Ukraine Extends Municipal and State Property Leases, Provides Aid to Tenants

On 27 May 2022, the Ukrainian government passed the Resolution “On the Peculiarities of the State and Municipal Property Lease During Martial Law" No. 634 (the “Resolution”), which went into force on 31 May 2022.

The Resolution and the 13 April 2022 enactment of the Law of Ukraine "On Amendments to the Law of Ukraine 'On Lease of State and Municipal Property' No. 2181-IX, which empowers the government to amend legislation on public property leases during martial law, are responses to the State Property Fund's contention that the simplification of public property lease procedures is crucial for relocating enterprises from the combat zones to the west of Ukraine.

As estimated by the Ministry of Economy of Ukraine, during martial law in Ukraine, nearly 360 out of more than 600 relocated enterprises have resumed their business activity in the western region of Ukraine.

In addition to extending the term of lease agreements for municipal and state properties, the Resolution provides aid for tenants.

Exemption of rental payments

The Resolution introduces several cases in which rental payments will not be made for leases of state and municipal properties that were effective as of 24 February 2022 or entered into force after the mentioned date based on results of auctions held on or before 24 February 2022. Rent exemptions apply for the following:

1. Rent exemption for the period of martial law and three months following its termination or cancellation, but in any case, no later than 31 December 2022:
   • if the tenant is an individual or private entrepreneur who was conscripted or accepted for military service after 24 February 2022;
   • if the leased property is located in the region where access to the state registers, which the Ministry of Justice of Ukraine administrates, was suspended, namely the Donetsk, Luhansk, Kherson oblasts, Krym, and some parts of the Zaporizhzhia, Kharkiv and Mykolaiv oblasts.
2. Rent exemption for the period of martial law, but in any case, no later than 30 September 2022:
   • if the leased property is located in the Kyiv, Chernihiv, Sumy, Kharkiv, Zaporizhzhia, or Mykolaiv oblasts;
   • if the property is leased for cultural or educational institutions on an hourly basis.
3. Rent exemption for the period of martial law, but in any case, no later than 30 May 2022, if the leased property is located in the Odesa, Dnipropetrovsk, Zhytomyr, and Kirovohrad oblasts.

Reduction of rental payments

Apart from the exemptions of rental payments described above, the Resolution provides grounds for reducing the amount of rent.

For the period of martial law and three months after its termination or cancellation:

1. tenants of the state or municipal integral property complexes will be charged 75% of the agreed rent;
2. other tenants of the state property will be charged 50% of the agreed rent.

Additionally, the Resolution provides a fixed rental rate for tenants who won an electronic auction for the lease of state or municipal property for the purposes of relocation. This rate amounts to UAH 1 per square meter of the leased property for the first six months of the lease.

Reduction and returning the security deposit during martial law

The amount of security deposit that tenants must pay under state and municipal property leases was decreased by half. During martial law, this amount equals a one-month rental fee. The government also exempted certain tenants from the obligation to pay the security deposit. This release concerns religious organisations, museums, embassies, etc.

Moreover, current tenants can receive the security deposit back and temporarily, until the end of martial law, use it for their needs provided that these tenants:

1. have no rent arrears;
2. are not connected to the Russian Federation.

However, the amount of a security deposit to be returned cannot exceed UAH 1 million per tenant, except for a few cases when tenants are entitled to a 100% refund.

The landlord and a state treasury must refund the security deposit within ten days following the tenant’s relevant application to the landlord.

The tenant must pay the refunded deposit again before 30 April following the year of the termination or cancellation of martial law, but no later than three months before the lease expiry.

Automatic extension of lease term, tenants’ right to early termination of leases

Lease agreements of state and municipal property that expire during martial law are considered automatically extended for a period that ends four months after martial-law termination or cancellation. However, this prolongation would be impossible if the tenant violated the lease agreement. In such cases, an asset holder (i.e. a state entity that keeps a leased property on its balance sheet) sends a notice of non-prolongation to the landlord and tenant 30 days before the lease expiration. Additionally, these rules are not applicable to lease agreements extended on an auction, which was announced before the Resolution came into force.

The Resolution entitles state or municipal property tenants to unilaterally terminate lease agreements during martial law. The tenant should only send the landlord a PDF copy of a termination notice from an email address stipulated by the agreement to conduct early termination. If the agreement does not provide parties’ emails, the tenant can submit the early termination notice to a regional military administration via ordinary post, email, or e-document. If the State Property Fund is the landlord under the agreement, the tenant must submit this notice to the latter or its regional department as defined by the fund.

Legislation: Resolution of the Ukrainian government "On the Peculiarities of the State and Municipal Property Lease During Martial Law".