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Extension of the Moratorium on Sale of Land


Natalia Levchuk, lawyer at Ilyashev & Partners Law Firm
Source: Dzerkalo Tyzhnia

On October 06, 2016 Verkhovna Rada of Ukraine (Ukrainian Parliament) voted in favor of prolongation of moratorium on sale of agricultural lands till January 01, 2018. To enter into force the law must also be endorsed by the President.

Extension of the ban on sale of agricultural lands for one year does not mean that from January 01, 2018 such land plots will start to be sold freely. Moratorium on sale of agricultural lands is stipulated by paragraph 15 and 14 of the Transitional provisions of the Land Code of Ukraine (the LCU) and is valid from the moment of enactment of the latter. The wording of the mentioned provisions was amended several times which always stipulated ban on sale of agricultural lands and prolongation of the term of the moratorium. The current version of the provisions stipulates for upholding a law of Ukraine on circulation of agricultural lands. Several times the law makers tried to uphold the law regulating the matters of land market. In such way the deputies several times introduced the bills for consideration of Verkhovna Rada one of which, authored by G. Kaletnyk, was even passed in the first reading.

The question on the necessity of lifting the moratorium is pressing and is one of the most debatable throughout many years. The supporters of lifting the moratorium insist that the owners of the agricultural lands must have the right to freely dispose of the land plots they own pointing out that existence of the moratorium leads to creation of the shadow land market. At the same time opponents of the free sale of land indicate that lifting the moratorium may lead to depriving a large quantity of Ukrainians of their title rights to land and to concentration of substantial areas of land in the hands of certain major land owners who may turn to be the foreign producers.

Positions of the supporters and opponents of lifting the moratorium have the right of existence. Pursuant to Article 78 of the LCU the title to land is the right to own, use and dispose of land plots. That is why the ban on sale of the agricultural lands constitutes a limitation of title to land. The absence of the possibility of selling land makes it impossible for the agricultural producers to take out loans secured by land and absence of operating assets will make it impossible for small agricultural enterprises (farmer’s enterprises, for example) to develop.

Big companies involved into cultivation of agricultural products, in their turn, require wide agricultural areas. In such way the question about concentration of such areas is solved on practice by entering into lease agreements and agreements on lease of land shares. At the same time the owners, as a rule, prefer to enter into land lease agreements for a short period which makes the lease holders to renew them periodically. In 2015 into the Law of Ukraine “On lease of land” certain amendments were introduced according to which the term of lease of agricultural lands may not be less than seven years. Substantially decreased was the list of essential terms of land lease agreements. Pursuant to the Ukrainian laws the lessee has the priority right to purchase land in case if it is ready to pay the price asked for the land plot. Suchwise the lessee has the right to purchase a land plot in case of lifting moratorium on sale of land plots. At the same time the lessee’s priority right is not of the “secured” nature if there is another buyer ready to offer a higher price.

Absence of the title to the land plots and short permitted terms of land lease explain the lack of the lessees’ interest in improving its quality. Consequently the said results in incompliance with crop rotation requirements and, eventually, soil exhaustion as a result of cultivation of sunflower and rape. The situation is worsened by the fact that commencing from 2015 certain provisions of the Land Code were deleted. The said provisions imposed obligations onto land users (who cultivate land for agricultural commodities production) to cultivate such lands and approve the land use plans ensuring ecological and economical substantiation of crop rotation and arrangement of land plots which stipulate for measures directed at land protection.

The position of the opponents of the lifting of the moratorium (especially in the current situation) may also be understood. Among the reasons for this they mention the risk that the land plots may be bought by foreign investors in the situation when the national producers are actually unable to raise any loans. The Land Code of Ukraine forbids ownership of agricultural lands by foreign legal entities and natural persons. However, such ban may be bypassed by establishment by foreign producers of Ukrainian legal entities which own such lands. Application of the mentioned scheme ensures formal observance of regulations leaving foreign producers with the status of final beneficiaries.

Pursuant to Article 1 of the LCU land is the major national wealth which enjoys the special protection regime on the part of the state. Now the system of state authorities exercising control over land protection is undergoing a reform. Starting from October 01, 2016 the State agricultural inspectorate of Ukraine was liquidated. The functions of the said inspectorate will be partly delegated to the State geological cadastre and the Ministry of agrarian policy of Ukraine. Suchwise the question of exercising control over compliance with legal requirements on land protection has not been regulated as of nowadays.

In view of the aforementioned lifting the moratorium on sale of agricultural lands must be preceded by creation of the necessary prerequisites for operation of the land market and with the view to this a law on turnover of agricultural lands must be passed. It is also necessary to conceptually decide whether it would be advisable to impose restrictions on the areas of lands (and in case of the positive answer – in which proportions), and establish a land bank etc. It will also be necessary to create a mechanism of formation of prices to the land plots (possibly it will be required to introduce limitation of minimum prices).

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