Legal risks of buying real estate in Crimea

Crimea's accession to Russia shook the local real estate market: housing prices rose several times over. The rush was provoked by demand from "mainland Russia". In some districts of Crimea prices tripled, making new housing unaffordable for local residents. The contested status of the peninsula may, however, harm the new owners of houses and flats. International uncertainty carries risks up to and including the loss of the asset.

The market's problems do not exist on their own. They sit against the legal vacuum in which the peninsula found itself in the spring of 2014. And that creates a whole range of further risks, from the appearance of owners who have not been recorded to the complete loss of the property in the hypothetical case of a change in the status of the peninsula.

On 27 March 2014 the UN adopted the resolution "Territorial integrity of Ukraine", which calls on states, international organisations and specialised agencies not to recognise any change in the status of Crimea and Sevastopol, and to refrain from actions or transactions that might be construed as such. On 15 April 2014 the Verkhovna Rada of Ukraine adopted the law "On securing the rights and freedoms of citizens and the legal regime on the temporarily occupied territory of Ukraine", under which "property rights on the temporarily occupied territory are protected only if they were acquired in accordance with the legislation of Ukraine".

In practice, the only way to comply with that legislation is to register transactions in Crimean real estate in the Kherson Region or the Zaporizhzhia Region of Ukraine (since March 2014 Crimea has been disconnected from the Ukrainian register of title to real estate),

- explains Sergei Pivovarchik, managing partner of the law firm Consul Group.

Any transaction in real estate in Crimea in breach of Ukrainian legislation is void and cannot be carried out in Ukraine. The Crimean legal vacuum creates other risks as well: title, or a mortgage entry, in the Ukrainian register will be absent from the Russian Unified State Register of Real Estate (EGRN). That is a high risk for buyers. One can, for example, buy a house that has already been sold, or mortgaged, to a third party. In substance, buying housing in Crimea (excluding residential complexes built after March 2014) is a specific analogue of a transaction in troubled "secondary" property, with the additional difference that checking its legal cleanliness is much harder. At a minimum, the estate agent (or the buyer, if the buyer risks acting directly) will need to contact the Ukrainian authorities,

- the expert stresses.

Of course, the risks in this case are dormant. Ukrainian owners of real estate are unlikely to come forward in large numbers in Russian Crimea. But given that the international community does not recognise the peninsula as territory of the Russian Federation, far-sighted buyers would do well to think about the possible risks. If Crimea were returned to Ukraine, there is a risk of nationalisation of assets that are in private ownership and are not registered in the state registers of Ukraine. In that case it is unknown whether Ukraine would provide adequate compensation for such a nationalisation of the asset,

- Sergei Pivovarchik reasons.

The full version of the article is available here.

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