Memorandum on a new law on suspending a sell-out of agricultural properties belonging to the Polish State Treasury

A purpose of this Memorandum is to shed a light on key issues regarding a new law on suspending a sell-out of agricultural land belonging to the Polish State Treasury (hereinafter referred to as the “new regulation”).The final draft of the new regulation has been passed by Polish Parliament on April 14, 2016. The new law has come into force on April 30, 2016. A main purpose of the new regulation is to impose limitations on a turnover of an agricultural land, not only that belonging to the State Treasury, but also land in private sector.

On May 2, 2016 there will have expired a transitional 12 years period established in the law of March 24, 1920 on acquisition of properties by foreigners, which main purpose was to impose limitations on purchasing agricultural land by citizens from other EU countries. As it was pointed out in a reasoning of the draft of the new regulation, the new limitations imposed on a turnover of agricultural land in Poland is closely related to the expiration of the aforementioned transitional period.

The new regulation sets forth that within 5 years of the effective date of the new regulation it suspends a sell-out of the agricultural properties or their parts belonging to the State Treasury, except for i.e. those destined in development plans for other than agricultural purpose or land no larger than 2 ha.

I. The Agriculture System

The new regulation provides wide and significant amendments to the provisions regarding the agriculture structure (Article 7 of the new regulation), i.e. it puts restrictions on a turnover of agricultural land in private sector.

The new law indicates that only a person holding a status of an individual farmer can purchase agricultural land, unless provisions state otherwise (Article 2a section 1 of the law of April 11,2003 on agriculture structure, hereinafter referred to as “LAS”). However, this provision shall not be applied to a seller’s relatives, municipal units, Agricultural Property Agency (hereinafter referred to as “Agency”) , as well as, in a case of an acquisition by means of succession or vindicatory bequeath. This limitation shall also not affect the acquisition of the real estate during winding-up procedure or on the basis of courts judgements or enforcement bodies’ decisions issued under provisions on enforcement proceedings in administration. Moreover, the acquisition of the agricultural property under Article 151 and Article 231 of the Polish Civil Code regarding the claims stemming from a building on someone else’s land shall be also exempted. The new restriction also does not concern legal entities being under control of Catholic Church or any other recognized denomination.

Sale of agricultural property to other persons than the aforesaid shall require a permit of the head of the Agency for example when seller proves that there is no other possibility to sell his property to the individual farmer or to the aforesaid persons i.e. relatives or Agency. In that case the buyer must be able to guarantee a proper conduct of an agricultural activity and the acquisition cannot cause a staggering accumulation of the agricultural land.

Furthermore, the property can be acquired after the Agency’s permit by an individual who is planning to establish a family farm and undertakes to reside within 5 years of the date of property’s acquisition in a municipal unit, where the family farm would have been located. Nonetheless, if Agency did not permit to purchase property, within a month of the date when Agency’s decision has become valid, Agency on seller’s demand would be obliged to buy the aforesaid property at the price fixed according to the rules established in law of August 21, 1997 on properties administration (hereinafter referred to as

Article 2b Section 1 of LAS stipulates that the family farm into which the acquired land has been incorporated must be run within 10 years of the date when transaction of purchase of the acquired land has occurred.

In case of any violation of the aforesaid duties, court on the Agency’s demand will award the ownership of the property to the Agency in exchange for monetary reimbursement calculated according to the rules set out in LAP (Article 9 Section 3 point 1 and point 2 of LAS). The area of acquired property together with other properties belonging to the family farm cannot exceed 300 ha.

II. Pre-emptive rights

New provisions reserve the priority right to buy an agricultural property for its present tenant. However, the tenancy agreement has to have been concluded in writing and with a date officially confirmed as well as the tenancy has to have been performed at least 3 years starting from the date of the conclusion of tenancy contract (Article 3 of LAS). In case of a lack of the entitled tenant or if tenant does not perform his pre-emptive right, the priority right shall fall to the Agency.

The Agency shall also have pre-emptive right on shares and stocks of the companies owning the agricultural land (Article 3a and 3b of LAS). This pre-emptive right does not concern transactions where the shares or stocks are assigned to the seller’s relatives or where publicly held corporations are involved in transactions.

Regarding partnerships that are regulated by Polish Commercial Companies Code in case of any changes among partners or a new partner’s entry to the partnership, which is an owner of agricultural property, Agency is entitled to make representation on acquisition of that agricultural property in exchange for monetary reimbursement calculated in compliance with rules established in LAP (Article 3b Section 2 of LAS). This provision shall not applied in case of a change among partners if a new partner is a relative to the present one or, if the new partner that enters to the partnership is a relative to one of the present partners.

Additionally, new law establishes the Agency’s right to acquire the agricultural property if the ownership of that property has been passed under the legal title other than sale i.e. other type of contract, unilateral act. In that situation Agency shall be entitled to make representation on acquisition of property in exchange for monetary reimbursement (Article 4 Section 3 LAS). Moreover, the new regulation stipulates that the agricultural land may be acquired by means of prescription only by an individual holding a status of individual farmer.

III. Interim provisions

The new law establishes interim provisions. According to the new law, to all proceedings that have been already commenced present provisions shall be applied (Article 12 of the new regulation). The aforesaid exceptions shall concern proceedings related to the Polish Civil Code, Land and Mortgage Register and Mortgage Act, Law on administration of agricultural properties belonging to State Treasury and LAS. Furthermore, the present provisions shall be also applied to the contracts concluded before the effective date of the new regulation (Article 13 of the new regulation). As it was stated in the reasoning of the new regulation, this exception applies to an exercise of preemptive rights or the Agency’s acquisition rights.

Some experts point out that a shape of proposed provisions (Article 12) allows to assume that in case of a conclusion of an introductory agreement the present provisions shall be applied until the whole transaction is closed (M.Obrębski [in:] R.Krupa-Dąbrowska, Turnover of agricultural land: the pending transactions under present provisions, Rzeczpospolita (15.2.2016).

However, according to the information received from the Ministry of Agriculture and regarding the Ministry’s interpretation of the new provisions, Article 11 concerns only courts and administrative proceedings, i.e. those related to the prescription of property. Nevertheless, Article 13 regulating the issue of contracts should be applied to the conditional contracts of sale related to the pre-emptive rights or Agency’s acquisition rights.

Interim provisions do not allow to draw a conclusion that in case of an entering into introductory agreement before the effective date of the new regulation the whole transaction (including the conclusion of the final contract) shall be governed by present provisions. Nevertheless, the whole transaction shall be certainly governed by the present law in case of a conclusion of a conditional contract of sale (on condition that the Agency shall not perform its pre-emptive rights) but only when regarding the Agency’s pre-emptive rights and the Agency’s acquisition rights. It seems that the conclusion of the conditional contract of sale would also exclude (regarding a further part of the transaction) the application of other provisions of the new regulation i.e. those regarding limitations on prospective buyers. Nonetheless, we cannot guarantee that this interpretation would be accepted in practice by courts and legal professionals.

IV. Exceptions

Under Article 11 of the new regulation its provisions (Article 7) on agriculture structure shall not be applied to the agriculture land no larger than 0,5 ha where on the effective date of the new regulation are located dwelling buildings or buildings and facilities that are not currently used for agricultural purposes. However, these buildings must be organized as one economic unit and cannot be exempted from agricultural production according to the law of February 3, 1995 on protection of forests and agricultural land. In practice, that will concern only farm buildings. Moreover, the new regulation does not affect agricultural properties that have been destined in development plans or zoning decisions for other than agricultural purposes on the effective date of the new regulation.

According to the final version of the Article 1a of the LAS, its provisions shall not concern agricultural properties belonging to the State Treasury and to other agricultural properties smaller than 0,3 ha. As it was stated in a reasoning of the amendment to the final draft of the new regulation, the legislature wanted to loosen restrictions regarding a turnover of the agricultural land in private sector and other properties that are no bigger than 0,3 ha. Practically, is should mean properties that are smaller than 0,3 ha or that are equal to 0,3 ha. Eventually, in the new regulation has been set out a new provision that concerns only properties “smaller than 0,3 ha”, not those “no bigger than 0,3 ha”. The difference is significant, because currently the law, with some exceptions particularly specified, does not allow to divide agricultural plant into plants smaller than 0,3 ha. In this case the agricultural land can be divided only when enlarging the neighboring plant or when regulating the border between plants.

Therefore, the turnover of private agricultural properties that are smaller than 0,3 ha, though it is allowed by law, in practice seems to be extremely complicated if not impossible.

dr Agnieszka Łuszpak-Zając

Legal advisor / Partner