On March 31, 2020 Verkhovna Rada of Ukraine enacted the Law of Ukraine “On amendments to certain legislative acts of Ukraine concerning turnover of the agricultural land” (Bill No. 2178-10) (hereinafter referred to as the “Law“). The Law is set for signature of the President of Ukraine and will take effect on July 1, 2021.
Effective date of Law applies for all major provisions except for obligations of the Cabinet of Ministers of Ukraine to approve a procedure for financial assistance to citizens and legal entities purchasing land plots, to introduce outgoings to the state budget for state policies of development of small and medium agricultural producers, and adjust laws and regulations ensuring compliance and enforceability of the Law, which shall be done within 6-month term as of promulgation of the Law. Therefore, secondary legislation and regulations ensuring enforcement of the Law are expected to be enacted soon.
GOLAW have prepared the review of major novelties of the Law.
The Law introduces the market for agricultural land. It repeals paragraphs 14-15 section X “Transitional provisions” of the Land Code of Ukraine that have provided for moratorium on sale of agricultural land. According to the new Law, individuals and legal entities can acquire ownership and alienate agricultural land plots subject to restrictions and limitations set forth by the Law.
Who is ALLOWED to acquire ownership of land?
The Law has established an exhaustive list of persons who can be owners of the agricultural land. The Law explicitly allows acquiring ownership rights to agricultural land plots by:
- citizens of Ukraine;
- Ukrainian legal entities, whose shareholders are only citizens of Ukraine and/or state, and/or local community;
- local communities;
The Law envisages banks as a distinctive category. Banks cannot purchase land but can acquire the ownership thereto only by procedure of enforcing foreclosure on such a land being subject of lien and under the undertaking to further alienate a plot via land auctions during two years as of ownership acquisition.
Who is PROHIBITED to acquire ownership of land?
The Law prescribes classes of entities which are prohibited to acquire ownership of an agricultural land until the referendum takes place and those which are subject to unconditional prohibition.
Until the referendum is held it will be prohibited to acquire ownership of agricultural land plots for Ukrainian legal entities whose shareholders or ultimate beneficial owners are not citizens of Ukraine. It seems though that such a ban concerns legal entities regardless of the amount of interest of the foreign national therein.
In addition, until the referendum is held, foreigners, stateless persons and legal entities are prohibited to acquire ownership of the interest (shares, membership, participation) in the equity capital of legal entities (except for the ownership in the share capital of the banks), which are the owners of agricultural land.
Therefore, the Law limits opportunities for agribusiness to structure the ownership of agricultural land by the means of holding structures on the territory of Ukraine as well as by using foreign companies. However, it is important to note that such restrictions may be lifted in the result of referendum on the foregoing matters.
Along with this, the Law prescribes that in any case, even if the mentioned referendum is held, the acquisition of ownership to agricultural land plots shall be prohibited for:
- legal entities, whose shareholders or ultimate beneficiaries are foreigners – in respect of land plots located within less than 50 km from state border of Ukraine (except for the state maritime boundaries);
- legal entities, whose shareholders or ultimate beneficiaries are citizens of Russian Federation;
- persons who are aligned or were aligned with terrorist organizations;
- legal entities, whose shareholders or ultimate beneficiaries are foreign states;
- legal entities, whose ultimate beneficiary cannot be identified;
- legal entities, whose ultimate beneficiaries are registered in the offshore zones (according to the list of offshores adopted by Ukrainian Government);
- individuals and legal entities, as well as for their affiliates, who have been subjected to sanctions pursuant to the Law of Ukraine “On Sanctions” by prohibition for acquiring ownership of land plots;
- Ukrainian legal entities whose controllers are registered in states from FATF’s list.
Considering abovementioned restrictions, agribusiness planning to acquire ownership to agricultural land plots has to disclose the information on beneficiaries and should revise its corporate structures eliminating offshore companies along the process.
Until January 1, 2024 total area of agricultural land plots in ownership of one citizen cannot exceed 100 ha. Area of land plots acquired by citizens before the Law takes effect shall not be included. From 2024 total limitation for citizens will be increased up to 10 thousand hectare per capita.
Legal entities can acquire ownership of agricultural land only after January 1, 2024 and within the 10 thousand hectares limit while not exceeding total area of agricultural land plots that can be in ownership of all shareholders of such a legal entity. The mentioned restrictions do not apply to banks acquiring land by the enforcement of foreclosure on the land being subject of lien.
It should be taken into account that area of the land plot in ownership through owning interest in equity capital of a legal entities combines with an area of land plot in direct ownership of the citizen. Area of land plot that is owned by a citizen through owning interest in the equity capital of company shall be calculated on a pro rata basis – total area of land plots in ownership of legal entities multiplied by percentage of member’s interest in equity capital.
Therefore, provided a citizen is the direct owner of 10 thousands hectares of agricultural land, legal entity, where such a citizen is the sole member, cannot acquire ownership of agricultural land.
Failure to observe abovementioned limitations and restrictions entails voidance of deeds for alienation of land plots and is deemed a legal ground for forfeiture (seizure) of the land plot.
Peculiarities of sale and purchase
The following specifics of sale and purchase of agricultural land shall be taken into consideration:
- sale and purchase is carried out adhering preemptive right (right of first offer) with possibility to transfer such right to a third party subject to prior written notice to the owner;
- settlement of payments for land plots purchase shall be carried out via bank transfer;
- buyers shall have documented proof of source of funds or other assets used to acquire ownership. At this stage the Law does not stipulate the procedure and authorised persons for verifying the sources of funds.
- Until January, 2030 sale price shall not be less than normative monetary evaluation of the land plot.
- Sale of the agricultural land plots in state and public ownership is prohibited.
The Law prescribed that failure to comply with Law’s requirements as to acquisition of ownership of agricultural land is the legal grounds for declaration of deed for acquisition of ownership of land plots null and void. In addition, the Law provides for forfeiture (seizure) of the land plot.
On a separate note the liability of the persons who will take ownership over the land, which by operation of Law such persons cannot acquire. Such persons are obliged to alienate land plots within one year term as of the transfer of ownership title. In case of delay, upon the petition of Stategeocadastre the land plot can be seized following court’s decision.
Moreover, forfeiture (seizure) upon the decision of the court can be enforced on the land plots, area of which exceeds limitations for agricultural land that can be in ownership of individual.
Seized land plot shall be sold on land auctions subject to decision of the court. Consideration for land plot sold on land auction with deducted expenses for sale process shall be disbursed to the former owner.
At this stage, it is clear that Law will significantly affect agricultural business in Ukraine. Owners of agricultural companies planning to form their privately owned land stock have to take care of reviewing of corporate structures in advance in order to comply with new requirements.
How GOLAW can assist:
- Consultancy on the land market of Ukraine
- Set up and structuring of business
- Due diligence, advisory in M&A deals and deals involving investment funds
- Advisory in acquisition of proprietary rights in land plots
- Corporate and project financing
- Antitrust and competition compliance
The authors of the article: Max Lebedev, Oleksandr Melnyk, Andrii Oliinyk