delay exceeded 18 months. The new Extension Law extends this grace period for developers by one more year from the date of publication of the new Law.

The Extension Law also facilitates extension of leases for residential real estate development. Previously the Anti-Crisis Law authorized the extension of leases of state and municipal land provided for the development of multifamily residential buildings. However, under the Anti-Crisis Law the extension had to be for the term equal to the original lease term.

By contrast, the Extension Law provides that such extensions must be granted for the entire period necessary to complete construction. Moreover, the Extension Law explicitly provides that no decision of the municipal council is necessary for the extension. The extension can be granted simply through an additional agreement to the lease signed by the developer and the head of the local executive authority.

Also, the Extension Law, unlike the Anti-Crisis Law, no longer requires continuing construction works on the land as a condition for granting the extension.

Another potentially important aspect of the Extension Law is the change the Extension Law seeks to introduce in how preferential loans for residential real estate developers are funded. The Anti-Crisis Law provided that banks were supposed to provide loans to the developers at preferential rates (not more than two percentage points above the discount rate of the National Bank of Ukraine) and the National Bank was supposed to compensate the banks for the difference between such preferential rates and the market lending rates.

This mechanism envisaged by the Anti-Crisis Law was never actually implemented. The Extension Law changes this so-far theoretical mechanism and provides that the funding for preferential lending rates is no longer supposed to be provided by the National Bank and instead would have to be covered from the state budget. In other words, the feasibility of the arrangement would depend on whether the government provides appropriations for this purpose in the state budget for a given year.

The protective anti-crisis measures introduced by the Anti-Crisis Law were supposed to be temporary and to last until 1 January 2012. However, the new Extension Law extends the effect of these measures and provides that they will remain in effect until 1 January 2013.

For further information please contact

Armen Khachaturyan
Senior Partner

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