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Law on land market: change of the game rules
KM Partners, Kyiv, Ukraine,
Apr 06, Mon, 2020
On March 31th, 2020, the Ukrainian parliament has adopted the Draft Law on amendments to legislative acts of Ukraine on the turnover of agricultural land No. 2178-10 of 10.10.2019 (hereinafter – Land market law). It is anticipated that the law will come into force on July 1st, 2021.
The signing of the law is currently blocked – several draft resolutions have been filed to cancel it. For final adoption of the law, the Parliament should re-assemble and reject these resolutions, whereafter the law can be signed by the chairman of the Verkhovna Rada and the President of Ukraine and officially promulgated. In current circumstances it is difficult to predict how fast and whether it will be possible.
The new rules gradually remove restrictions of the land moratorium. During the first 2,5 years since the law come into force, citizens of Ukraine will be able to acquire earlier restricted agricultural land plots (up to 100 hectares) into their ownership. After that, Ukrainian legal entities (with exclusively Ukrainian beneficiaries) will obtain such right too and the total amount of land which could be acquired will be up to 10 000 hectares. The banks from the very beginning obtain the right to acquire agricultural lands in case of foreclosure as collateral.
Land market law introduces new restrictions for the acquisition and possession of agricultural lands for companies with foreign beneficiaries. These rules apply to all types of agricultural land, including those which have not previously been subjected to a land moratorium and could been freely purchased. Violation of these requirements creates the risk of confiscation and compulsory sale of such lands.
Below is a brief overview of the most important changes.
- Abolition of land moratorium
From 01.07.2021 to 01.01.2024, citizens of Ukraine will get the right to acquire into ownership agricultural lands with total area of up to 100 hectares (without taking into account the area of those land plots which were in their ownership before 01.07.2021). The citizens will be able to purchase any of earlier restricted agricultural lands including lands for marketable agricultural produce, lands which were allotted to the owners of land parcels, as well as not-allotted titles to land parcels.
Since 01.07.2021 the banks will be able to acquire ownership of the land plots, earlier banned by moratorium, in case of foreclosure as collateral without any restrictions on their total area. However, it is envisaged that such land plots should be alienated by banks at the land auction within two years from the date of their acquisition.
Restrictions on the alienation of land plots under moratorium will remain in force for all other market participants, with few exceptions, including land inheritance, alienation for public needs, or exchange of equivalent land plots within a single field of agricultural land.
Since 01.01.2024 legal entities created and registered under the legislation of Ukraine will be able to purchase earlier restricted agricultural land. However, such legal entities should have as first-hand shareholders (participants, members) exclusively citizens of Ukraine, and/or the state, and/or municipal communities.
Also since 01.01.2024 the maximum total area of agricultural land plots owned by a citizen will increase to 10 000 hectares. The maximum area of agricultural land for legal entities will be similar (but limits for each participant of the legal entity should be also observed).
At the same time, restrictions of the land moratorium will remain in full force on the temporarily occupied territories in Donetsk and Luhansk regions, the Autonomous Republic of Crimea and the city of Sevastopol.
- New restrictions for agricultural lands (which were not subject to moratorium)
Land market law significantly limits the existing opportunities for the purchase of agricultural lands which were not subject to moratorium.
Since 01.07.2021 so-called “second step” legal entities (which are registered in Ukraine, with first-hand participants of Ukrainian legal entities or citizens, although foreigners may be the beneficiaries) lose the right to purchase any agricultural land. Such lands include ancillary farms, individual peasant farms (which have been privatized individually and haven’t been allotted to the ex-members of collective farming cooperatives), lands for vegetable or fruit gardening – which haven’t been restricted by land moratorium and could be freely acquired by any company registered in Ukraine.
Moreover, before approval of this issue on the referendum, it is banned for foreigners, stateless persons and (any!) legal entities to purchase any shares in companies that own agricultural land in Ukraine (including types of agricultural lands which were not subject to land moratorium!). This means that since 01.07.2021 the change of shareholders (which are legal entities) in the companies that own at least one agricultural land plot will be blocked for an indefinite period.
Also restrictions for the possession of agricultural land of no more than 10,000 hectares per person take into account any agricultural land plots, not only land plots, which were restricted by moratorium.
It is established that in case of the violation of the prohibition to some entities to acquire agricultural land, as well as excess the limits of ownership to land for one person, the respective transaction on acquisition of land should be declared void, and the land plot should be confiscated. The confiscation is carried out by court decision, the confiscated plot is subject to sale at land auction, and the received amount minus organizational costs is transferred to the former owner of the plot.
- Change in the purpose of use of the land plot as a legitimate way out of restrictions
Since 01.07.2021 the ban to change the purpose of use of the earlier restricted agricultural land plots, will be canceled. It will be possible to change the purpose of use of such lands either on agricultural lands of other types (for example, ancillary farms), or on lands for industry, commercial construction, etc.
Currently, it is possible to change the purpose of use of a private land plot by decision of a local council (within settlements) or a district state administration (outside settlements). However, another important bill on land reform (No. 2194 of 01.10.2019 – on amendments to the Land Code of Ukraine and other legislative acts regarding better management and deregulation of land relations) provides that all functions on to change the purpose of land use are transferred to village, town, or city councils (including land plots outside settlements).
Changing the purpose of use of agricultural lands (both earlier restricted under moratorium or not) to non-agricultural types can be a legitimate way to lift the limits of ownership to agricultural land for one person, as well as restrictions on changing participants in a company that owns agricultural land.
Such a scenario implies development of relevant technical documentation, its coordination and approval by a decision of the local council or district administration as well as payment of losses of agricultural production. At the same time, the long-term lease of land plots for purposes of agricultural production can significantly complicate the implementation of this plan.
- The tenant may transfer his priority right to purchase the land plot
The tenant will be able to transfer his priority right to purchase the leased land plot to any other person by his sole decision – only simple written notice to the owner is required for such transfer (according to the changes to Part 2 of Article 131 of the Land Code of Ukraine). It is anticipated that this opportunity will be widely used by tenants-legal entities who will not obtain the right to purchase agricultural lands on their own.
- The restriction on sale of agricultural land of state or municipal ownership remains in force
Land market law maintains current prohibition on sale of state or municipal agricultural lands. However, an individual (citizen of Ukraine) who has the right of permanent use, life-time inherited ownership to such agricultural lands, or who converted before 2010 his right of permanent land use into the land lease title, shall be entitled to purchase such state or municipal agricultural land without land auction for the price equal to the normative monetary valuation.
The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.