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Agricultural Land Market is Opening up in Ukraine

Agricultural Land Market is Opening up in Ukraine

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For several decades, it was prohibited in Ukraine to alienate, or change the designated use of, certain types of the privately owned agricultural land plots used for the farming and commercial agricultural production, which impaired the rights of private landowners and affected the efficiency, liquidity and transparency of the market.

This long-standing prohibition, commonly known as the "land moratorium", is to be eased following the enactment on 1 July 2021 of the long-awaited law "On the Amendments to Certain Legislative Acts of Ukraine regarding the Conditions of Turnover of Agricultural Land" No. 552-IX, which marks an important step of land reform in Ukraine.

a. Eligibility and timelines

The moratorium will be lifted gradually and with regard to eligibility and land consolidation requirements, as set out below:

Beginning from 1 July 2021, Ukrainian citizens and banks сan buy agricultural land plots. This is subject to the consolidation limitation of up to 100 ha per person which applies to Ukrainian citizens (without regard to land plots already owned by a citizen as of 1 July 2021). No such limitations apply to the banks; however, they can acquire agricultural land plots only in the course of mortgage enforcement and subject to further auction sale within two years following such acquisition.

From 1 January 2024, all the subjects mentioned above, as well as Ukrainian legal entities (whose shareholders are residents of Ukraine and/or the State of Ukraine and/or the territorial communities), will be able to buy agricultural land plots, subject to the consolidation limitation of up to 10,000 ha per person or legal entity. Where a person is a shareholder of a legal entity which owns agricultural land plots, the area of such land plots multiplied by the percentage of such person's share in the legal entity will be counted towards the total area of land owned by such person.

Ownership of agricultural land plots by foreign citizens and/or foreign legal entities (including, indirectly, through participation in Ukrainian legal entities) is only possible upon a decision of the all-Ukraine referendum and subject to the conditions as may be defined by such referendum. It is not known yet if and when the referendum will be conducted.

As previously, foreign individuals and foreign legal entities, as well as Ukrainian entities with foreign participants, can lease agricultural land and own non-agricultural land. Certain conditions and restrictions still apply to the ownership of non-agricultural land by foreign individuals and entities.

b. Prohibited ownership

Prohibited from owning agricultural land are: sanctioned persons and entities; participants in terrorist organisations; legal entities whose shareholders or ultimate beneficial owners (the "UBOs") are foreign states or citizens of the aggressor states; legal entities controlled by persons registered in non-cooperative states included in the FATF lists; legal entities whose UBOs are non-identifiable or registered in offshore jurisdictions as per the list approved by the government, or legal entities, whose shareholders or UBOs are not Ukrainian citizens, in relation to state or municipal land plots, land plots allocated in kind to owners of land shares, or land plots located within 50 km of the Ukrainian state border (except where the state border is running in the sea).

It is also prohibited to alienate land shares and state-owned and municipally owned agricultural land plots, and alienate and change the designated use of private agricultural land plots allocated in kind to the owners of land shares, located in the temporarily occupied territories (except for inheritance).

If agricultural land is acquired in violation of the land ownership eligibility criteria or concentration limitations, this would provide the ground for invalidating the relevant transactions and confiscating the land plots.

c. Pre-emptive right

The new requirements are introduced in regard to the pre-emptive right to purchase the agricultural land plots. The holders of special subsoil use permits have the first ranking pre-emptive right, while the lessees of the land plots have the second ranking pre-emptive right. The owner of a land plot has to register its intention of selling the land plot in the State Immovable Property Rights Register at least two months prior to such sale, following which the notary has to notify the holder of the pre-emptive rights of such owner's intention. Those persons not eligible to the land ownership can transfer their pre-emptive rights to third parties by agreement.

The above requirements and procedures have to be considered by landowners and land users when planning further operations with agricultural land plots. In particular, it is important to check the contract provisions in regard to the pre-emptive right and ensure that all registrations in the state registers required to confirm such rights are correct.

d. Payments

Additional requirements are established, aiming to secure greater transparency and security of land market transactions. Namely, the purchase price for the agricultural land plots will have to be paid in a cashless form. The buyer will have to confirm the sources of financing by presenting the relevant documents to the notary. Until 1 January 2030, the purchase price cannot be less than the normative monetary valuation of land plots.

e. What's next?

It remains to be seen how the mechanisms required to check: the land ownership eligibility and compliance with the consolidation requirements; the buyers' sources of financing of the land purchase; and register information on the subsoil use permits in the State Land Cadastre, will be implemented. Action should be taken for the preparation of the referendum to decide on the right of foreign persons and entities to own agricultural land.

It is necessary get rid of the atavistic concepts of land shares and permanent land use, to transform these into modern market structures, to ensure further deregulation of the land market and to facilitate access to financing of the agricultural businesses.

Liberalisation of the land market is expected to improve the transparency, liquidity and efficiency of the market, and its attraction for investors.

By Svitlana Teush, Partner, Head of Renewables, Real Estate and Construction, Redcliffe Partners 

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We are involved in the majority of the largest and most complicated transactions and litigation cases in Ukraine.

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