On March 31, 2020, Ukrainian Parliament passed the long-awaited law (registration No. 2178-10) to lift the existing moratorium on the sale and otherwise alienation of agricultural lands. The law is expected to become effective and the said moratorium lifted on July 1, 2021.
The eventual opening of an agricultural land market pursues a number of far-reaching and ambitious goals, such as ensuring the full enjoyment by Ukrainians of their private property rights to agricultural land plots; securing objective and fair market prices of agricultural lands, increasing their capitalization; advancing investment opportunities in the agricultural sector through loans secured by mortgaged lands; ensuring transparency of land-related transactions. In the long run, the agricultural land market shall substantially enhance the motivation and productivity of peasants by rendering them genuine owners of their land and ensure a steady increase of the country’s economic well-being, including the build-up of an economically active agrarian middle class.
Nevertheless, due to fierce opposition from some political forces represented in Parliament, the final promulgation and enactment of the new law is being delayed. Currently, about 12 proposals to reverse the results of voting have been submitted so that the President of Ukraine cannot proceed with promulgation until all of them have been considered (and rejected) by Parliament. In addition, the opposition threatens to block the enactment of the law in courts and is planning to file a constitutional claim to the Constitutional Court of Ukraine. All these destructive and populist efforts can create certain obstacles but, at the end of the day, will not hamper the ultimate launch of the land market.
By and large, the adopted bill has been the result of political compromise of the ruling majority with some other parliamentary factions. Therefore, in the short run, the proposed land reform shall have rather a limited extent and exclude potential foreign buyers from acquiring agricultural land. They will be given access to the Ukrainian agricultural land market only if Ukrainians agree with it on a national referendum to be held for this purpose.
Please find below an overview of the most essential provisions of the agricultural land market law.
Who can purchase and own agricultural lands?
Under the approved text of the law, only the following subjects can purchase and own agricultural lands in Ukraine:
(1) Ukrainian citizens;
(2) Legal entities incorporated and registered under Ukrainian law whose participants (shareholders, members) are exclusively Ukrainian citizens and/or state and/or territorial communities. Besides sale-purchase, it shall be possible to contribute agricultural land plots, including rights to land shares (so called “pais”), to the charter capital of such legal entities;
(3) Territorial communities (territorial self-government units, such as cities and towns);
(4) Ukrainian state.
A Ukrainian bank can acquire ownership title to agricultural lands, as an exception, only if it enforces a mortgage, i.e. forecloses on a land plot which is a mortgaged property. However, the bank is obliged to dispose of such land plot at an auction within two years after acquisition.
Since the moratorium is lifted gradually, legal entities will be able to acquire privately owned lands designated for agricultural production, agricultural land plots allotted in kind to owners of land shares (so called “pais”) for personal farming purposes, and such land shares (“pais”) themselves only starting January 1, 2024. This restriction does not apply to:
Banks acquiring ownership to mortgaged land plots;
Lands acquired by inheritance;
Exchange of land plots of equal normative value;
Alienation of lands due to a public necessity.
Who cannot purchase and own agricultural lands?
The following subjects cannot purchase and own Ukrainian agricultural lands:
(1) Foreign citizens and stateless persons;
(2) Foreign legal entities (i.e., incorporated and existing under foreign law);
(3) Ukrainian legal entities whose participants (shareholders, members) are foreign citizens, legal entities or states (regardless of the size of their share in the entity’s capital);
(4) Foreign states and territorial units.
Furthermore, the law takes legal precautions against various attempts to circumvent the above ban by acquiring a share in a legal entity that owns agricultural lands. For the time being, the following subjects shall be prevented from acquiring shares, participation interest and membership in such legal entities (except for acquiring a share in a bank):
(1) Foreign citizens and stateless persons;
(2) Legal entities – both Ukrainian and foreign, regardless of their shareholding structure.
Perspective relaxation for legal entities with foreign shareholdings
Nevertheless, legal entities incorporated and existing under Ukrainian law whose participants (shareholders) or ultimate beneficiaries (controllers) are persons who are not Ukrainian citizens shall be granted a right to acquire agricultural lands if and as soon as this decision is endorsed by a national referendum.
Likewise, a national referendum shall resolve whether foreign citizens, stateless persons as well as Ukrainian and foreign legal entities can be permitted to acquire shares (participation interest) in existing legal entities that own agricultural lands.
Who is under the absolute ban to acquire agricultural lands?
Under no circumstances can the following subjects become owners of agricultural lands in Ukraine:
(1) Legal entities whose shareholders (participants, members) or ultimate beneficiaries are persons who are not Ukrainian citizens – with respect to land plots being in state and municipal property, land plots allotted in kind to owners of land shares (so called “pais”), and those located within the 50-kilometer distance from the state boundary of Ukraine (except for the maritime boundary);
(2) Legal entities whose shareholders (participants, members) or ultimate beneficiaries are citizens of a country designated by Ukraine as an aggressor state or occupying state (currently, the only such county is Russia);
(3) Persons who belong or belonged to a terrorist organization;
(4) Legal entities whose shareholders (participants, members) or ultimate beneficiaries are foreign states;
(5) Legal entities with no identifiable ultimate beneficiary (controller);
(6) Legal entities whose ultimate beneficiaries (controllers) are registered in an off-shore zone as defined by the Cabinet of Ministers of Ukraine;
(7) Individuals and legal entities subjected to special economic and other restrictive measures (sanctions) forbidding them to enter into agreements for the purchase of land plots as well as their related persons;
(8) Legal entities incorporated under Ukrainian law that are controlled by individuals and legal entities registered in a country listed by FATF as non-cooperative in the global fight against money laundering.
A general prohibition regarding lands in state and municipal property as well as lands in temporarily occupied territories
A general prohibition to sell and purchase agricultural lands is set with regard to lands in state and municipal property. Thus, these lands are entirely excluded from the agricultural land market. However, some subjects are exempted from this general prohibition:
(i) Ukrainian citizens who possess the title of “perpetual use” or “perpetual inherited possession” of land plots for personal farming – with regard to such land plots;
(ii) Lessees that acquired their land lease rights by transforming the right of perpetual use before 2010 – with regard to such leased land plots.
Furthermore, the law entirely prohibits (except for inheritance) the alienation of land shares (so called “pais”), agricultural land plots in state and municipal property, the alienation and change of the designated purpose of agricultural land plots in private property allotted in kind to owners of land shares (so called “pais”) that are located in the temporary occupied territories of Donezk and Luhansk Regions, the Autonomous Republic of Crimea and Sevastopol. Any agreements contradicting this prohibition shall be regarded null and void.
What is the largest area of land that can be in private property?
The law sets the following limits to an aggregate area of agricultural lands that can be acquired and owned by any single person:
(1) Individuals (Ukrainian citizens) – 10,000 hectares starting January 1, 2024. Until then, the total area is limited to 100 hectares;
(2) Legal entities (except for banks) – the aggregate area of agricultural lands that can be owned by all its shareholders (participants, members) taken together, but not more than 10,000 hectares.
Please note that the aggregate area of land owned by an individual shall include lands owned by a legal entity whose shareholder (participant, member) such individual is. The area of such lands is defined by multiplying the area that the legal entity owns by the size of the share that the individual holds in such entity’s charter capital expressed in per cents.
Shall the buyer disclose the source of money?
The buyer of an agricultural land plot shall disclose the source of financial funds and other assets used to pay the purchase price of such land plot. If the buyer fails to provide documentary evidence of the source, the acquisition shall be refused.
How are the rights of individual sellers to set the purchase price protected?
Until January 1, 2030, the purchase price of agricultural land plots allotted in kind to owners of land shares (“pais”) shall be not less than their normative assessed value.
What are legal consequences of a breach of the restrictions?
A breach of the rules regarding the subjects permitted to acquire and own agricultural lands as well as the maximum area that can be in private property shall be a ground
(i) to declare a relevant agreement (legal deed) aimed at the acquisition of a land plot null and void and
(ii) to confiscate such land plot.
Whenever a person who may not own an agricultural land plot acquires ownership of such land plot (e.g., through inheritance), they are obliged to dispose of it within one year. Failure to do so shall lead to the confiscation of the land plot by a court decision.
A confiscated land plot shall be sold at an auction. The purchase price minus processing fees shall be paid out to the former owner.
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This publication is for informational purposes only. If you would like to learn more or seek legal advice, please contact one of the following or your usual Nobles contact:
Volodymyr Yakubovskyy (Partner), Alexander Weigelt (Partner).