Overview of retail lease agreements in Ukraine

The matter is regulated by the Civil Code of Ukraine dated 16 January 2003 No. 435-IV and the Commercial Code of Ukraine dated 16 January 2003 No. 436-IV.

There is no minimum or maximum duration. The parties are therefore free to determine the term of the lease at their own discretion.

If the lease is concluded for three or more years, it must be notarised and the tenant’s lease title must be registered in the State Registry of Proprietary Rights to Immovable Property.

The landlord may initiate early termination of the lease if the tenant:

• uses the premises in violation of the lease’s conditions and their designated use;
• transfers the premises for use to a third party without obtaining prior consent from the landlord;
• puts the premises at risk of damage because of its negligent conduct;
• fails to carry out major repairs to the premises by the due date, where the obligation to do so rests with the tenant under the lease;
• has delayed payment of the rent for three months in succession.

Apart from the specific cases stated above, early termination of the lease may also be initiated by either party (i.e. tenant and/or landlord) on the following general grounds: (i) substantial violation of the agreement by either party, and (ii) essential change in the conditions which were crucial for the parties when executing the lease agreement.

The tenant may initiate early termination of the lease if the landlord:

• transfers premises on terms which do not meet the conditions of the lease and the designated use of the premises;
• has not carried out major repairs to the premises, where the obligation to do so rests with the landlord; 
• fails to inform the tenant about existing rights of third parties with respect to the premises;
• fails to inform the tenant about known special characteristics and defects of the premises, which can be dangerous to life and health, property of the tenant or other persons, and cause damage to the premises itself; and
• the tenant is entitled to terminate a lease agreement early if such right is expressly provided by a lease agreement.

Upon expiry of the term of the initial lease agreement, the tenant has a priority right to execute a new lease agreement for a new term.

However, implementation of this priority right is subject to the following conditions:

• the landlord intends to continue leasing out the premises;
• the tenant duly performed its obligations under the initial lease agreement;
• the tenant has duly notified the landlord about its desire to execute a new lease agreement. Such notification should be given prior to the expiry of the initial lease, either within the term established by the initial lease agreement or, if the initial lease is silent about the term of such notification, within a reasonable period of time; and
• the tenant and the landlord have agreed on the conditions of a new lease (i.e. lease payments, term of the lease, etc.).

The law does not establish any specific payments (i.e. eviction indemnity) payable by the landlord if the tenant is refused consent to execute a new lease.

The tenant may demand revision (reduction) of the rent if:

• the ability to use the premises has been limited due to circumstances beyond the control of the tenant; 
• the landlord has failed to inform the tenant about existing rights of third parties with respect to the premises (i.e. mortgage, etc.); and
• the amount of rent may be adjusted by mutual agreement of the parties. 

The tenant is also exempted from the rent for the period during which the premises could not be used because of circumstances beyond its control.

In addition, a lease agreement may provide for a periodic review or adjustment (indexation) of the rent.

There are no mandatory provisions regarding fitting-out works. In practice, the parties consult with each other to agree on the order in which the fitting-out works are carried out (as well as the obligations of the party responsible for the fitting-out works).

The tenant is obliged to reinstate the premises if it is the tenant’s fault that the premises are in a deteriorated condition. The detailed order of such reinstatement may be determined by the parties to the lease. If reinstatement of the premises is impossible, then the landlord may claim compensation for damages.

The tenant may sublease or transfer the lease agreement with the landlord’s consent. Consent for subleasing may already be provided in the lease agreement.

The lease agreement is binding on the new owner. However, the parties may provide in the lease agreement that if the premises are sold, the lease will be terminated.

The tenant has a pre-emption right, on condition that the tenant duly performs its obligations under the lease.

There are no mandatory rules regarding the form and/or duration of a rental guarantee. However, in practice, the landlord may request a parental and/or bank guarantee and a three-month prepayment to the landlord’s account.

The law distinguishes between two types of repairs which may be performed with respect to the premises, namely:

• operational repairs, which usually include works necessary for systematic and timely support of the premise’ operational quality and to prevent early deterioration of the premises; and
• major repairs, which usually include works to replace, renew and modernise the premises (including equipment) due to the extent of physical wear-and tear and destruction, improve operational characteristics, etc. The major repairs usually entail cessation of operation in premises.

The parties are allowed to determine in the lease who will be obliged to perform operational and major repairs with respect to the premises. If the lease is silent regarding allocation of duties for repairs, then the tenant is responsible for the operational repairs and the landlord is obliged to perform major repairs to the premises.

Normally, the premises are managed by the landlord or a specialist company appointed for the purpose and the tenant has to pay a charge for services (such as cleaning
 
and security), on a monthly or quarterly basis, in an amount calculated pro rata to the area occupied by the premises. The service charges may be included as part of the rent payable or invoiced separately.

Any additional services to be provided by the landlord must be specified in the lease agreement. The tenant generally pays all electricity and telephone bills directly to the provider (if the tenant has direct agreements with the providers) or reimburses the landlord the relevant amounts (if the tenant has no direct agreements with the providers). 

Market practice shows that the tenant will also generally pay all other utility bills.

The rent and service charges are subject to 20% VAT, on condition that the landlord/service provider is registered as a VAT payer.

Unilateral termination of the lease is prohibited, unless this right and relevant detailed procedure is stipulated by a lease agreement. 

There is an extensive list of essential conditions to which the parties should agree in the lease; otherwise, the lease may be challenged as allegedly invalid.

A one-year limitation period applies to claims for damage caused to premises and compensation of the improvements made by the tenant.