Ukraine's Law No. 1444-IX "On Amendments to Certain Legislative Acts of Ukraine Regarding the Sale of Land Plots and the Acquisition of the Right to Use Them through Electronic Auctions" dated 18 May 2021 came into effect not long ago, and on 22 September 2021, the Cabinet of Ministers of Ukraine adopted the Resolution No. 1013 "Certain Aspects of Preparing for and Conducting Land Auctions to Sell Land Plots and Acquire the Rights to Use Them (Rent, Superficies, Emphyteusis)." This article will address the key legislative initiatives related to organizing and conducting electronic land auctions, particularly by considering the initial implementation practices for this instrument.

At prozorro.sale, the first auctions for the sale of the right to lease community-owned land plots have been announced. Indicatively, it is the lease of agricultural land that electronic land auctions start with in Ukraine. Offered for lease are three land plots located within the territory of the Tavrychanka Village Council, Kakhovka Raion, Kherson Oblast, which cover a surface of 2.1 ha, 6.6 ha, and 19.64 ha. Though the legislation allows the starting price of such land to be set at 7-to-12% of the normative monetary value, the community has decided to make it 10% with a lease term of seven years instead of establishing the minimum price possible.

Land auctions for the sale of land and related titles (especially lease rights) have clearly demonstrated how effective auctions are in increasing the fee for land, especially community- and state-owned land. Many communities are used to preparing for and conducting such auctions in the classical form – offline, directly in the premises of local self-government, where all participants and the organizer can see each other.

However, the development of modern technology, reinforced by the requirements related to combating the COVID-19 pandemic as well as corruption and increasing the transparency of public administration, requires public services to be digitalized, with land auctions not being an exception. Therefore, let us find out what changes have taken place and how it is possible to adapt to them.

On 6 July 2021, the Law of Ukraine No. 1444-IX "On Amendments to Certain Legislative Acts of Ukraine Regarding the Sale of Land Plots and the Acquisition of the Right to Use Them through Electronic Auctions" dated 18 May 2021 became effective. However, conducting land auctions was impossible under this law due to the lack of appropriate algorithms to be determined by the Cabinet of Ministers of Ukraine (CMU) for the regulations specified in in the law to be implemented. Given that, on 22 September 2021, the CMU adopted the Resolution No. 1013 "Certain Aspects of Preparing for and Conducting Land Auctions to Sell Land Plots and Acquire the Rights to Use Them (Rent, Superficies, Emphyteusis)," which came into force on 28 September 2021 and which determines all the necessary requirements for preparing for and conducting land auctions in electronic form.

First, it is essential that from now on, land shall be sold through electronic auctions in real-time mode via the Internet.  This requirement is mandatory when land bidding is conducted to pursue the following:

1. Selling state- or community-owned land plots, assigning them for use upon the decision of the Supreme Council of the Autonomous Republic of Crimea, the Council of Ministers of the Autonomous Republic of Crimea, responsible executive authorities, and local self-government
2. Selling agricultural land plots of all forms of ownership
3. Selling land plots, and/or emphyteusis or superficies rights to them by a public or private enforcement officer while implementing decisions subject to enforcement in accordance with the procedure established by the Law of Ukraine "On Enforcement."

Nota Bene: Selling state- or community-owned agricultural land is prohibited under the Land Code of Ukraine. Therefore, land plots that belong to this category may only be leased or privatized according to the requirements of free-of-charge privatization.

Note: There are exceptions, however. Ukrainian citizens who have the right of permanent use or of lifetime inherited ownership of state- and community-owned farming land, and land tenants who have acquired the right of lease to land through re-registering the right of permanent use of said land before 2010 may buy such land into ownership by installments to be paid within a period of up to 10 years at a price equal to the normative monetary value of such land without conducting land auctions.

Second, by adopting its Resolution No. 1013, the Cabinet of Ministers of Ukraine made prozorro.sale the administrator of the electronic trading system, with more than 40 electronic platforms so far connected thereto. The electronic platforms enable the auction organizer, potential buyers, and participants to use the services of the electronic trading system which provide for the automated exchange of data on the auction in electronic form. Therefore, in order to conduct a land auction, its organizer (e.g. local self-government – LSG) shall enter into an agreement on the organization and conducting of a land auction with the operator of an electronic platform connected to the electronic trading system.

Notably, the remuneration of the platform operator is now deducted from the security deposit of the auction winner and accounts for 5% of the selling price of the land plot (if it is the sale of land or emphyteusis or superficies rights) or of the annual rent thereof, but it may not exceed the amount of the security deposit itself. Formerly, the remuneration of the auctioneer accounted for 5% of the selling price of the land plot or 50% of the annual rent thereof, but not more than 2,000 tax-free minimum incomes of citizens, i.e. UAH34,000.

Third, the procedure for preparing lots for sale has changed. While earlier the auction organizer (LSG) had the right to authorize the auctioneer to perform and/or finance all work related to preparing lots under an agreement with such auctioneer, today, according to Part 1 of Article 136 of the Land Code of Ukraine, the auction organizer is the only one to provide financing for the preparation of lots for land auctions and is also the one to communicate information about the amount of expenses to be reimbursed by the auction winner by specifying it in the auction announcement.

Nota Bene: Land auctions shall be conducted no earlier than 30 days and no later than 45 days from the date of publication of the auction announcement. Therefore, the period during which the auction announcement may be posted was reduced by half from 90 to 45 days.

Fourth, the amount of the registration fee and that of the security deposit have changed as well:

• The registration fee for a lot is set to be 0.1 minimum wage established by the National Budget of Ukraine Law as of January 1 of the year in which such auction announcement is made public. In other words, for the announcements posted in 2021, the registration fee is UAH600, which is almost half the size of the registration fee for the land auctions conducted under the old rules
• The security deposit shall account for 30% of the floor selling price for land or emphyteusis or superficies rights, or 30% of the starting annual rent, but it may not exceed 2,500 subsistence minimums established for able-bodied persons by the National Budget of Ukraine Law as of January 1 of the year in which such land auction is conducted. Therefore, the security deposit for the sale of land was increased from 5% to 30%, which should warn unscrupulous participants against disrupting the auction process

Fifth, special conditions have been introduced for the sale of lease rights to state- and community-owned agricultural land, namely:

• The area of state- or community-owned agricultural land whose lease or emphyteusis rights are offered for sale at a land auction may not exceed 20 hectares
• The starting annual rent for state- or community-owned agricultural land may not be less than 7% of the normative monetary value of such land
• Developing the agrochemical passport is not required

Sixth, the very procedure of conducting an auction has changed, namely:

• Land auctions shall be conducted according to a procedure of determining the winner that allows the participants to increase their bids during three rounds of bidding
• The minimum bid increment shall be 1% of the starting price for the lot. The maximum bid increment shall not be limited
• If the bidding winner refuses to sign a protocol on the results of the land auction or enter into an agreement upon the results of the land auction, or the organizer does not sign said protocol or does not enter into said agreement on the grounds specified in Part 19 of Article 137 of the Land Code of Ukraine, or if the bidding winner does not pay the amount due for the purchased lot as well as the amount due to cover the costs of preparation of the lot for sale, and this is confirmed by the relevant act of the organizer of the land auction, the electronic trading system automatically creates and publishes a new protocol on the results of the land auction in which the right to purchase the lot passes to a participant with the next largest bid.

Seventh, the procedure for establishing the bidding results has changed:

• The protocol on the results of the land auction shall be created and published on the day the bidding is over
• The winner shall sign the bidding protocol within three business days starting with the date that follows the day the protocol is created
• The organizer of the land auction shall sign the protocol on the results of the land auction within six business days starting with the day that follows the day such protocol is created by the electronic trading system
• The agreement based on the results of the land auction shall be entered into and signed between the organizer and the winner of the land auction within 20 business days starting with the date that follows the day the protocol on the results of the land auction is created
• No later than five business days starting with the date the agreement based on the results of the land auction is signed, the winner shall pay the selling price for the lot and cover the costs (expenses) incurred by the organizer to prepare the lot for sale by transferring such selling price and costs to the accounts specified in the land auction announcement
• No later than five business days starting with the date the signed protocol on the results of the land auction is published, the operator of the electronic platform shall pay the selling price for the lot by transferring the security deposit paid by the land auction winner (less the remuneration of the electronic platform operator deducted from the security deposit of the winner) to the accounts for payment for the purchased lot specified by the organizer in the land auction announcement
• No later than within the next business day starting with the date the winner’s payment for the lot is received, the organizer shall publish information about the winner's payment for the purchased lot and the costs (expenses) incurred to prepare the lot for sale in the electronic trading system, after which the bidding is automatically assigned the status of the auction that has come to an end

Nota Bene: Should the land auction be declared called off, its organizer shall publish the announcement of a repeat land auction within a ten-day period. The winners of previous auctions which did not sign the protocol on the results of the land auction, did not enter into the agreement based on the results of the land auction, or did not pay the amount due for the purchased lot and the costs for preparing the lot for sale shall be prohibited from participating in the repeat land auction.

Summary

The introduction of electronic land auctions creates additional opportunities for potential participants to take part in the auction and raises the level of safety and protection against any interventions as well as transparency and publicity, because all those willing will be able monitor the course of such auctions in real time mode.

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