On April 1, 2015, franchise regulations took effect in the Ukraine, ending (in some respects) a decade-long wait for regulatory clarity. As explained in our January 22nd blog, the Ministry of Justice of Ukraine on October 1, 2014 adopted a new “Procedure for the State Registration of Commercial Concession (and Sub-Concession) Agreements” (the “Franchise Registration Procedure”). (In the Ukraine, franchises are called “Commercial Concessions”.) The Franchise Registration Procedure was to take effect on April 1, 2015, six months from its adoption.
The need for the Franchise Registration Procedure began in 2004, when amendments to the Civil and Commercial Code of Ukraine introduced franchise-specific legislation. The legislation required franchisors and franchisees to register franchise agreements with certain state offices. Unregistered franchise agreements could not be enforced against third parties. However, no regulations existed to provide a process for registering franchise agreements.
In the interim, while franchise agreements were deemed valid between the parties to the agreement, they were invalid vis-a-vis third parties. In the uncertainty, franchisors and franchisees incurred increased transaction costs, attempting to mitigate their risk by concluding additional agreements, such as equipment, supply and service contracts and license agreements.
Under the new Franchise Registration Procedure, registration is free and decisions should be issued within 5 working days from filing. While some procedural uncertainties still exist, the Franchise Registration Procedure should provide long-awaited clarity and protection to franchise relationships in the Ukraine.