Lease options can help smooth out the newly introduced limitations on the profitability of commercial spaces
12/06/2009
On June 11, 2009, LIGABusinessInform information agency hosted the press conference “Lease Options vs. Regulation No. 278 issued by Cabinet of Ministers of Ukraine” which was held by Oleg Alyoshin, Partner of Vasil Kisil & Partners Law Firm, and Natalia Dotsenko-Belous, firm’s Senior Associate.
In search of additional reserves to compensate the commercial premises lease profitability gap which the owners and tenants of shopping centers may face as a consequence of Regulation No. 278 issued by the Cabinet of Ministers of Ukraine, lawyers suggest using derivative securities when setting up lease agreement. This was the topic of the discussion held by Oleg Alyoshin and Natalia Dotsenko-Belous.
Lease options are derivative securities and, when purchased, allow delivering of lease services at a price determined on the very day the option is purchased. Apart from simplifying, optimizing and making cost-effective the taxation and tax planning patterns, options provide for profitability control. Options may be issued by any legal entity.
“The first reaction to Regulation No. 278 could be that shopping center owners might resort to grey economy methods where the minimum amount of rent is paid officially and the rest is paid in non-accountable cash. Those owners of commercial premises who choose to operate transparently will find it hard to survive. This is even more true nowadays when the completion is more fierce than ever due to recession”, says Mr. Alyoshin.
Another way to alleviate the implications of Regulation No. 278 may be undercutting the premises cost included in the rent calculation formula.
Meanwhile, market players say that commercial property market is a self-regulated entity and any drastic interference of the state may adversely impact the industry. “Under such circumstances, no investors are likely to come to Ukrainian market of commercial property. Moreover, the majority of existing shopping centers may find themselves on the verge of bankruptcy which will finally result in reduction of commercial premises available for lease”, points out Sergiy Khomenko, Deputy Director of Ukrainian Trade Guild.
Reference: starting from March 5, 2009, the Cabinet of Ministers of Ukraine has restricted the profitability standards for lease of commercial premises (areas) on the food and non-food commodities sales markets, putting a cap of 20% (CMU Resolution No. 278). Besides, local authorities have been granted the right to specify the profitability rate going below the 20%, in pursuance of the Guidelines for calculation of price for services and lease of commercial premises (areas) and maintenance thereof in commercial facilities and on food and non-food commodities sales markets.
The basic factors influencing the rate of rent will be the book value of the building or market facilities held by the landlord, and the landlord’s profit coming within the profitability standard.
In search of additional reserves to compensate the commercial premises lease profitability gap which the owners and tenants of shopping centers may face as a consequence of Regulation No. 278 issued by the Cabinet of Ministers of Ukraine, lawyers suggest using derivative securities when setting up lease agreement. This was the topic of the discussion held by Oleg Alyoshin and Natalia Dotsenko-Belous.
Lease options are derivative securities and, when purchased, allow delivering of lease services at a price determined on the very day the option is purchased. Apart from simplifying, optimizing and making cost-effective the taxation and tax planning patterns, options provide for profitability control. Options may be issued by any legal entity.
“The first reaction to Regulation No. 278 could be that shopping center owners might resort to grey economy methods where the minimum amount of rent is paid officially and the rest is paid in non-accountable cash. Those owners of commercial premises who choose to operate transparently will find it hard to survive. This is even more true nowadays when the completion is more fierce than ever due to recession”, says Mr. Alyoshin.
Another way to alleviate the implications of Regulation No. 278 may be undercutting the premises cost included in the rent calculation formula.
Meanwhile, market players say that commercial property market is a self-regulated entity and any drastic interference of the state may adversely impact the industry. “Under such circumstances, no investors are likely to come to Ukrainian market of commercial property. Moreover, the majority of existing shopping centers may find themselves on the verge of bankruptcy which will finally result in reduction of commercial premises available for lease”, points out Sergiy Khomenko, Deputy Director of Ukrainian Trade Guild.
Reference: starting from March 5, 2009, the Cabinet of Ministers of Ukraine has restricted the profitability standards for lease of commercial premises (areas) on the food and non-food commodities sales markets, putting a cap of 20% (CMU Resolution No. 278). Besides, local authorities have been granted the right to specify the profitability rate going below the 20%, in pursuance of the Guidelines for calculation of price for services and lease of commercial premises (areas) and maintenance thereof in commercial facilities and on food and non-food commodities sales markets.
The basic factors influencing the rate of rent will be the book value of the building or market facilities held by the landlord, and the landlord’s profit coming within the profitability standard.