Land-share owners risk losing part of their rental payments if the lease agreement does not specify payment dates and procedures, indexation and the tenant’s liability for late payment. Uncertainty over these provisions creates grounds for delays and recalculations.
Amount, form and timing of rental payments
The amount, form, timing and procedure for payment of rent are essential terms of a land lease agreement. These provisions are set by the Law of Ukraine “On Land Lease”, the model lease agreements for a land share approved by the State Committee for Land Resources (Derzhkomzem), and the Tax Code.
Rent may be monetary, in-kind or paid in labour; monetary payments are most commonly chosen. Under an in-kind arrangement the lessor receives produce, such as grain or oil, and the list and valuation must be specified in the contract as at the date the agreement is concluded.
Indexation procedure and relevant payment deadlines
The contract should fix a specific payment date and the method of payment: cash through the till, transfer to a bank account or the delivery of produce from a storehouse. The established payment date also determines the accrual of penalty sanctions for late payment.
Under the Law of Ukraine “On Land Lease” rental payments are calculated taking account of inflation indices; if the parties do not intend to apply indexation, this must be stated separately in the contract. If the indexation procedure is not specified, the lessor may demand a recalculation using the official indices.
Penalties, contract termination and tax obligations
To protect payments, the contract can provide for a daily penalty for each day of delay; lawyers recommend setting it at the level of double the discount rate. The parties may also agree additional penalties for prolonged arrears, for example 3% of the debt amount if the delay exceeds three months, as well as sanctions for deterioration of land quality or unauthorised subletting.
The contract may allow for unilateral termination in the case of systematic non-payment of rent. The tenant also acts as a tax agent and, when paying rental income to an individual, withholds personal income tax at 18% and the military levy.
Lawyers emphasise that the contract should primarily specify clearly the form and amount of payment and take account of tax obligations; other terms may be agreed by the parties themselves provided they do not contradict the Law of Ukraine “On Land Lease” and the Land Code.
