For nearly 20 years, private land owners, agricultural producers, and investors have been waiting for Ukraine’s government to cancel the moratorium on the sale of agricultural land in the country.
When it was introduced back in 2001, the government declared it to be a temporary measure to stimulate the establishment of fair, transparent, and non-discriminatory rules for the operation of the land market. However, as the saying goes, there is nothing more permanent than something temporary, and as a result of the moratorium, the alienation of agricultural production land or land of individual agricultural households allocated to the owners of the land shares (except for exchange or inheritance), contribution of the land into charter capital, or change of designated use has been blocked for decades, affecting 96% of Ukraine’s agricultural land.
Finally, on March 31, 2020, after years of heated debate, Ukraine’s parliament approved a law that removes the current ban on the sale of private farmland in Ukraine. Although the law does not take effect until July 21, 2021, it is already possible to analyze the effect the ban’s lifting will likely have on the agricultural land market in Ukraine.
Ukraine’s agricultural land market will be liberalized in several stages. Ukrainian citizens will be the first to enjoy the benefits of the lifting of the moratorium. They will finally be able to dispose of, acquire, and rezone privately owned agricultural land. The contribution of such land into the charter capital of Ukrainian entities will also become possible. At the same time, beyond land that they already own, individuals will not be able to acquire more than 100 hectares of agricultural land.
Ukrainian banks, including banks with foreign capital, will also be allowed to acquire agricultural land by way of mortgage enforcement, subject to the mandatory sale of such land through auction within two subsequent years. Unlike other legal entities, banks may own an unlimited amount of agricultural land.
In order to maintain prices on the land market and to protect the interests of sellers, the sale price of agricultural land cannot be lower than its normative value until January 1, 2030. To protect the rights of agricultural producers, who often work on leased land, tenants are granted a priority right to buy-out leased land, which is then transferable.
At the same time, as of January 1, 2024, legal entities owned by Ukrainian citizens will be allowed to acquire privately owned agricultural land and to accumulate a land bank of up to 10,000 hectares.
What About Foreigners?
Despite the significant pressure on the Ukrainian government from the IMF and lobbying by the World Bank and the international business community, foreign nationals still appear to be locked out of Ukraine’s land market, as the ban against foreign nationals directly acquiring and owning agricultural land in Ukraine remains in place. Under the new law, foreign nationals are only allowed to act on the land market in Ukraine indirectly, by purchasing shares in Ukrainian companies that own agricultural land. Such Ukrainian companies owned by foreign nationals will be allowed to acquire agricultural land starting on January 1, 2024, subject to the approval of a national referendum. When or even whether such a referendum will actually be held remains to be seen.
We Wanted the Best, You Know the Rest
Despite expectations that the new land market law will create new opportunities in Ukraine, it actually limits existing possibilities, such as the use of the two-tier corporate structure and the acquisition of shares in land-holding companies by foreign nationals and stateless persons.
Liberalization of the land market in Ukraine is an instrument rather than a goal. The government may place a premium on attracting large investments to the sector and the development of large agro holdings and producers, or it may develop the sector based on family farming and improving the quality of life in rural areas. As it stands now, the country has arrived at the cancellation of the moratorium without a clear strategy for developing the agricultural market future, and numerous unanswered questions remain. The market needs effective instruments to stimulate and finance small and mid-size agricultural producers, land ownership guarantees, clear and transparent environmental protection requirements that apply to agro producers, and a clear answer on the perspective of the access of foreign nationals to the land market. For this reason, we expect the government and parliament to continue changing the rules and reforming the agrarian land market in Ukraine.
By Oleg Matiusha, Head of Real Estate & Infrastructure, Kinstellar Kyiv
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.