Small-Scale Privatization Reform: Abolition of Direct Purchase of Leased Property

On 6 June 2026, Law of Ukraine No. 4360-IX “On Amendments to Certain Laws of Ukraine Regarding the Specifics of Privatization of State- and Municipally-Owned Property Transferred for Lease” came into force, radically changing the approach to the sale of leased state- and municipally-owned property.

The Law abolishes the possibility for a lessee to purchase a property with integral improvements without an auction. Previously, a lessee who had the owner’s consent for improvements, had confirmed their value (at least 25% of the property’s market value) through an appraisal and had duly fulfilled the lease agreement, could purchase the property outside of a competitive bidding process; now, all such properties are sold exclusively through auction.

In addition, a new type of auction is being introduced – an auction for the privatization of a leased property with integral improvements, in which all interested investors may participate. However, the lessee who made the improvements retains the preemptive right to purchase the property at the highest price offered at the auction, provided that the established requirements are met (25% threshold, consent to the improvements, absence of debt, etc.).

If, based on the auction results, another investor – rather than the lessee – is declared the winner, the Law provides for a mechanism to compensate the lessee for the cost of the integral improvements made (the details of this mechanism are to be specified in subordinate legislation).

Separate type of auction

To implement the new rules, an update to the Procedure for Conducting Electronic Auctions for Small-Scale Privatization is being prepared, which will introduce a separate type of auction for leased properties with improvements and clear rules for including the value of improvements in the sale price.

For businesses, this means that lessees of state- and municipally-owned property will lose the opportunity to “automatically” purchase the property without competition and shall:

  • participate in the auction, relying on their preemptive right, or
  • agree to receive compensation for the value of the improvements if they lose the bid.

Companies that lease property with the intention of eventually purchasing it should review their strategy now and assess the economic feasibility of participating in an auction under the new rules.

We will continue to closely monitor further developments in this area and report on them in the future Legal News.