Land market opening with the recently adopted Land Law: Must-Know Survey Facts

Land market opening with the recently adopted Land Law: Must-Know Survey Facts

On 30 March 2020 the Law of Ukraine “On amendments to certain legislative acts of Ukraine regarding the agricultural land turnover” (the Land Law) was adopted. It becomes effective starting from 1 July 2021.
The so-called land moratorium is abolished by the Land Law. This would make it possible for the citizens to alienate the land plots having been acquired by them in the process of sharing the collective farm lands. Accordingly, the agricultural lands can now be pledged, thus ensuring an opportunity to raise additional financing.

The land market will be opened gradually:

  • The ownership right on the agricultural land plots can be acquired only by the Ukrainian citizens with the total area of 100 ha starting from the Land Law effective date until 1 January 2024.

  • The ownership right on the agricultural land plots can be acquired also by the legal entities of Ukraine, the participants of which are the Ukrainian citizens, the state or territorial communities.

The maximum land plot area that may be possessed by a single owner totals to 10 000 ha. The land plot size for the Individuals will be defined in view of the land plot area owned by legal entities where such Individual is a participant, in proportion to the ownership interest in the statutory capital.

  • The ownership right on the agricultural land plots may be acquired by banks (regardless of ownership and without land area restrictions) since the Law effective date, in case of foreclosure as collateral. At this, such land plots shall be disposed at the land auctions during a two-year period. To date the Land

Law introduces restrictions on:

  • acquisition and ownership of the agricultural land plots by legal entities of Ukraine with foreign participants and foreign ultimate beneficiaries;

  • acquisition of shares, participatory interest in the statutory capital of legal entities (except for banks), being the owners of the agricultural lands, foreigners, stateless persons and legal entities. In practice, the above restriction may create certain uncertainties as to a possibility to change the owners of agricultural companies possessing the agricultural lands at present. The related prohibition may be abolished only if the respective decision is made in the referendum.

At this, neither any procedure nor terms for referendum have been prescribed so far. In any case, the acquisition of the ownership right on the agricultural land plots is directly prohibited, in particular, by legal entities which ultimate beneficiaries are foreign states, by legal entities if it is impossible to establish their beneficiaries; by legal entities which beneficiaries are registered in offshore zones (according to the list approved by the Cabinet of Ministers of Ukraine). As established by the Law, the settlements for the agricultural land plots may be made on a cashless basis; at this, the confirmation of the source of funds is binding. Besides, the sales price for the shared land plots cannot be lower than their normative monetary value until 1 January 2030.

The land market opening has been a long-awaited step. However, against background of its gradual admission, the new provisions would apparently have impact in mid-term perspective. In our opinion, a sharp increase of agreements on purchase-sales of land plots should not be expected upon the Land Law effectuation. Based on expert estimates, the market prices on agricultural land won’t increase due to impossibility for foreign companies to enter the market. This may also contribute to the pending status on behalf of landowners. At this, the amount of lease agreements concluded by the landowners for extensive period would probably decrease. At present, the land market for the enterprises with foreign investments is still closed. However, such enterprises may continue cultivating the land under the lease agreements and/or emphyteusis agreements.

As the change of the land plot owner may or may not be the basis for termination of lease agreement on such land plot (depending on the agreement provisions), it is important for the lessees to make sure the effective lease agreements contain no termination options when the land plot is alienated by its owner, and initiate the adjustments, if needed and as far as possible. The lessees should also pay close attention to the compliance with the provisions of agreements on land plot lease to prevent their early termination on behalf of the landowners.