UKRAINE Law and Practice Contributed by: Timur Bondaryev, Maryna Sharapa, Andrii Pidhainyi and Olena Yurets, Arzinger
Due to the introduction of martial law and the need for business relocation, the Ukrainian gov - ernment has established special conditions and discounts for the leasing of public assets (State and communal properties). 6.4 Typical Terms of a Lease There is a high level of discretion regarding the length of a lease – ie, such length is not regu - lated and largely depends on the business cycle of the tenant. The usual length is: • five years for an office lease; • five to ten years for a retail lease; and • one to three years for a residential lease. For major retail, anchor tenants usually insist on 20 to 25 years. Also, the lessee will commonly want to have the option of prolongation. The day-to-day maintenance of the leased prop - erty is usually performed by the lessee, while a capital repair is usually conducted by the lessor. However, the initial adaptation may include capi - tal repair as well, if the premises are accepted in a shell – and core – condition. This is relevant for hypermarkets, cinemas and other lessees that have special requirements with regard to the premises and designated construction teams. For lease contracts of public assets (State and communal properties), restrictions on the terms and other conditions of the lease are set. Lease contracts of such assets are generally conclud - ed based on the results of auctions, except for some cases. 6.5 Rent Variation The lease payments (ie, the rent, plus the oper - ating expense (OpEx), utilities and marketing payments) are paid in local currency (Ukrainian hryvnia), while the actual rates of the principal/
base rent and OpEx are nominated in foreign currency. Payments are made according to the actual foreign exchange (FX) rate. Domestic FX payments are prohibited. Rent is usually subject to indexation for inflation. For a lease of premises in a newly developed shopping centre, the lessee would normally expect a discounted rent until the moment the shopping centre is fully occupied. The parties may further agree on the staged increase of the rent within the term of the lease. The amount of rent for public assets (State and communal properties) is determined based on the results of the auction. During the COVID-19 pandemic and following the introduction of martial law, the actual com - mercial terms of leases were often waived, with the parties agreeing ad hoc on suitable com - mercial terms based on the actual economic situation. 6.6 Determination of New Rent There is usually a formula predetermining how the rent is changed – eg, a 5% increase per year, plus the rate of inflation and the currency exchange rate. 6.7 Payment of VAT VAT (20%) applies to rent payments. 6.8 Costs Payable by a Tenant at the Start of a Lease Costs at the start of a lease usually include an advance payment in the amount of one to three months’ rent, which may also serve as a security deposit. This advance payment usually consists of all payments under the agreement, except for
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