Banning the sale of land – a draft of the new law
A draft law on halting the sale of the State Treasury’s Agricultural Property Stock and amending certain laws has appeared on the pages of the Government Legislation Center, to replace the regulation passed in August by the previous government coalition. Below is a discussion of the various solutions adopted in the government’s submission.
The sale of state-owned agricultural properties will be halted for a period of five years after the law takes effect, as the title of the law itself suggests. Only in a case justified by “socio-economic considerations” and at the request of the ANR President will it be possible to obtain approval for the acquisition of real estate from the Minister of Agriculture. It is unclear who will get such exceptional approval and for what reasons. This is certainly not conducive to transparency. Interestingly, foreigners will be able to acquire the role in this mode.
It is unclear why, despite the 5-year ban on the sale, the Law on the Management of State-Owned Agricultural Property is being amended at the same time, as if the sale were to continue after all. As in the August 2015 law authored by the previous coalition, the circle of entities that can bid is limited, which is intended to prevent foreigners from acquiring land.
In the case of the sale of state property, the tenant’s right of first acquisition was maintained, while without any justification the right of first acquisition was taken away from the heirs of former landowners, which was practically the only existing substitute for reprivatization. Moreover, representatives of the landed gentry community were not even included in the planned public consultations, despite the fact that the submission deprives them of important rights.
As a rule of thumb, private real estate can be disposed of only to an individual farmer, unless the acquisition is made by inheritance or the property is acquired by a relative of the seller, or if the property is sold in foreclosure proceedings.
According to the draft, an individual farmer is a natural person who is agriculturally qualified, owns up to 300 hectares of land, has resided for a minimum of five years in a municipality and personally runs a farm. In order to gain status as an individual farmer, you will have to show that at least ¼ of your income comes from agricultural activities. For modern and large farms run as commercial companies or with income from other sources, this will be quite a constraint on development. Non-self-employed farmers will be able to acquire property only with the approval of the ANR President after meeting the statutory conditions. The buyer will be required to operate the farm for the next 10 years. The 5-hectare threshold below which ANR could not take over land for compensation was also eliminated.
Contrary to intuition, greater restrictions are provided for private land, which can only be acquired by an individual farmer. In the case of state land sales, the circle of potential buyers is wider and includes, for example, people who “intend to establish a family farm,” as long as they are agriculturally qualified.
The bill introduces revolutionary changes in the sphere of civil relations, not preceded by any analysis or work of the civil law codification committee. The provisions of the new law will apply to the disposal of shares in an agricultural property, the abolition of its joint ownership or the division of the inheritance, which in each case will mean ANR’s pre-emption. The possibility of seizing agricultural property is radically restricted – according to the draft, seizure can only be made in favor of an individual farmer, and only if his farm does not exceed 300 hectares. Interestingly, due to the inconsistency of the draft, the possibility of the State Treasury inadvertently being able to inherit agricultural property was excluded.
The amendment to the Law on Formation of the Agricultural System is surprising. The amendment introduces such a broad legal definition of “acquisition of real estate” that it virtually covers all property transfers. The possibility was introduced for ANR to take over an agricultural property whenever the owner of the property or a shareholder of the company owning the agricultural property dies, and for any other legal event (sic!). The takeover is to be carried out against payment of a cash equivalent, to be determined by ANR. Since everyone dies someday – any agricultural property can be taken over by the Treasury in the indefinite future.
It is also not clear from the draft what if the subject of the sale or inheritance is an interest in agricultural property. The chaotic nature of the draft does not clarify what happens in the event of the disposal of a share in real estate, whether, for example, the disposal of a 1/100th share allows the Treasury to pre-empt or take over the entire property.
The regulation of commercial companies is astounding. ANR will have rights of first refusal to buy shares or stocks in companies that own agricultural property, and the Agency will have access to the company’s books and documents before exercising its rights. The possibility of taking over shares will arise in any case of their disposal, inheritance or division and transformation of a commercial company. Such a solution will cripple all companies owning agricultural land in the long run, unless their shareholders are not individuals and shares are not traded. Above all, however, the amendment interferes with the freedom of doing business and EU treaty principles. Let’s assume that a joint-stock company owns 10 office buildings in the center of Warsaw and a 1.5-acre agricultural property near Warsaw. In the event of a company’s transformation, the Treasury will be able to take over shares in the company, even though the agricultural property was a fraction of the company’s assets.
The pace and frequency of legislative changes in agricultural land trading precludes any forecasts about price fluctuations. Certainly, the adoption of such a law will dramatically reduce the supply of agricultural land which should lead to a significant increase in prices. On the other hand, a number of anticipated restrictions on trading and administrative regulation of the market will limit the number of transactions due to difficulties in further trading and the risk of discretionary action by the Treasury, which will be given an instrument for unfettered expropriation of individuals and companies. Rent increases are to be expected, since leasing is to be the primary form of managing the Treasury’s stock. Ultimately, we should expect stagnation in the agricultural real estate market and the emergence of significant barriers for those individual farmers who have accumulated funds and would like to further develop and area their farms. Young farmers, too, signal the existence of serious barriers to the creation of modern farms, which are impossible to develop without the possibility of acquiring land.
By the time the new law comes into force, a number of transformations can be expected in companies that own agricultural property and optimize the form of business for the new regulations.
The August 2015 law has been rightly criticized as unconstitutional and contrary to EU law due to its over-reaching restrictions on trade and the disenfranchisement of the heirs of former owners. Most of these solutions have been retained, although, paradoxically, a total ban on land sales may defend itself before the EU Court in Luxembourg, at least as far as the charge of discrimination against foreign entities is concerned. What is surprising, however, are the proposed changes to the Civil Code and the significant expansion of ANR’s powers to take over private properties and commercial companies. Whether such tools will be used to renationalize land held by foreign companies and on what scale remains to be seen. At the current stage of legislative advancement, it is difficult to discuss the constitutionality of the proposed solutions.
The commented draft law will virtually abolish trading in agricultural real estate, which seems to be in line with the legislature’s intentions. Time will tell whether such far-reaching restrictions will improve the situation of farms, especially those focused on development. A separate issue is the granting of new powers to ANR in taking over private land and commercial companies. Such tools go far beyond the existing role of the regulator and, from this point of view, raise constitutional questions.
Attorney Tomasz Przybecki, specializes in agricultural and real estate law
PRZYBECKI Law Firm