State Property Fund Shuts Down ‘Inseparable Improvements’ Loophole

Major Overhaul in State Property Leasing Rules

According to Главком: The State Property Fund of Ukraine (SPFU) has mandated open online auctions for all state property leases, effectively eliminating the controversial practice of so-called 'inseparable improvements.' This shift is designed to bring transparency to the leasing process and is expected to boost state budget revenues. Special benefits remain for certain tenants, including relocated enterprises and businesses operating in temporarily occupied territories.

Under the updated regulations, lease rights for state assets can now only be sold through the Prozorro.Sales system. According to SPFU Chairman Dmytro Natalukha, this closes the door on the corrupt schemes that previously plagued the system.

'This was a completely non-competitive buyout system. Tenants would claim to invest in repairs or upgrades, often inflating the value of those investments-if they actually made them at all. Sometimes these investments existed only on paper.' Dmytro Natalukha

Transparency International estimates that the previous leasing mechanism generated roughly 45% less revenue than it should have. Under the new conditions, relocated businesses will pay just 1 Ukrainian hryvnia per square meter for the first six months. Companies operating in active combat zones or in temporarily occupied territories receive a 100% rent discount. For the rest of Ukraine, a 50% discount will apply until the end of martial law.

Natalukha expressed optimism that the new rules will lead to a significant increase in rental income:

'We now expect rental revenues to nearly double.' Dmytro Natalukha

It is worth noting, however, that more than half of the state-owned enterprises under the Fund’s management exist only on paper-highlighting the urgent need for broader reforms in this sector.

Expansion of the Land Bank Project

The SPFU also plans to expand its Land Bank project, which could further stimulate state property leasing. Through these reforms, the Fund aims not only to increase revenues but also to ensure greater transparency and efficiency in the management of state assets.

These changes are intended to foster a more competitive environment, which in turn could attract investment into state property. Amid the ongoing war and economic hardship, such steps are crucial for supporting businesses and maintaining stability in the country. Bringing in new tenants-especially under such difficult conditions-may prove to be a key factor in Ukraine’s economic recovery.

In light of these significant changes, it is also crucial to note that the Ukrainian government has recently implemented a ban on the sale of state assets without auctions. This decision aligns with the ongoing efforts to enhance transparency and fairness in state property transactions. For more details on this new regulation, you can read about the restrictions on state property sales here.