Law of Ukraine On the Leasing of Property of State Enterprises and Organizations This law is designed to secure enhanced effectiveness of the use of property of state enterprises and organizations by transferring it by lease to physical and juridical persons, and to establish the preconditions for possible privatization of this property. Article 1. Aims of the Law This law regulates: organizational relations connected with the leasing of property of state enterprises and organizations, and their structural subdivisions; property relations between lessors and lessees regarding the economic use of state property. The leasing of other forms of assets is regulated by the provisions of this law unless otherwise stipulated by Ukraine legislation or lease contract. Article 2. Leasing Leasing constitutes the possession and use, for a period of time and on a paid basis according to contract, of property necessary to a lessee for the realization of enterprise or other activity. Article 3. Legislation on the Leasing of Property of State Enterprises and Organizations Relations connected with the leasing of property of state enterprises and organizations are regulated by this law and other legislative acts of Ukraine, and in instances envisaged by these, by decisions of the Ukraine Cabinet of Ministers and the Ukraine State Property Fund. Article 4. Lease Entities 1. Lease entities, in accordance with this law, are: integral property complexes of state enterprises and organizations or their structural subdivisions (branches, shops, sections) with the exception of those which accomplish activity as envisaged by the first part of Article 4 of the Ukrainian SSR Law "On Enterprise Activity." An integral property complex is an economic entity which has a finished cycle of. production (work, services); separate, individually determined property of state enterprises and organizations. 2. The listing îf state enterprises and organizations whose property complexes cannot constitute a lease entity may be supplemented by legislative acts of Ukraine. Article 5. Lessors Lessors are: the Ukraine State Property Fund — with respect to integral property complexes, enterprises, organizations, and their structural subdivisions which constitute national property; organs empowered by the Supreme Soviet of the Crimean Republic and local Soviets of people's deputies to manage property belonging to the Crimean Republic and municipal authorities, respectively; state enterprises and organizations (with the authorization of the lessors indicated in paragraphs two and three of this article) — with respect to integral property complexes of their structural subdivisions (branches, shops, sections); state enterprises and organizations — with respect to separate, individually determined property, in accordance with legislative acts of Ukraine and with their own statutes. Article 6. Lessees 1. Lessees, in accordance with this law, may be organizations of lessees established by members of the labor collective of a state enterprise or organization or of its structural subdivisions, citizens and juridical persons of Ukraine or foreign slates, international organizations, and persons without citizenship. 2. Particularities of the leasing of state property by citizens and juridical persons of foreign states and persons without citizenship are determined by legislation of Ukraine. Article 7. Initiative Exercised in Concluding a Lease Agreement 1. The initiative in concluding a lease agreement may issue from members of the labor collective of an enterprise or organization, or its structural subdivisions, and from physical and juridical persons. 2. If the initiative in concluding a lease agreement issues from physical or juridical persons, the lessor is obligated to provide information within a three-day period concerning the lease of integral property complexes of state enterprises and organizations to their labor collectives. Article 8. Right of a Labor Collective to Decide the Matter of Leasing Property of a State Enterprise or Organization A decision of the labor collective of a state enterprise or organization on leasing the property of the state enterprise or organization is considered to be made if more than half of its members have voted for it. Article 9. Organization of Lessees 1. In the event members of a labor collective make a decision on concluding a lease contract, the persons who wish to become lessees establish an organization of lessees. 2. A general meeting or meeting of empowered organizations of lessees elects its directive organs, and approves regulations on the organization of lessees which are subject to state registration in the executive committee of the soviet of people's deputies or local state administration by location of the leased entity. 3. Prior to the registration of regulations on an organization of lessees in the executive committee of the soviet of people's deputies or local state administration, each member of the labor collective, enterprise, or organization has the right to join the organization of lessees based on his personal application. 4. State registration of an organization of lessees in the executive committee of the soviet of people's deputies or local state administration is accomplished within 30 days of the dale of submission of the application for registration, when there is a certificate of preliminary agreement of the lessor to the conclusion of a lease contract. 5. The organization of lessees obtains the rights of a juridical person as of the date of its state registration. A fee is exacted for the state registration of an organization of lessees in the amount of the minimum wage. 6. An organization of lessees established by a labor collective has the preferential right over other physical and juridical persons to conclude a lease contract for the property of that state enterprise or organization where it is formed. 7. Regulations on an organization of lessees indicate the name of the organization, its location, purposes of activity, procedure for joining and leaving the organization, rights and obligations of organization members, its governing organs, procedure for income (profits) distribution, and conditions under which activity of the lessee organization are to be terminated. Article 10. Procedure for Examination of Application and Draft Lease Agreement 1. An organization of lessees, or other physical and juridical persons desiring to conclude a lease contract for property of state enterprises or organizations, submit an application and draft lease contract to the appropriate lessor as indicated in Article 5 of this law. 2. The organ to which an application and draft lease contract are submitted is obligated to examine these within 30 days of the date of receipt and provide a response as to the decision made. 3. Conclusion îf a lease contract for property of state enterprises and organizations with other physical and juridical persons is effected when there is no application by an organization of lessees established by the labor collective of an enterprise or organization within 20 days of the dale of receipt of notification of intent to lease an integral property complex. 4. In the event of illegitimate refusal to conclude a contract, or failure to receive a response within the stipulated time frame, an organization of lessees or the physical or juridical persons involved have the right to seek protection of their interests in a court or court of arbitration. 5. Any of the interested parties has the right to institute proceedings in a court or court of arbitration in the event agreement cannot be reached with respect to the provisions of a lease contract. Article 11. Essential Terms of the Lease Contract 1. Essential terms of a lease contract consist of the lease entity (composition and value of property), time frame over which the lease contract is concluded, lease payment, procedure for use of depreciation allotments, replacement of leased property and conditions for its return, and fulfillment of obligations. 2. Upon consent of the parties, other terms may also be included in the lease contract. 3. The terms of the lease contract remain in force over the entire period the contract is in effect, including in instances where, following its conclusion (bringing it into conformance with this law), regulations are established by legislation which degrade the position of the lessee. 4. Reorganization of the lessor does not constitute a basis for altering the terms of a lease contract or abrogating it. 5. The parties bear responsibility for failure to fulfill or failure to suitably fulfill the terms of the lease contract, as established by Ukraine legislation and by the lease contract. Article 12. Time of Conclusion of the Lease Contract 1. Òhå lease contract is considered concluded from the moment agreement is reached with respect to all of its substantive terms and the text of the contract is signed by the parties. 2. In the event a dispute is brought before a court or court of arbitration for examination, the lease contract is considered concluded from the moment the decision of the court or court of arbitration on its conclusion enters into force, under conditions stipulated therein. Article 13. Transfer of the Lease Entity Transfer of a lease entity to the lessee is accomplished within the time frame and under conditions as determined in the lease contract. Article 14. Appraisal of the Lease Entity The lease entity is appraised according to its replacement value, using the method established by the Ukraine Cabinet of Ministers and Ukraine State Property Fund. Article 15. Right of Lessees to Choose the Organizational Forms of Effecting Enterprise Activity 1. The lessee independently chooses the organizational form of enterprise activity based on the leased ðãîðårtó, approves its charter, and appoints (elects) its director. The charter cannot contradict the lease contract. 2. The procedure for establishment by a lessee of an enterprise, economic association, etc., and their activity are regulated by appropriate legislative acts of Ukraine. Article 16. Termination of Activity of an Enterprise or Organization Whose Property Is Leased The activity of an enterprise or organization, or structural subdivision of an enterprise or organization whose integral property complexes are leased, is terminated as state activity from the moment of registration, in accordance with approved procedure, of the charter of the enterprise, economic partnership, etc., which has been established by the lessee. From this moment on, labor agreements (contracts) with the employees of this enterprise, organization, or structural subdivision are terminated and severed. Article 17. Legal Succession With Regard to a Lease 1. The enterprise, economic partnership, etc., established by a lessee becomes the legal successor with respect to rights and responsibilities of the state enterprise or organization, in accordance with the lease contract. 2. If the lease entity is an integral property complex of a structural subdivision, the enterprise, economic partnership, etc., established by the lessee becomes the legal successor with respect to the rights and responsibilities of the state enterprise or organization related to the activity of this structural subdivision. Article 18. Guarantees of the Rights of Employees of State Enterprises and Organizations Which Have Terminated Activity Procedure for the hiring of employees in an enterprise, partnership, etc., established by a lessee is determined by its charter. Employees of state enterprises, organizations, and structural subdivisions which have terminated their activity in accordance with Article 16 of this law, and with whom labor contracts have not been concluded, are afforded social and legal guarantees as stipulated by Ukraine legislation. Article 19. Term of the Lease Contract 1. The term of the lease contract is determined upon agreement of the parties. 2. In the absence of application by one of the parties to terminate or alter the contract upon expiration of its term, the contract is considered extended for the same time frame and under the same conditions as were stipulated by the contract. 3. The lessee has a preferential right to extend the effective term of the lease contract. Article 20. Lessee Obligations 1. A lease contract may charge the lessee with the responsibility of effecting special purpose usage of the lease entity in accordance with the production activity specialty of the enterprise or organization whose property is leased. 2. The lessee is obligated to maintain the leased property in accordance with the terms of the lease contract, preventing damage or harm to it. 3. The lessee is obligated to make the lease payment in full and in timely fashion. 4. The lessee maintains bookkeeping records of the results of his activity, and keeps statistical records which are submitted to state statistics organs in accordance with established procedure. Article 21. The Lease Payment 1. The lease payment is a fixed payment the lessee makes to the lessor regardless of the results of economic activity. It is determined as a portion of the calculated income from economic operation of the leased property. The lease payment is entered into special accounts and used for the financing of capital investments. 2. The method of calculation, amount limits, and procedure for use of the lease payment arc determined by the Ukraine Cabinet of Ministers and Ukraine State Property Fund. 3. Time frame provisions for making the lease payment are determined in the contract. 4. Lessees of unprofitable or low profit state enterprises and organizations may be afforded advantageous lease payment terms by the lessor. Article 22. Lease Payment Forms As a rule, the lease payment is established in monetary form. Upon agreement of the parties and depending upon the specific production activity performed by the lessee, the lease payment may be established in an in-kind or monetary/in-kind form. Article 23. Change in the Lease Payment Amount 1. The amount of the lease payment may be changed upon agreement of the panics. 2. The amount of the lease payment may be changed upon demand of one of the parties in the event of a change in prices and rates, or in other instances as stipulated by legislative acts of Ukraine. 3. The lessee has the right to demand an appropriate decrease in the lease payment if, due to circumstances beyond his control, the economic operating conditions envisaged in the contract have changed or the condition of the lease entity has substantially deteriorated. 4. Disputes on these issues are resolved in accordance with established procedure. Article 24. Subleasing 1. The transfer of integral property complexes by virtue of subleasing is not permitted. 2. The lessee has the right to sublease Individual machine tools, equipment, means of transportation, nonresidential premises, etc., unless otherwise stipulated in the lease contract. Article 25. Lessee Right of Ownership 1. The leasing of property does not terminate the right of ownership to this property. Upon transfer of right of ownership from the state to other persons, the lease contract remains in force for the new owner. 2. The organization of lessees (lessee) has the right, in accordance with the Ukraine Law "On Ownership," to the ownership of production manufactured on the basis of the leased property, and of other property acquired by the enterprise, economic partnership, etc., established by this organization (lessee), as well as to the income (profits) received by the lessee. 3. Depreciation allotments remain at the disposal of the lessee and are used for the replacement of leased capital stock. The right of ownership of property acquired by the lessee by virtue of depreciation allotments belongs to the owner of the leased property, unless otherwise stipulated by the lease contract. Article 26. Risk of Accidental Ruin or Damage to a Lease Entity The risk of accidental min or damage to a lease entity is borne by the lessor, unless otherwise stipulated in the lease contract. Article 27. Right of Complete Economic Management of an Enterprise or Partnership Established by a Lessee An enterprise, partnership, etc., established by a lessee is endowed with the right of complete economic management of the property being leased (within the limits prescribed by the enterprise or partnership charter), of production output, and of other property acquired as a consequence of economic activity or on other bases not prohibited by law. Article 28. Right to Redemption of a Lease Entity 1. The lessee has the right of redemption of a lease entity if so stipulated by the lease contract in accordance with Ukraine legislation. 2. An organization of lessees (lessee) has the right to conclude a lease contract with redemption of the leased property not later than three years from the dale of conclusion (bringing into conformance with this law) of this contract, if the leased property is not included among those entities for which privatization is prohibited by legislative acts of Ukraine, and if this does not contradict the State Privatization Program. The price of property leased with redemption which undergoes privatization is determined under the terms stipulated by Article 20 of the Ukraine Law "On the Privatization of Property of State Enterprises" and is included in the lease contract. 3. Terms of redemption, price, procedure, time frames, and means of payment are determined in the lease contract in accordance with the legislative acts of Ukraine on privatization. 4. The lessee has the right to refuse to exercise his right to redemption stipulated in the contract. Article 29. Termination of the Lease Contract 1. Unilateral renunciation of the lease contract is not permitted. The lease contract is terminated as a result of: expiration of the time frame for which it was concluded; redemption of the lease entity; destruction of the lease entity. 3. The lease contract may be abrogated upon agreement of the parties. At the demand of one of the parties, the lease contract may be abrogated prematurely upon decision of a court or court of arbitration, in the event of failure of the parties to fulfill their obligations, or due to other reasons as stipulated by legislative acts of Ukraine. Article 30. Legal Consequences of Termination of the Lease Contract 1. In the event of abrogation of the lease contract, expiration of its effective time frame and rejection of its extension, the lessee is obligated to return the lease entity to the lessor under terms as indicated in the lease contract. 2. If with the consent of the lessor, the lessee has effected improvements to the leased property using his own funds, the lessor is obligated to compensate him for expenses incurred, unless otherwise stipulated in the lease contract. 3. If the lessee has effected improvements to the leased property without the lessor's knowledge, the lessor may compensate him for expenses incurred. In the event the lessor refuses to provide such compensation, the lessee has the right to appropriate those improvements which can be separated from the leased property without causing it damage. The cost of improvements to leased property effected by the lessee without consent of the lessor, which cannot be separated without producing damage to the property, is not subject to compensation. Article 31. Protection of the Lessee's Right to Leased Property 1. The lessee is guaranteed protection of his right to the property he has received in accordance with the lease contract, on an equal basis with protection of the right of ownership which is established by civil legislation. 2. The lessee may demand the return of the leased property from any illegal possession, removal of obstructions to its use, and compensation for damages incurred by citizens or juridical persons, including the lessor. Article 32. Responsibility of the Parties for Failure to Fulfill Lease Contract Obligations The parties bear responsibility for failure to fulfill their lease contract obligations, including unilaterally altering or abrogating the contract, as established by legislative acts of Ukraine and by the contract. Article 33. Lessee Responsibility in the Event of Bankruptcy of His Established Enterprise or Association In the event of bankruptcy of a leased enterprise, association, etc., established by the lessee, the lessee bears liability for the debts of the enterprise or association up to the amount of the property belonging to him by right of ownership according to Article 25 of this law, in accordance with Ukraine legislation. [Signed] L. Kravchuk, president of Ukraine City of Kiev, 10 April 1992