Terms and Forms of Disposal
The Law on State Property precisely defines the terminology needed before an auction. State property comprises movable and immovable items and non-material property value in state ownership, while disposal covers transfer to municipal ownership, privatization, transfer of the right of management, exchange, transfer in the form of leasing, distribution and destruction. Privatization is the acquisition of ownership of state property through electronic and/or public auction, direct sale, direct sale on the basis of competitive selection, and gratuitous transfer.
From the valuation standpoint the monetary concepts are decisive: the initial privatization amount is the minimum value of the property to be transferred, on which the price grows during trading; the privatization price is the sum payable by the acquirer, composed of the privatization amount and, where applicable, sums payable to a third party; privatization revenue is the portion entering the budget. Participation also involves the deposit — a sum paid to secure performance of the obligation, to which the freezing of funds in a participant's account upon victory or breach is equated.
The Agricultural-Land Auction Route
The right to initiate privatization by auction of an unleased agricultural plot in state ownership belongs to a citizen of Georgia, a private-law legal person registered in Georgia, the property manager and a third party; the first three apply to the property manager. The citizen, legal person or third party must select the plot and, where necessary, divide it into optimal plots of at least 3 hectares each — the restriction does not apply where the plot's area is less than 3 hectares.
The initiator then prepares a detailed cadastral survey/measurement drawing of the selected plot and ascertains information on its category and quality; the survey and transfer in kind are carried out by the property manager or the initiator. Finally, an application expressing interest in privatization is submitted to the organ carrying out the privatization. This is a simple but strictly documentary chain, where skipping any stage makes the auction results challengeable.
Price Determination and Settlement
The procedure for determining the privatization price and the initial privatization amount of immovable property in state ownership is approved by the Government of Georgia — a regulation delegated expressly by law, so preparation must rely on the Government's current procedure. The normative price of a non-agricultural land plot, taking market value into account, is set by the relevant municipal assembly, and for recreational territories the Government may define a different procedure.
Settlement may be effected in a lump sum or by installments. The auction winner pays the price within a term set by the implementing organ, which must amount to not less than 7 and not more than 30 calendar days from the auction; where the auction is announced conditionally, the implementing organ sets a payment term not exceeding 2 years from the auction. In a direct sale payment follows the execution of the contract, within the term set by the Government.
Investment Obligations and the Bank Guarantee
Where an investment obligation exists as a privatization condition, the buyer submits, before the contract is executed, an unconditional and irrevocable bank guarantee of not less than 10 percent of the investment obligation, whose validity must exceed the performance period by not less than 4 months; reduction of the guarantee amount is admissible only by Government decision. Even without an investment obligation a guarantee is submitted, its amount and term being determined by the Government. The guarantee/deposit secures the satisfaction of penalty claims; upon reduction of the amount the buyer must replenish it to the full amount within 1 month, and upon termination of the contract the guarantee sum is paid in full into the budget.
The Buyer's Risk Points
The most painful norm concerns violation of the privatization conditions: upon unilateral termination of the contract the privatized property returns to state ownership, a third party's mortgage registered on it is voided (where information on the privatization obligation was recorded in the public registry before the mortgage), and the state does not compensate the acquirer for sums paid and expenses incurred. The hydropower-construction memorandum case is exempt from the guarantee requirement, and the regime does not extend to public-private partnership projects at all.
Moreover, the valuation methodology and the detailed auction procedures are settled by subordinate legislation — acts of the Government and the Agency — so a participant's preparation must always be reconciled with the current versions of those acts.
Frequently Asked Questions
Who may initiate an agricultural-land auction?
A citizen of Georgia, a registered private-law legal person, the property manager and a third party; when dividing plots the minimum is 3 hectares.
Within what terms does the winner pay?
From 7 to 30 calendar days after the auction; in a conditional auction the term must not exceed 2 years, and settlement may be by installments.
How large is the investment guarantee?
Not less than 10 percent of the obligation, with a validity exceeding the performance period by at least 4 months; upon reduction it is replenished within 1 month.
What follows a breach of the privatization conditions?
The contract is terminated, the property returns to the state and the sums paid are not refunded to the acquirer.
How We Help on Legal.ge
The Legal.ge team helps prepare for the auction: plot selection and cadastral documentation, assessment of the initial amount, guarantee conditions and defusing the contract risks. Write to us — we will assess your project before you bid.