Land reform in Ukraine and the moratorium
Land reform in Ukraine 2020 - 2021: land market, moratorium on land
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Content:
1. Changes in the legal regulation of the land market in Ukraine
2. Land plots intended for commercial agricultural production
3. The ability to transfer land plots as collateral
4. Some restrictions on the ability to purchase agricultural land are established by Law 552
1. Changes in the legal regulation of the land market in Ukraine, committed by the Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine Concerning the Conditions of Turnover of Agricultural Land" No. 552-IX
On March 31, 2020, the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine Concerning the Conditions of Turnover of Agricultural Lands” No. 552-IX (hereinafter - Law 552) was adopted. This law became widely publicized due to the fact that it was aimed at lifting the moratorium on the sale of commercial agricultural land and creating a land market in Ukraine. The importance of opening the land market both for the economy and for ensuring human rights (including property rights) makes it necessary to dwell in more detail on the provisions of this law.
Changes in other regulatory legal acts, which will result in the emergence of the right to sell commercial agricultural land, contained in paragraph 1 of Law 552. This paragraph comes into force from 01.07.2021. Let us dwell on the analysis of the provisions of the paragraph.
The moratorium on the sale of land provided for in paragraph 15 of Section X Transitional Provisions of the Land Code of Ukraine dated October 25, 2001 No. 2768-III (hereinafter - ZK) does not apply to all land plots, but only to land plots:
for agricultural purposes, state and communal property;
owned by citizens and legal entities for conducting commercial agricultural production;
allocated in kind (on the ground) to the owners of land shares (shares) for running a personal peasant farm.
The moratorium on alienation of land plots does not apply to all other agricultural land plots.
2. Land plots intended for commercial agricultural production
Law 552 made possible the sale of land plots, which were subject to a moratorium on land, as well as some resistance to the procedure for acquiring ownership of land plots intended for commercial agricultural production under civil law land contracts. Clause "a" of part 1 of Article 130 of the LC in the current edition establishes a rule according to which buyers of agricultural land for commercial agricultural production can be citizens of Ukraine with agricultural education or experience in agriculture or are engaged in commercial agricultural production. Part 1 of Article 130 of the LC as amended by Law 552 does not provide for such restrictions for citizens of Ukraine.
Both the current version of Article 130 of the LC and Article 130 as amended by Law 552 allow only legal entities of Ukraine to be buyers of agricultural land plots.
The acquisition of ownership of agricultural land plots by legal entities created and registered under the legislation of Ukraine, the participants (founders) or the ultimate beneficial owners of which are persons who are not citizens of Ukraine will be decided at a referendum.
3. The ability to transfer land plots as collateral
According to part 4 of article 133 of the LC "[h] the tax holder of agricultural land and rights to them (lease, emphyteusis) can only be banks." A controversial issue was whether foreign banks can acquire ownership of land plots under the procedure for foreclosure on the subject of a mortgage, if such a subject was an agricultural land plot. At first glance, part 4 of Article 133 of the Labor Code grants banks the right to mortgage agricultural land plots. Moreover, it is not specified that banks must be founded by citizens of Ukraine and the beneficiaries must be citizens of Ukraine. The foregoing gives reason to believe that any banks can be mortgagees of agricultural land plots. At the same time, part 5 of article 22 of the LC prohibits the transfer of agricultural land "... to the ownership of foreigners, stateless persons, foreign legal entities and foreign states." For land plots for conducting commercial agricultural production, land plots allocated in kind (on the ground) to the owners of land shares (shares) for running a personal peasant farm, a moratorium on the alienation of these lands has also been established (subparagraph 2 of paragraph 15 of section X of the Transitional Provisions of the LC) ... The ban on the alienation of these lands makes it impossible to transfer them into a mortgage, because the possibility of alienating these lands is an integral feature of a mortgage.
Unfortunately, there is no established law enforcement practice on this issue. In most cases, notaries avoid certifying mortgage agreements on agricultural land plots. At the same time, mortgage agreements for agricultural land (including those that fall under the land moratorium) are also agreements. The basis for concluding mortgage agreements, which provided for the transfer of land plots for commercial agricultural production, land plots allocated in kind (on the ground) to the owners of land shares (shares) for running a personal peasant farm, was that subparagraph 2 of paragraph 15 of Section X of the transitional provisions of the LC prohibits the alienation of land plots for commercial agricultural production, land plots allocated in kind (on the ground) to the owners of land shares (shares) for running a personal peasant farm, and a mortgage does not mean alienation of a land plot, but only gives the mortgage holder the right to sell the item mortgages in case of default on the main obligation. Also, it could happen that at the moment when the question of alienating the subject of the mortgage arises, the moratorium can be lifted. If the moratorium on the sale of land is not lifted, then this is a risk that the mortgagee takes on by concluding such a mortgage agreement.
Despite the foregoing, the conclusion of mortgage agreements in relation to agricultural land is too risky, since there is a risk that the court will recognize this agreement as invalid as the content of which is contrary to the law (part 1 of Article 203 of the Civil Code).
The provisions of paragraph 6 of part 1 of Article 130 of the LC as amended by Law 552, unfortunately, did not eliminate the uncertainty as to whether the conclusion of mortgage agreements for agricultural land plots is allowed. Part 1 of Article 130 of the LC, as amended by Law 552, gives banks the right to acquire ownership only in the manner of foreclosure on them, as a subject of pledge. The word "to banks" means, among other things, branches of foreign banks in Ukraine. Part 1 of Article 130 of the LC as amended by Law 552 allows the acquisition of ownership of agricultural land, except for the state and territorial communities, exclusively to citizens of Ukraine and legal entities of Ukraine, which are created and registered under the legislation of Ukraine, the participants (shareholders, members) of which are only citizens of Ukraine and / or the state, and / or territorial communities (hereinafter - legal entities of Ukraine). A branch of a foreign bank is not a legal entity of Ukraine in the meaning of part 1 of article 130 of the LC as amended by Law 552, and therefore there is a conflict between the provisions of paragraphs 1-5 and paragraph 6 of part 1 of article 130 of the LC as amended by Law 552.
In our opinion, this conflict should be resolved in favor of the option that provides for the right of branches of foreign banks to acquire ownership of agricultural land plots in the order of foreclosure on them as a subject of pledge. It is this option for resolving this conflict that it is better to meet the purpose of the legal norm of paragraphs 1-5 of part 1 of Article 130 of the LC as amended by Law 552. The purpose of the rule enshrined in these paragraphs is to prevent a situation in which agricultural land plots belong to foreign citizens or foreign legal entities. Despite the fact that part 1 of Article 130 of the LC as amended by Law 552 contains the obligation of banks to acquire ownership of land plots in the order of foreclosure on them as a subject of pledge, alienation of these land plots within two years from the date of acquisition of ownership of them, then this goal will be achieved in the event that a branch of a foreign bank enters an agricultural land plot in the order of foreclosure on them as a subject of pledge.
4. Some restrictions on the ability to purchase agricultural land are established by Law 552
Part 1 of Article 130 of the LC as amended by Law 552 contains a number of, in our opinion, unjustified prohibitions on the acquisition of agricultural land plots into ownership. In particular, in accordance with clause 1 of part 1 of Article 130 of the LC, as amended by Law 552, it is prohibited to acquire ownership of agricultural land plots of state and municipal property, agricultural land plots allocated in kind (on the ground) to owners of land shares (shares) that are located closer 50 kilometers from the state border of Ukraine (except for the state border of Ukraine, which runs by sea) by legal entities whose participants (shareholders, members) or ultimate beneficial owners are persons who are not citizens of Ukraine. The proper functioning and protection of the state border of Ukraine, in fact, may require certain restrictions on the implementation of activities in a 50-kilometer zone from the state border of Ukraine. To establish such restrictions, there is no need to prohibit the acquisition of these land plots in ownership. If the restrictions on the use of land plots necessary for the protection of the state border are established legally, then the owners of the land plots will have to adhere to these restrictions. In this regard, the introduction of the restriction in question is unnecessary, and therefore does not comply with the requirements of Part 2 of Article 1 of Protocol 1 to the Convention for the Protection of Human Rights and Fundamental Freedoms.
The provisions of clause 2 of part 1 of Article 130 of the LC as amended by Law 552 prohibit the acquisition of agricultural land plots by legal entities, participants (shareholders, members) or ultimate beneficial owners, who are citizens of a state recognized by Ukraine as an aggressor state or an occupying state. It seems that this norm repeats the norm of paragraphs 1-5 of part 1 of Article 130 of the LC as amended by Law 552, does not allow citizens of other states, including those who are not recognized as an aggressor state or an occupying state, to acquire ownership of agricultural land plots ...
Clause 4 of Part 1 of Article 130 of the LC as amended by Law 552 prohibits the acquisition of agricultural land plots by legal entities whose participants (shareholders, members) or ultimate beneficial owners are foreign states. The establishment of such a restriction on the possibility of obtaining ownership of agricultural land plots was dictated by the need to exclude the use of these land plots to the detriment of Ukraine. However, if the State Ecological Inspectorate of Ukraine and its territorial bodies and other executive authorities exercising control in various fields work properly, then such legal entities will not be able to cause a negative impact on agricultural land plots or perform other harmful activities.
5. General conclusion
Summarizing the above, it should be emphasized that Law 552 made the abolition of the moratorium on the sale of agricultural land, is, of course, a positive change. At the same time, the sale of agricultural land plots can be carried out exclusively between citizens of Ukraine and legal entities of Ukraine, which will have a significant negative impact on the development of agriculture.
If you have any questions please call us by phone 050 052 44 04 or email advokat@novakovska.com.
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