Business

Competition against corruption: tenants will not have the right to buy out property out of competition

The Verkhovna Rada has adopted in the second reading the draft law No. 12230, which changes the rules for privatization of state and municipal property leased out. This was announced by MP Yaroslav Zheleznyak, "Komersant Ukrainian" reports.

The purpose of the law was to eliminate corruption risks and improve the efficiency of asset management.

According to Yaroslav Zheleznyak, six months ago, he and his colleagues held a meeting on how leased property is withdrawn, analyzed in detail the scheme of “integral improvements,” drafted a bill to close this possibility, and today the law providing for the closure of the scheme of buying out municipal property through integral improvements has been adopted.

What were the abuses?

The provisions of Article 18 of the Law of Ukraine “On Privatization of State and Communal Property” provided for the possibility of privatizing state or communal property leased out, in particular by direct purchase of such privatization object.

Such an opportunity was realized by the current tenant outside the auction at a price determined based on the results of its evaluation, provided that such a tenant made improvements to the leased property that could not be separated from the relevant object without causing damage to it, in the amount of at least 25 percent of the market value of the property.

The existing legal regulation of inalienable improvements did not provide for the provision of up-to-date reports on the value of the object and the improvements made, as well as the determination of the value of the property based on market mechanisms, which resulted in cases of abuse by tenants who used fictitious or irrelevant documents to buy out state and municipal property at a minimum price.

What was the scale of such privatization?

The explanatory note to the draft law provides information received from local governments for the period from 2019 to August 2024.

According to this data, in different cities of Ukraine (Bila Tserkva, Brovary, Vinnytsia, Dnipro, Zhytomyr, Kamianske, Kyiv, Kremenchuk, Kryvyi Rih, Lutsk, Lviv, Mykolaiv, Nikopol, Odesa, Poltava, Rivne, Sumy, Uzhhorod, Kharkiv, Cherkasy, Chernivtsi, Chernihiv), 2007 communal property objects were privatized for the amount of UAH 3,772,488.23 thousand, of which 732 objects (accounting for 36.47% of the total number of privatization objects) were privatized by way of buyout for the amount of UAH 944,775,721 thousand, which is 25.04% of the total value of privatization objects.

Thus, according to the authors of the draft law, the approximate total losses of municipal budgets due to the redemption of privatization objects amount to UAH 582,926.62 thousand (based on 61.7% – the average price increase at an auction for the sale of municipal property within small-scale privatization).

What does the new law change?

Firstly, the right of tenants to buy out the property out of competition is canceled. All objects will be put up for privatization through the Prozorro.Sale system.

Secondly, the tenant will still have a preemptive right to purchase the property, but only at an auction and at the highest price offered during the auction. The procedure for exercising the winner’s pre-emptive right to purchase the leased property at auction will be determined by the Cabinet of Ministers.

Thirdly, a 1-year transition period is introduced to allow tenants who have received permission to make integral improvements and have started the redemption procedure to complete the redemption of such objects.

It is noted that the new rules will help reduce corruption, attract bona fide investors and increase local budget revenues.