Prozorro Sale

On February 1, 2020, the provisions of the Law "On the lease of state and communal property" No. 157-IX came into force. It introduced a simple and transparent procedure for the lease of state and municipal property and gave the green light to free competition among potential tenants. What results did the Prozorro.Sale system achieves in this direction and how to rent state property by participating in online auctions, tells Maryna Sharkelis, Head of Prozorro.Sale at SmartTender.

Since February 2020, 24,560 lease auctions have taken place in Prozorro Sale, of which 94.78% were successful. Thanks to this, the budgets were replenished by more than UAH 94 million. And this is just the beginning, every day new rental properties appear in the system.

Prozorro Sale

How Are Rental Auctions Held?

The auction for the lease of state or communal property for a lot put up for auction for the first time or for the second time is conducted according to the English model – by increasing the price over three rounds. In each round, the participant is allowed to place a bid within 3 minutes at least one step of the auction from their offer or to leave it unchanged. The order of participation depends on the size of the closed quotation. At the end of the third round, the system automatically determines the winner with the highest bid.

If only one participant participates in the auction, it will not take place, and the only participant is automatically declared the winner of the auction.

If no participant has submitted an application for the announcement or the winner has not been selected, the auction is considered not to have taken place, and a repeated auction is announced. If no one took part in the repeated auction again, the organizer can hold the auction for the third time, this time according to the Dutch model (to lower the bid).

What Does the Lot Price Depend On?

Before the publication of the announcement, the starting rent for the object is determined. According to the legislation, the basis is the residual book value – the difference between the initial cost of the object and the amount of accumulated depreciation and accumulated damage from a decrease in its usefulness. If the residual book value is zero or less than 10% of the original, a revaluation is performed. Based on the residual book value or revalued value, the starting price of the lot is calculated – the amount of the payment for a certain period. The monthly fee is 1% of the book value, and for example, the day is 0.03%.

Usually, the lease term is 5 years but can be reduced at the suggestion of the potential tenant. For a long term, up to 49 years, the cultural heritage monuments were leased.

How Much Can the Starting Rental Price Grow?

Even though the starting cost may seem too low, it should be remembered that due to competition, it almost always increases, sometimes tens or hundreds of times. For example, the lot with the most expensive lease for the entire period of such auctions was a warehouse with an area of 7,650 square meters in the Odessa region. The participant in the auction won it by offering a bid of 1.5 million hryvnias. At the same time, the starting price of the monthly rent was only 2,846 hryvnias.

But there is no need to be afraid, not every auction ends with such an extreme increase. On average, the starting rental price increases by 42.94% and usually does not exceed the prices in the commercial market. It also happens that the price remains almost the same as the organizer set from the very beginning if only one bidder participates in the bidding.

What Is the Main Difference Between the Modern Auction System and Past Procedures?

All rental auctions are online in real-time. Any person who can be a tenant by the Law has the right to apply for participation in the auction and rent the relevant property.

Those who rented state property before the adoption of the new Law remember how difficult this procedure was for both organizers and tenants. Advertisements were published on the websites of the owners or in special printed publications, so it took a lot of time to find the right object. In addition, the procedure was not transparent: the price was formed according to an incomprehensible algorithm, and the contracts were not published in the public domain.

Now everything is much easier. Thanks to a clear and transparent bidding algorithm, renting state-owned real estate can be done easily and in a few days. Each potential tenant sees a complete list of all available properties in one Prozorro.Sale database and knows what steps to take to win.

These are such simple steps:

1. Find the desired lot on the SmartTender.biz search page.
2. Carefully read the announcement of the transfer of property for rent. In particular, with the lessor requirements to the potential tenant and the list of required documents.
3. Pay the guarantee and registration fees. Please note that the very fact of payment of fees is not a basis for admitting you to participate in the auction, since it is the fact that funds are credited to the site's account that is important. The guarantee and registration fees must be credited no later than one hour before the end of the deadline for submitting applications for participation in the electronic auction.
4. Apply to participate in the auction. In it, indicate your price rate (it must be at least the starting price of the lot) and add certificates of payment of fees and documents required by the organizer.
5. Wait for confirmation of the application for participation by SmartTender managers.

After that, it remains to wait for the day of the auction, take part in it and win.

Please note that only users registered on SmartTender.biz can participate in rental auctions. Therefore, you first need to register as a participant in the auctions.

Prozorro Sale

What Property Can Be Rented Today?

In the "Auctions for the sale of state property" section, you can see which lots are available for rent today. It can be both non-residential premises and whole buildings. For example, you can submit an offer for the following lots:

1. Built-in non-residential premises with a total area of 30.5 sq.m at the address: Uzhhorod, Sh. Petofi square, 14. The starting rental price is UAH 5,853.
2. Auction with a reduction of the starting rent: non-residential premises with a total area of 902.5 sq.m at the address: Cherkasy, Zelinskoho street, 3. The starting rental price is UAH 9,513.
3. Premises in the building of the Paton Electric Welding Institute at the address: Kyiv, K. Malevich street, 23. The starting rental price is UAH 46,461.
4. Non-residential premises with a total area of 1,040 sq.m at the address: Kyiv, M. Vasylenko street, 1. The starting rental price is UAH 104,925.

How to Check the Properties That Have Already Been Rented in Prozorro.Sale?

Prozorro.Sale stores not only for future auctions but also completed procedures. They can also be found on the SmartTender.biz search page for keywords or other filters. Thus, each citizen can see how much and what kind of property the communities have, to whom it is leased and what the state and public budgets receive from this. For example, such interesting auctions have been held in the system recently:

1. Real estate with an area of 129.2 sq.m was leased in the center of Kyiv on Hrushevskogo street. The starting price was UAH 174.03, which attracted the attention of 19 participants. As a result, the participant won with an offer of UAH 66,500.
2. Also in Kyiv, a non-residential premise with an area of 6 sq.m was rented right at the Vasylkivska metro station. The starting cost was UAH 2,116.10. 11 participants applied for the auction, and the winning bid was UAH 17,113.00.
3. In Lviv, part of the hall of the 3rd city polyclinic was rented to accommodate a coffee machine. At the start, the price was UAH 428.4, and the winning bid was UAH 4,020.

On the Tenant's Preemptive Right

Finally, I would like to remind you that Prozorro.Sale has a tenant's preemptive right, regulated by the Procedure for Leasing State and Communal Property. The current tenant has a preemptive right to conclude a lease agreement, provided that they applied for a lease extension 3 months before the expiration of the lease agreement and took part in the auction. In case of participation in the auction of other participants, the lessee is given the right to conclude a lease (extension) agreement at the price offered by the participant who offered the highest rate. If the current tenant did not participate in the auction for the renewal of the lease agreement, they lose the preemptive right to conclude the agreement.

Rent property at a good price in Prozorro.Sale and win with SmartTender!