Property that belongs to the state or community must bring benefits in the form of income or be used for its intended purpose. If the property is not taken care of, it can lead to its depreciation or further losses that will fall on every owner, meaning every Ukrainian.
Therefore, we continue a series of workshops on monitoring auctions for the sale and lease of state and municipal property. Our instruction for checking privatization auctions can be found here.
Today we will look at ways to find the necessary information for monitoring leasing procedures. Before starting monitoring, we recommend that you read our educational material about the leasing procedure itself in accordance with law.
Selecting an object for monitoring
First you need to decide on the goal for monitoring.
If you are interested in the presence or absence of lists of leasable objects in the electronic trading system (ETS), then you should look for them on the main page of ProZorro.Sale by selecting the Registries filter in the search page, then — List of properties (lease). Objects can be sorted by status, organizer, region, and so on. Be sure to pay attention to which type of list of objects you are interested in — the first or the second.
The First type is a list of objects for leasing property through an electronic auction. Lease in this case is also called “commercial,” that is, it does not envisage the provision of any benefits and takes place only in a competitive way.
The Second type is a list of objects for leasing without holding an auction or, in other words, “preferential” property. Article 15 of the Law of Ukraine “On Lease of State and Municipal Property” defines a specific list of institutions that can claim such objects. These are museums, state or municipal institutions, hospitals, public sports organizations, and so on.
For example, we sorted the property lists by organizer — RB of the SPFU in Kyiv. The first type of list includes 6 objects.
At the same time according to clauses 25 and 26 of the Procedure for Leasing State and Municipal Property, a potential leasable object included in the ETS must contain information about the book value (if the object is included in the list of the first type), the proposed lease term, photos, the technical condition of the object, and the floor plan (if we are talking about real estate), and so on. Sometimes auction organizers tend to ignore these requirements and upload all the above information to the ETS only when they are already announcing the auction.
So, if you open the first object that is in the list of the First type, you will see that there are no photos, not to mention other important information or documentation.
If you are interested in monitoring auctions directly, you can search in two ways: using the filters on the main page of ProZorro.Sale or using the analytical module of the portal.
Method 1: search by filters on the main page of ProZorro.Sale:
We have selected for checking the auctions, announced by the RB of the SPFU in Kyiv. First of all, we were interested in those auctions that had already been completed and based on the results of which the contract had been signed.
To do this, sort by filters: “Organizer,” “Status;” and the “Direction of work” filter to choose the auction category.
You can also sort by date, region, and property type. The principle remains the same.
Method 2: search using the analytical module
If you have selected the analytical module, then the algorithm is as follows: click on the tab Analytics on the main page of ProZorro.Sale and select the option button Auctions on the left. We recommend sorting auctions by year (for example, 2021) and procedure type.
Next, select the organizer and status of the auction.
Then follow the link on the left to go to the auction page that interests you.
Checking the auction
For monitoring, we have chosen the auction of the RB of the SPFU in Kyiv regarding the rent of 2.5 sq. m at the address: Kyiv, Dehtiarivska street, 11-g, foyer of the administrative building of the State Customs Service. Object key (unique lot number): 5360, auction code: UA-PS-2020-12-23-000002-3
First of all, we check the availability of documentation. There must be photos of the object in good quality. Please note that black-and-white, blurry, or poorly scanned images are inconsistent with the Order of the State Property Fund of Ukraine. It should be noted that we are talking about state property in our case. Other documents should include an announcement, a draft contract, and, if we are talking about a real estate object, a floor plan.
In our case, photos taken from black-and-white photocopies in a specific folder attract attention.
According to the Order of the SPFU “On Approval of Instructions for Photographing Leasable Objects,” images must be colored and clear. In addition, photos should not be scanned or taken from already printed images.
But most importantly, you should check the content of the documents, as they may be uploaded, for example, from another auction or incorrectly filled in.
Let’s start with the announcement and check it for the most typical violations.
- The most common drawback that auction organizers allow to happen is the lack of all contact details stipulated by law to get acquainted with the object. So it is in our case.
According to clause 55 of the Procedure, the phone number and e-mail of the balance holder/lessor responsible for familiarizing the interested persons with the leasable object must be indicated, specifying the address to which such persons can apply for familiarization with the object during working hours, the time, and place of object inspection.
As you can see, the organizer specified only the phone number and email address, and there is no other information.
- Mistakes are often made in calculating the guarantee fee. In our case, the guarantee fee is calculated correctly. But we’ll show you how to check it.
In the announcement, the starting price is calculated based on the book value of the object in accordance with clause 52 of the Procedure, and it is 1% of the book value.
If the starting price is calculated as follows, then the guarantee fee should be calculated using the formula according to clause 58 of the Procedure:
- GF is the amount of the guarantee fee;
- 0.12 — coefficient corresponding to the rental rate (12%);
- SM — the subsistence minimum established for able-bodied persons, as of January 1 of the calendar year in which the calculation is made;
- S — total area of the leasable object.
To determine what amount of the subsistence minimum you need for calculation, you need to find the date of inclusion of the object in the list. It is usually indicated in the announcement.
Since the inclusion of the object in the list took place in December 2020, then, accordingly, we will use the amount of the subsistence minimum as of January 2020, that is, UAH 2,270. As a result, we get: 5×2270×0.1212 = UAH 262.75.
However, if the initial payment is not calculated based on the book value of the object (for example, the book value is unknown), then the guarantee fee is set in the amount of the starting rent as follows:
- 1 month for leasable objects with a proposed lease term of 1 month to 1 year;
- 2 months for leasable objects with a proposed lease term of one to five years;
- 4 months for leasable objects with a proposed lease term of 5 to 10 years;
- 6 months for leasable objects with a proposed lease term of 10 years or more.
These calculations are also often inaccurate. For example, for an object with a declared lease term of 5 years, the guarantee fee is set at 2 monthly rents instead of 4.
Moreover, you should pay attention to the changes that the new resolution of the Cabinet of Ministers No. 630 of 28.04.2021 makes to the Procedure.
In particular, in any case, the amount of the guarantee fee cannot be:
– two subsistence minimums established for able-bodied persons as of January 1 of the calendar year in which the calculation is made for any leasable objects, regardless of their location;
– 40 subsistence minimums established for able-bodied persons as of January 1 of the calendar year in which the calculation is made for leasable objects of any area, if such objects are located in passenger terminals of airports;
– 50 subsistence minimums established for able-bodied persons as of January 1 of the calendar year in which the calculation is made for leasable objects of any area located outside regional centers, except for objects in seaports and airports;
– 100 subsistence minimums established for able-bodied persons as of January 1 of the calendar year in which the calculation is made for leasable objects of any area located outside regional centers, except for objects in seaports and airports;
- You should also check that the announcement cells are fully filled in. It happens that certain information is not specified at all. In our case, everything is fine, so, we move on.
- The next step of verification is the draft agreement. The most common violations are listed below:
- an empty contract form is uploaded instead of the draft;
- a draft contract from another auction is uploaded;
- the intended use of the property, the term or other lease terms specified in the announcement do not coincide with those specified in the draft agreement.
- Pay attention to the availability of answers to questions, proposals, or requirements of participants that are displayed in the electronic system.
In our case, there is a question, but there is no answer from the organizer.
It is important to note the date when the question was entered in the ETS. According to clause 60 of the Procedure, if the question is entered at least 5 business days before the auction date, then the absence of an answer to it in the ETS will be considered a violation; if the question is entered later, then the lessor, not having had time to answer before the auction, is obliged to answer it no longer in the ETS, but in the way established for responding to citizens’ appeals.
In the auction that we analyzed, the absence of a response in the ETS will not be considered a violation, since the question was asked on the last day before the scheduled auction date.
The page always indicates whether the lot is being placed for the first time. If the lot is put up for the first time, but the auction is not successful, then, according to Article 13 of the Law, the organizer must announce the next auction with a reduction in the starting price (by 50%).
If the second auction is also unsuccessful, then a Dutch auction is announced (an auction using the method of step-by-step reduction of the starting price).
If your chosen auction is unsuccessful or the lot is not being put up for the first time, then you should search the system for other auctions of this object and also check them carefully. To simplify your search, use the numerical object key.
This material was prepared by Transparency International Ukraine with the support of the USAID project Economic Development, Management and Growth of Entrepreneurship (EDGE) and State-Owned Enterprises Rapid Response Activity (SOERR). The authors’ views expressed in this article do not necessarily reflect those of the United States Agency for International Development or the United States government.