Last summer, Romania’s Parliament adopted the controversial Law 175/2020 for the amendment and completion of Law 17/2014 on certain measures to regulate the sale of agricultural lands located outside the built-up area and to amend Law 268/2001 on the commercial companies’ privatization that hold in administration lands of public and private property of the State with agricultural destination and the establishment of the State Domains Agency.
On October 13, 2020, Law 175/2020 fully entered into force, changing the real estate market to its core with regard to agricultural lands by introducing a lengthier and more complex pre-emption procedure that must be followed prior to the sale of agricultural land.
The technical norms detailing the envisaged pre-emption procedure under Law 175/2020 should have been adopted within fifteen days of its entrance into force. Disappointingly, however, as we write this, the technical norms have not yet been approved, resulting in a legislative vacuum and consequently to a blockage of not only those real estate transactions concluded after the entry into force of Law 175/2020, but also of those transactions pending at the time, because the new pre-emption rules were intended to apply to ongoing procedures, even if they had commenced under very different legislation.
The absence of technical norms caused an interruption in the sale of agricultural lands, since public notaries refused to authenticate any deeds transferring the property rights over such lands.
In this context, the Romanian Government adopted Government Emergency Ordinance 203/2020 on some measures to regulate the sale of agricultural land located outside the built-up area that instituted rules for pre-emption procedures initiated before October 13, 2020 that were similar to the provisions applicable prior to the amendments introduced by Law 175/2020.
Notwithstanding, the provisions of GEO 203/2020 are transitory, applying only until January 31, 2021. Thus, the chaos created by the new legislation and the absence of the technical norms still dominates the fate of real estate transactions with agricultural lands.
One of the most severe issues stemming from the recent changes of legislation is the obligation of owners to use agricultural lands exclusively for the purpose of carrying out agricultural activities.
At this moment, the extent of this restriction is unclear, as is how it should be interpreted and correlated with the laws allowing the removal from the agricultural circuit of lands located outside the built-up area.
A restrictive interpretation would be that the removal of land located outside the built-up area from the agricultural circuit is no longer possible because its owner is now obliged to carry out agricultural activities.
On the other hand, neither Law 175/2020 nor GEO 203/2020 have amended the still-applicable legal provisions governing the removal of land from the agricultural circuit.
Practice in this regard is scarce (or non-existent) due to the absence of the technical norms for the implementation of the new law.
Among others things, the difficulties generated by these legislative changes had a negative impact on renewable energy investors, as wind/photovoltaic projects usually require large surfaces of land that is typically agricultural and located outside the built-up area.
Therefore, the current legislation is likely to s endanger the development of renewable energy projects, as: (i) the acquisition of agricultural land is impaired until the relevant technical norms are in place; or even longer, as it currently looks like the pre-emption procedure will be a long and challenging one due to the extended legal terms and numerous categories of pre-emptors entitled to acquire the land and which may ultimately block the transactions; and (ii) the investors will then face numerous challenges related to the removal of land located outside the built-up area from the agricultural circuit in order to be able to obtain the required permits and initiate construction.
To conclude, it remains to be seen what practice will develop in terms of agricultural land transactions and how these restrictions will affect potential investors’ interests.
Unfortunately, in cases where the legislation is deficient, the practice may generate frequent inconsistencies and uncertainties that negatively impact the business environment.
By Dana Radulescu and Alexandra Rimbu, Partners, and Diana Borcean, Senior Associate, MPR Partners
This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.