Many entrepreneurs when choosing premises for the organization of their business consider the option of renting utility property, that is, real estate, which belongs to Kyiv (more precisely, on the balance of the polyclinic, school, kindergarten or one of the Kyiv utility companies).
This idea seems at first sight to be highly controversial, as it has both clear advantages over private rental space and some inconvenience and expense in terms of money and time at the contract stage.
In this article we will give a step-by-step procedure of concluding a lease agreement, including consider the features of an independent evaluation for rent of municipal real estate.
Who benefits from renting premises in municipal property in Kyiv
Before we deal with the treaty-making procedure, let’s see who makes any sense at all. After all, really, why waste time and effort on negotiations with representatives of utilities, to order an estimate for the lease, to form a package of documents for agreement in the Department of Municipal Property of Kyiv, if the result will be a higher rental rate, In comparison with the private premises of the adjacent premises.
As we have already written in a number of materials on our site, when preparing documents for submission for approval in the city the appraiser determines the market value of the premises, not the rent». When the value of the facility is determined and agreed in the Department of Municipal Property of Kyiv, it calculates the rent depending on what type of activity is planned to use the property. The annual rent is calculated as the product of the market value of the property and the ratio depending on the planned use of the premises. For example, for points of sale lottery tickets or currency exchange, this coefficient is 0.45; for pawnshops and jewellery shops – 0.40 etc. That is, if you want to rent municipal property of Kiev for the organization of a currency exchange office, You can calculate the benchmark for the future rental rate by the following algorithm:
- Visit one of the specialized sites for the sale of real estate in Kyiv. There we choose the section «commercial real estate» and a suitable type of object (office, shop, warehouse, etc.), configure all filters in such a way as to find the most similar to our premises on the main criteria: location, area, type of house, floor.
- After receiving a sample of objects similar to our shop or office, we calculate the average cost of one square meter for all offers. It can be reduced by 5-10% due to the fact that real estate sellers often agree on a small discount during the negotiation process.
- Knowing the average price of a square meter of similar property and the total area of our premises is not difficult, having multiplied these two values, to determine the market value of the object of rent. Let’s say the cost of one meter we got 25,000 UAH and the total area of 10 sq.m. Accordingly, the estimated cost of the facility is 250,000 UAH. Since the rate for the currency exchange is 0.45, the annual rent will be significant: 250,000*0.45 = UAH 112,500. per year or 112500/12 = 9375 UAH per month.
- Taking into account that until the end of 2019 there is a 30% discount on rental of municipal real estate, final rent fee in 2009 will be 9375*0.70 = 6562.50 UAH.
As the example shows, the activity-dependent ratio has a key influence on the rental rate. For example, for enterprises that provide household services to the population, the ratio is 0.04. In our example, the annual rent for the premises with this purpose would be 250,000*0.04 = 10000 UAH per year or 833 UAH per month. That is, the amount of rent for the same space for different uses differs more than 10 times! In the past few years we have been approached most often by entrepreneurs who plan to rent a sports hall or class in a general education school, in order to organize private educational institutions (courses, sports sections or clubs). The coefficient for this type of activity is usually 0.10, that is, looks quite attractive. It is also common for our clients to become potential tenants of premises for the operation of pharmacies and the organization of a small business for household services of the population: hairdressing and various workshops for repair of clothes and shoes.
Preparation of documents and evaluation for municipal real estate rental
If the type of economic activity you are interested in corresponds to a small value of the coefficient discussed above, it makes sense to try to rent a room for such a business from a utility company, that is, actually from the city of Kiev. In addition to the fact that the cost of rent for some activities may be significantly lower than that of private landlords, the tenant of utilities receives another bonus, which often plays a decisive role in the choice of premises. The fact is that the lease agreement with Kiev utilities is concluded for three years. During this period, the lessee may not worry that the owner of the property will unilaterally raise the prices or terminate the lease at all.
To submit documents for approval to the Department of Municipal Property of Kyiv and, in particular, to order an independent evaluation of the premises for the calculation of the rent you need the following documents (they may be in different shapes and even be referred to differently, so the basic information they should contain is indicated below):
- A power of attorney or letter from a balance holder (a public utility company with a real estate object of interest on its balance sheet). This document performs two functions: firstly, it gives the right to a potential tenant to order an independent assessment of the premises, secondly, it gives a brief characterization: address, area, floor, targeted use of. An example of such a power of attorney can be seen is here.
- Certificate with characteristics of the building where the rented office or shop is located. It is a desirable document, but in some cases it is possible to do without it. Example of such certificate is here.
- The floor plan with the allocation (just a simple marker) of the boundaries of our property. As a rule, the plans of the floors in the communal enterprises drew long time ago, the originals have long been lost, so only photocopies with the scary look, as in this example. 🙂
- Documents of the customer. Copy of the certificate or extract/discharge from the register of legal entities and natural persons-entrepreneurs.
Example of a letter from a balance-holder when evaluating Kyiv municipal property for lease:
The letter from the balance sheet holder, together with the floor plan, is the basic document for determining the market value of real estate in municipal property. It performs two functions at once: firstly, officially provides the evaluator with the parameters of the premises, and secondly, gives the right to a potential tenant to act as a customer of services. The fact is that according to the Law only the owner of the property, lessee or trustee of one of them can be the customer of evaluation. That is, the letter serves as a power of attorney, and without it the verifying state body will return the report for revision.
Almost every public utility that rents its premises has its own approved form. Although, of course, there are exceptions, for example, if a new accountant came to the post and the old burned archives :-). Below are the key points to be shown in the letter, as well as an example of such a document:
- the name of the municipal enterprise of Kyiv – the balancer;
- real estate address, name of the corps or workshop (if there is one);
- characteristics of the premises – area, floor;
- for what purpose the premises will be operated after transfer to lease (office, shop, warehouse, production…);
- name of potential lessees.
Utility company “Balanceholder” asks you to evaluate non-residential premises with a total area of XXX sq.m., which is located on the X floor of the building at the address: Kyiv, XXXXX st., XX. (corps XXXX) to determine the market value for the calculation of rent. The premises are planned to be rented by PE “Tenant” to accommodate the office. For this PE “Tenant” is given the right to be the customer of evaluation of the specified premises.
When conducting a evaluation of municipal property of Kyiv for rental the evaluator needs significant experience of successful performance of such work. Determining the cost of non-residential premises, and even more so of detached buildings, is much more time-consuming than, for example, evaluations of apartment in Kyiv. Mistake in choosing the appraisal company and bad-quality work leads to the loss of several months for the approval of documentation in government bodies, and as a result to return to the beginning of the procedure with the need to order a new evaluation from another firm. This Is why we suggest that you take the most responsible approach to the search the appraiser to carry out such type of work.
How to choose a company for the evaluation of the premises
A distinctive feature of work with state and communal property is that such evaluation are subject to a mandatory review procedure, that is, inspections by authorized bodies (in Kyiv, the inspection body is the Department of Municipal Property). When verifying reports, special care is taken to ensure that the value received is not underestimated. We are sometimes called by customers asking for a low rating for the rental, but we always refuse them, because it is just a waste of time and money – the inadequate cost of the premises will never be agreed and will not be the basis for the lease! Some of these customers find irresponsible appraisers who «draw» the right numbers, and after a few months they return to us and begin to carry out the procedure first.
In addition to the fact that the evaluation of the premises for rent should be calculated adequate market value, reviewers also check the compliance of the document with all requirements of the legislation. Given that such reports have a volume of about 50 pages, for the competent drafting of documentation requires many years of experience in working with communal property. When choosing an appraiser, it is necessary to ask if he has experience in this field of activity, as well as whether his reports were successfully agreed by the inspection bodies. Since this activity is one of the key and priority for us, we provide assessment services for the rental of premises in municipal property of Kiev in a short time, quality and taking into account all subtleties and nuances. Welcome!