Dechert OnPoint: Acquisition of State Owned Property

INTRODUCTION

On 20 September 2016, the Government of Georgia (the “GoG”) introduced a new project “50 Properties for your Hotel” (the “Project”) which aims to encourage the private sector to invest more in Georgia’s tourism sector. Under the Project, the GoG has identified 50 state properties where investors can build hotels and create recreational and panoramic view areas (the “Listed Properties”). The Listed Properties will be allocated through online auctions. This edition of OnPoint provides a brief overview of the rules and procedures related to the acquisition of immovable state property in Georgia.

TYPES OF PRIVATIZATION

According to the laws of Georgia, privatization is defined by the acquisition of state or municipal property by individuals and legal entities. The LEPL National Agency of State Property (“NASP”) is responsible for the management, privatization and transfer of state property.

Immovable property owned by the state of Georgia may be disposed of through auction or direct sale. The state entity managing the property is authorized to declare a public auction on the specific property. A direct sale shall be carried out with or without a competitive selection process and with or without a fee, based on the decision of the GoG. The manager of the property is also authorized to sell the land to a lessee who has entered into lease relations before 1 January 2007.

PRIVATIZATION VIA DIRECT SALE

Any individual and legal entity, except for companies in which the state owns more than 25% of shares, is entitled to purchase immovable property via direct sale. Any person or entity interested in the purchase of state property shall submit an application with identification documents and information about the property to the NASP.

A direct sale can be conducted using competitive selection procedures. Such sales are conducted when there are alternative proposals submitted by interested parties with regard to a specific property. The decision regarding a direct sale via competitive selection is made by the GoG and, in certain circumstances, the GoG is entitled to authorize the Ministry of Economy and Sustainable Development of Georgia to make such a decision.

The GoG shall make the final decision regarding the allocation of the property through direct sale. The terms of purchase as well as the terms of payment of the privatization fee shall be determined by the GoG.

PRIVATIZATION VIA AUCTION

A person interested in the property, a third person (also known as a facilitator) or the entity carrying out the auction is entitled to initiate the auction. The interested person initiating the auction shall submit documents confirming the identity of the buyer and specific identification information about the property. In case of an unconditional auction, the privatization fee shall not be lower than the price determined by an independent expert auditor. In case of a conditional auction, the privatization fee can be lower than that determined by the auditor.

Any person or legal entity where the state’s shares do not exceed 25% is entitled to purchase non-agricultural land. Information regarding the auction is published electronically and in periodic publications. Any person interested in the auction shall submit an application form, documentation confirming payment of the advance fee, identification documents and any other documents requested by the manager of the property. In case the public auction is postponed or terminated, the advance fee shall be returned to the interested person.

The auction may be carried out electronically or publicly. After the auction is completed and the winner is identified, a purchase agreement shall be signed with the winner no later than 45 days from the date of completion of the auction. The manager of the property shall also determine the deadline for the payment of the purchase price which shall be no earlier than 7 days and no later than 30 days from the execution of the purchase agreement. The ownership is transferred to the winner of the auction after the execution of the purchase agreement and the registration of the new owner at the National Agency of Public Registry.

PRIVATIZATION OF AGRICULTURAL LAND

Only the citizens of Georgia and legal entities registered in Georgia are entitled to purchase agricultural land. The privatization of leased agricultural land shall be carried out through direct sale. In such cases, the buyer of the land shall only be the lessee. Privatization of land which is not leased out shall be carried out in accordance with the procedures envisaged for non-agricultural lands. However, land that is situated within 500 meters from the state border of Georgia shall only be sold under the decision of the GoG upon agreement with the Ministry of Internal Affairs of Georgia.

In case of sale via auction, the winner shall fully pay the purchase price within 30 calendar days from the completion of the auction.

CONDITIONAL PRIVATIZATION

Immovable property might be privatized conditionally, upon performance of certain investment obligations. In case such obligation is attached to the immovable property, the buyer is responsible for submitting an unconditional and irrevocable bank guarantee in the amount of 10% of the investment obligations (the “Investment Guarantee”). In case of a direct sale, the Investment Guarantee shall be submitted before issuance of a respective governmental decree and in case of the auction – one month from the date of the auction. The term of the Investment Guarantee shall exceed the term of investment obligations by at least four months. In case the buyer breaches its investment obligations, the property is returned back to the state without any compensation.

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Note: This article does not constitute legal advice. You are responsible for consulting with your own professional legal advisors concerning specific circumstances for your business.

Dechert Georgia, through the contribution of partners Archil Giorgadze and Nicola Mariani joined by senior associates, Natia Lapiashvili and Irakli Sokolovski, as well as Ana Kostava and Ana Kochiashvili, is partnering with Georgia Today on a regular section of the paper which will provide updated information regarding significant legal changes and developments in Georgia. In particular, we will highlight significant issues which may impact businesses operating in Georgia.

Dechert’s Tbilisi office combines local service and full corporate, tax and finance support with the global knowledge that comes with being part of a worldwide legal practice.

Dechert Georgia is the Tbilisi branch of Dechert LLP, an international Law firm that focuses on core transactional and litigation practices, providing world-class services to major corporations, financial institutions and private funds worldwide. With more than 900 lawyers in our global practice groups working in 27 offices across Europe, the CIS, Asia, the Middle East and the United States, Dechert has the resources to deliver seamless, high quality legal services to clients worldwide. For more information, please visit www.dechert.com or contact Nicola Mariani at nicola.mariani@dechert.com.