The territory of Ukraine is approximately 60 million hectares. Of these, 42 million are occupied by agricultural land.
40 million hectares are under a moratorium - nothing can be done with this land, except for leasing it and self-cultivation. This land can neither be bought nor sold, nor deposited in a bank, nor contributed to the authorized capital of the enterprise.
From July 1, the moratorium on the sale of land is lifted. How will the land market work after July 1 and what will change for ordinary citizens? With this question, the "ElitExpert" agency turned to the well-known Ukrainian lawyer, manager of the "Shavrov and Partners" law firm Ihor Shavrov.
In the Soviet Union, all land was state-owned. In the mid-1990s, part of all agricultural lands, shares, were distributed to workers of collective farms and social spheres in the countryside. We have 28 million hectares of such private land. In total, we have 31 million hectares in private ownership. 10,4 million hectares remained in state ownership.
Until 2001, there was no moratorium on land. But in that year, the Land Code was adopted and in the transitional provisions it was written that the purchase and sale of agricultural land is temporarily prohibited. Since there was no experience of the existence of the market, the then politicians decided to introduce a moratorium in order to avoid negative effects on the undeveloped market. Such temporary bans made sense, but the moratorium has been going on for 18 years, and its term has been extended ten times. There were also slogans "We will not sell our native land!", and the issue became very political.
However, the owners of shares - we have seven million of them - are deprived of the right to dispose of their property. Imagine that you own an apartment, but you cannot sell it. The same with the earth. This is a violation of constitutional rights, and it was confirmed last year by the European Court of Human Rights. A whole million Ukrainians who own the land have already died during the existence of the moratorium, without having exercised their constitutional right.
Are the restrictions lifted?
The law introduces a phased repeal of the current ban on the alienation of land plots for agricultural purposes - but with a number of restrictions, which are mainly limited to limiting the acquisition of land by certain subjects. In addition, there is a limited concentration of land in a certain area in "one hands".
In particular, the Law provides for the following basic terms for starting the transfer of ownership rights to agricultural land:
in the period from July 1 to January 1, 2024 — between citizens of Ukraine, the state, territorial communities;
from January 1, 2024 — with the participation of legal entities created under the legislation of Ukraine with certain restrictions;
after the decision of the referendum - with the participation of foreign legal entities and citizens.
At the same time, the ban on the alienation of state and communal property remains in force. Exceptions will be lands of peasant (farm) households of state and communal ownership, belonging to citizens with the right of permanent use, life-long heritable ownership. Such persons have the right to redeem them with installment payments of up to 10 years.
The conditions for the privatization of state and communal lands remain unchanged. In addition, it will be possible to lease the land fund of state and communal property in the future at land auctions.
An important change is also the abolition of the ban on changing the purpose of land use in the established order, which will allow to satisfy the needs of other industries.
Who, when and how much will be able to purchase agricultural land plots?
In the period from July 1, 2021 to December 31, 2023, the turnover of land between citizens of Ukraine is allowed. During this period, the alienation of agricultural lands of private property will actually be allowed between citizens of Ukraine at the rate of no more than 100 hectares in "single hands". Consolidation of agricultural land by a citizen of Ukraine in the amount of 10 hectares is provided only from January 000, 1.
Similar conditions of the current moratorium will apply to legal entities. At the same time, the acquisition by legal entities of permitted types of agricultural land (for example, land for horticulture, farm land) will be possible subject to compliance with the requirements for the corporate structure of such persons, their ultimate beneficial owners, which will be discussed further.
Starting from January 1, 2024, the market will be launched for legal entities with certain restrictions. Legal entities established in accordance with the legislation of Ukraine have the right to acquire ownership of all types of agricultural land up to 10 hectares. Restrictions on consolidation will also take into account the total amount of land for agricultural purposes, which the ultimate beneficial owners of such a legal entity have by right of ownership.
The corporate structure of legal entities that acquire agricultural land must be transparent, not contain any "intermediate links", and include only citizens of Ukraine and/or the state and/or territorial community.
Legal entities (regardless of residency) are expressly prohibited from acquiring corporate rights of legal entities-owners of agricultural lands. This norm can be canceled based on the results of the referendum, which will make it possible to better structure agribusiness in accordance with its needs.
What should be taken into account when preparing for transactions on the purchase of agricultural land
- Preparation of the land plot for sale
The contract for the purchase and sale of a land plot must contain all the essential conditions listed in Article 132 of the Land Code of Ukraine, including the cadastral number, purpose, composition of agreements, existing restrictions, and the like.
Therefore, it is necessary to conduct a preliminary check of the registration of the land plot in the State Land Cadastre, as well as a check of the registration of ownership rights to it in the State Register of Rights to Real Estate, the correctness of all data contained in the registers, and, if necessary, take appropriate measures for such registration or its correction .
In practice, unfortunately, we see many situations in which, in addition to already standard questions about the registration of a land plot or ownership rights to it, there are also technical errors in the data entered in the State Land Registry, the absence of such data (for example, the composition of agreements , the address of the land plot), etc., which in the future is the basis for postponing the conclusion of the transaction until such errors are corrected.
- How to proceed if the subject of the buyer's interest is a land share (share)
The law ignored the conditions for regulating the turnover of land shares (shares), only extending the ban on their alienation in favor of legal entities until January 1, 2024. Along with this, the conditions for limiting consolidation, the structure of ownership of agricultural lands, refer to land plots, which obviously will create a lot of discussions about this. In this matter, we adhere to a conservative position and consider certain changes in the Law to Article 130 of the Land Code of Ukraine as something that, among other things, also applies to land plots (shares).
Moreover, the analysis of the current legislation and the introduced changes gives reason to conclude that the acquisition of ownership of land shares (shares) under purchase and sale contracts will be possible after their allocation in kind (in the locality).
The expediency of going through such a procedure to acquire an asset is also conditioned by the existing risks of this asset category, taking into account the uncertainty of its borders on the locality, which in practice creates considerable risks in the actual implementation of the subsequent allocation of a share in kind (on the locality).
Does the change of owner affect the validity of existing lease agreements?
Having acquired a land plot, you should also take into account the possible presence of rights of third parties to use them. The change of the owner of the land plot, the allocation in kind (on the locality) of the land share (share) with its subsequent sale does not terminate the effect of already concluded lease agreements, emphyteussis, nor is it a basis for making changes to them.
Taking into account the above, before acquiring an asset, it is necessary to carefully check the current contracts for the use of land plots, land shares (shares) and evaluate the further prospects for the sale of the asset that is being acquired.
Additional conditions to sales contracts
The following additional requirements will be established for land alienation transactions:
All payments must be made in non-cash form;
The buyer of the asset must undergo financial monitoring and confirm the source of the funds;
The sale price of agricultural land plots allocated in kind from land shares (shares) cannot be less than their normative monetary value.
It should be separately reminded that for the purposes of taxation, before concluding a contract of sale of land between individuals, it should also be expertly assessed. Such a requirement is not mandatory for legal entities.
Undoubtedly, the long history of land reform caused numerous violations in the course of legal proceedings, which occurred from the moment of the initial acquisition of ownership rights to the land plot - including violations of the conditions of the current moratorium, the conclusion of agreements limiting the right to use the land plot, the mismatch of the actual boundaries of the land plot with the boundaries established in documentation on land management and the like.
Therefore, before acquiring rights to land plots, we recommend in any case to carry out their legal and technical inspection. We also remind you of the need to obtain an agrochemical passport, including to check the composition and quality of soils.
Attracting credit under the pledge of a land plot
In the first stages, the law creates favorable conditions for agribusiness to attract credit funds, given the absence of a ban on banks applying foreclosures to such an asset. However, along with this Law, there are requirements for banks to expropriate land plots within the next 2 years, which significantly reduces the attractiveness of such property as a pledge, considering the limited range of subjects who will be able to purchase it, at least within the next three years.
Liability for violation of land turnover conditions
The law envisages rather harsh measures for violators of the terms of turnover of agricultural land in the form of confiscation of land or recognition of transactions as invalid.
The confiscation of land plots will be carried out on the basis of a court decision based on the claims of the State Geocadastre. The owner of the land plot, who committed the violation, will have the right to receive compensation for the value of the land plot, determined by the results of land auctions (minus the costs of conducting them).
