Less than 50 days left before the opening of the land market in Ukraine. On July 1, Law No. 552 on revolutionary changes in the circulation of agricultural land comes into force.
Recently, the Verkhovna Rada adopted a new law on improving the management and deregulation system in the sector of land relations (bill No. 2194). The statutory and regulatory framework for millions of owners and tenants of agricultural land is changing dramatically. Waiting idly for July is the worst strategy. One needs to prepare for a significant event in advance.
Land rental novelties
The legal basis for the lease of agricultural land is established mainly by the Land Code of Ukraine, adopted back in 2001. For over two decades, many changes were made to the "land constitution", but agrarians and other stakeholders managed to get used to them. Now the situation is extraordinary. The adopted laws change the normative "landscape" beyond recognition.
Significant innovations for landowners and users of land plots were made by last year's laws:
- "On Amendments to Certain Legislative Acts of Ukraine on the Conditions of Circulation of Agricultural Land" (No. 552-IX)
- "On Amendments to Certain Legislative Acts of Ukraine Concerning Land Use Planning" (No. 711-IX);
as well as the law
- "On Amending the Land Code of Ukraine and Other Legislative Acts to Improve the Management and Deregulation System in the Sphere of Land Relations",
adopted on April 28, 2021 (bill No. 2194 is being prepared for signing by the Chairman of the Verkhovna Rada).
In particular, legislative innovations await numerous land tenants:
- 1) the right is granted as to citizens of Ukraine from July 1, 2021 to purchase agricultural land with an area of up to 100 hectares;
- 2) the possibility of alienating and pledging land plot leasehold right by users without agreement with the land owners of the land is provided;
- 3) a procedure is imposed for the implementation of the preemptive right (PP) by tenants to acquire land plots they use;
- 4) an order of entities with a preemptive right to acquire a land plot for agricultural purposes is imposed, the priority of which is granted to a person who has a special permit for the extraction of minerals here, and only then it comes to the land plot tenant to use the preemptive right;
- 5) those on the waiting list are given the opportunity to relinquish their preemptive right to acquire land or transfer such a right to another eligible person (according to an agreement that is subject to state registration);
- 6) a financial condition is imposed for the implementation of the preemptive right—its owner must pay the price set by the seller or fixed at the land auction;
- 7) notaries are obliged to inform the land plot owner about the willingness of the preemptive right holder to acquire land on an order of preference;
- 8) the procedure for land tenders is detailed, a limitation of 20 hectares of the maximum area of a state or communal property plot is imposed, the lease right to which can be put up at auction;
- 9) land users (as well as land owners) are granted the right to remove and transfer the soil cover of land plots only on the basis of a land management plan.
It turns out that the fears of many tenants about the possible loss of leased plots with the opening of the land market are exaggerated. At least at the legislative level, the preemptive right to acquire leased land is provided exactly for the tenants.
It will become clear in a few months how this right is implemented in practice. Most likely, the main problem will be the lack of funds from tenants to acquire land.
"Law No. 552-IX on the conditions for the agricultural land turnover and the law on improving the management and deregulation system in the sector of land relations, adopted on April 28, 2021, imposed many novelties on the implementation of the preemptive right to acquire an agricultural land plot. The provisions imposed by these laws regarding the priority of exercising such a right, the possibility of its transfer to a third party and some other norms are new to Ukrainian legislation and the practice of its application and will require further serious analysis, including at the level of judicial practice."
Senior Lawyer, Baker McKenzie Kyiv Office
With the opening of the land market, millions of land owners are expecting unprecedented changes in land legislation. Landowners will be able to become full-fledged participants in the new market, having obtained the coveted rights and related responsibilities:
- a) the new legislation finally gives the right to sell one's own land plot or donate it, exchange, pledge, incorporate to the authorized capital;
- b) the law obliges land owners to register in advance their intention to sell a plot in the State Register of Property Rights (notaries must notify the preemptive rights holders in relation to such intentions);
- c) a scope of persons is established to whom private land can be donated or alienated under an agreement of lifelong maintenance or inheritance: one of the spouses or another relative, from children to nephews;
- d) the right is granted to move the fertile soil layer within one household, garden plot, or garage plot without drafting a land management plan;
- e) the area of the land plot leased to citizens for gardening is limited—no more than 0.6 hectares;
- f) the possibility of alienation of private agricultural land plots by levying execution on them is provided.
So, there are many innovations. In May-June, new ones may be added if the parliament adopts the next draft laws on the land "road map". However, there is little experience in implementing market-oriented land reform in the country. So what should everyone prepare for in July? And what numerous tenants who have already sowed the land for the new harvest should expect?
Expectations and advice for tenants and landowners
With the approach of the agricultural land market opening, the dialogue between tenants and land plot owners has intensified. Tenants are trying to prolong lease agreements, fix the price for land use, learn about the intentions of lessors to sell their plots. But, as the agrarians themselves say, far from all of this they succeed. Shareholders are in no hurry to conclude new contracts, most of them have not yet decided on the sale, and a dialogue is underway regarding the rental price.
"In relation to the opening of the agricultural land market soon, landlords and tenants should prepare for the fact that the rent for agricultural land will start to grow," says Denys Bashlyk, former Head of the State Service of Ukraine for Geodesy, Cartography and Cadastre.
And he appeals to international experience that, according to the expert, demonstrates that the opening of the land market has a positive effect on the rental market development.
«That is, the price of land lease in such cases usually rises. Because the land owner has an alternative: either rent out their land again, or sell it. There is a transformation from the so-called buyers' market to the sellers' market ».
Land Club co-founder, former Head of the State Service of Ukraine for Geodesy, Cartography and Cadastre
Indeed, now we see that in many countries, in particular, of the former socialist camp that intensified market land reforms with the accession to the European Union in 2004-2007, land rents are still growing. For instance, in the Czech Republic and Hungary, it increased in 2019 by an average of 7-8 euros per hectare, reaching, according to Eurostat, 121 and 173 euros, respectively.
Baker McKenzie specialist Andriy Hrebonkin also envisages intensifying the dialogue between the tenant and the landlord regarding the revision of the rent In relation to the market opening. However, in his opinion, there will be no automatic rise in prices.
"The ability of the parties to initiate a revision, including the ability of lessors to initiate an upward revision of the rent, will depend on the terms of each specific agreement," Hrebonkin notes.
Most of the questions today are caused by the new page of land reform in Ukraine—the July start of the official sale and purchase of agricultural land. And especially the new provisions of the legislation regarding the allocation of certain categories of potential buyers of land with preemptive rights to acquire land, the so-called "priority" of applicants for land and the procedure for participants in future land transactions.
Most of these innovations are imposed by the new April law on improving the management and deregulation system in the sector of land relations (draft law No. 2194) and, first of all, paragraphs 32—41 of this law regarding amendments to articles 130—149 of the Land Code.
In particular, a new voluminous article 1301 will appear in the Code, dedicated exclusively to the preemptive right to acquire agricultural land plots, the designation of persons of the first and second priority with such a right, as well as the formation of mechanisms for the preemptive right implementation.
"The concept of a priority is conditional and does not provide for any additional actions from the preemptive rights holder," notes Viktoria Kipriyanova, a lawyer and expert on land issues at the the "Ukrainian Agrarian Council" Public Union.
There are two priorities for acquiring agricultural land, the expert explains.
The first priority includes persons who have a special permit to extract minerals of national importance, if, in accordance with the information received from the State Land Cadastre, such a land plot is located within the subsoil plot provided to such a person for use, except for the land plots on which immovable property (buildings, facilities) are located and owned by the person using the land plot as property, lease, emphyteusis, superficies, as well as except for land plots for gardening.
The law provides an exhaustive list of mineral types: non-ferrous, noble, rare metal and rare earth metals, radioactive metals, electrical and radio engineering raw materials, adds Victoria Kipriyanova.
The second priority includes specifically the tenant of the land plot, the UAC lawyer continues to explain. The preemptive right holder of the second priority may exercise such a right in the absence of the holder of the first priority or their refusal to exercise such right.
"We should immediately destroy the myth that all land will be taken away for mining and the tenants will be deprived of their preemptive rights. To obtain a permit for the extraction of mineral resources, one needs to go through a complex procedure. In addition, it is not about a permit for the development of deposits or the extraction of gas, oil, or coal."
Lawyer and expert on land issues at the the "Ukrainian Agrarian Council" Public Union
Information on the presence or absence of the acquisition preemptive right holder must be checked by a notary who will certify the purchase and sale agreement. If there is no information about the holder of a right in the State Land Cadastre and the State Register of Property Rights, then the land plot can be sold by the owner to any other person who has such a right.
"Therefore, it is very important for all existing tenants to make sure that they have properly concluded lease agreements and that the lease rights are registered in the State Register of Property Rights," Kipriyanova advises.
Agricultural producers and land owners also have many questions about the need to spell out the intentions of the parties in the texts of lease agreements in the event that the land is sold by the owner.
In this regard, Hrebonkin advises tenants to avoid grounds for revising lease agreements in the event of a change in land ownership.
"Due to the land market opening, some landlords will seek to sell their plots. In this case, the land plot may be alienated to a third party or acquired by the lessee as a result of the exercise of their acquisition preemptive right. In this regard, in the event of the land plot alienation to a third party, it will be important for tenants that the lease agreement does not contain such a ground for changing or terminating it, such as changing the owner."
Senior Lawyer, Baker McKenzie Kyiv Office
Viktoria Kipriyanova, for her part, notes that it is not obligatory to fix the preemptive right to acquire land in lease agreements.
"The absence in the lease agreement of a preemptive right to acquire land by the lessee does not deprive them of their rights. The general rule of law will apply. Another situation is if the parties, when concluding the lease agreement, immediately assumed that the tenant would not have a preemptive right to acquire land."
Lawyer and expert on land issues at the the "Ukrainian Agrarian Council" Public Union
"Prior to the opening of the agricultural land market, I draw the attention of lessors and tenants to such an important aspect as the need to have time to bring all the plots into good condition in the legal sense. In particular, it is necessary to register valid lease agreements in the State Register of Property Rights and register land plots in the State Land Cadastre, if this has not already been done. It is also necessary to check the plots for errors or glitches in the State Land Cadastre. That is, the story of all plots must be absolutely clean in all registers, the plots must be prepared for the land market opening. This can prevent fraudulent and other actions with these plots by third parties in order to take over your land."
Tenants are advised to audit existing contracts and find out if some of the provisions may harm them.
"In the context of the agricultural land market opening, the lessee can audit the existing lease agreements for the presence of provisions that may negatively affect the lessee. Based on the results of such an audit, the lessee will be able to fully assess the risks of market opening and take measures to reduce them.
In addition, the lessee should analyze whether there are circumstances that may prevent them from exercising their preemptive right to acquire a land plot (such as a land plot location within a subsoil plot given to another person for use), if the lessee does not exclude the exercise of such a right in the future.
Despite the comments of the main legal department of the Verkhovna Rada apparatus, presented on 30 pages, the law on improving the management and deregulation system in the sector of land relations contains a number of problematic provisions. However, despite this, 284 deputies voted for its adoption. It is possible that after the law enters into force, the issues raised in the comments will be the subject of consideration within the framework of law enforcement practice."
Lawyers also remind that the acquisition preemptive right exists only in the case of the sale of a land plot.
"The legislation provides the following: if the preemptive right holder, by virtue of the law, cannot acquire land in ownership, they can transfer their preemptive right to acquire such a land plot to another person who, in accordance with the law, can acquire this land plot in ownership. Let me remind you that until January 1, 2024, it can only be an individual—a citizen of Ukraine. The transfer of the preemptive right must take place on the basis of an agreement, and the fact of the transfer is registered in the State Register of Proprietary Rights. The lessee is obliged to notify the owner of the land plot about the transfer of the preemptive right.
It is worth noting that the acquisition preemptive right exists only in the case of the sale of a land plot. If the alienation occurs in another way, for example, donation, exchange, inheritance, then there is no preemptive right. In addition, if the owner has a great willingness to sell the plot to another person, then a competent lawyer will always find a way to circumvent such a preemptive right. At the same time, the legislation will provide for the right of the person whose preemptive right has been violated to go to court with a claim to transfer the buyer's rights."
So, the future owners of land plots and their tenants have a lot to prepare for. There is not much time left to check all the legal nuances.