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Moratorium on Sale of Land: Pros and Cons


Natalia Levchuk, lawyer at Ilyashev & Partners Law Firm
Source: Ukrainian News

Moratorium on sale of agricultural lands is stipulated by paragraphs 14 and 15 of the Transitional provisions of the Land Code of Ukraine (the “LCU”) and is valid from the moment of its adoption. The wording of the mentioned paragraphs was amended several times always, although, stipulating for prohibition on sale of agricultural lands and extending the term of the moratorium’s validity. In particular, alienation of land plots was carried out through provision by the land owners of the power of attorney to the buyers providing the latter with a right to dispose of the certain land plots. It allowed making both registration and direct alienation of land. In addition the parties concluded agreements stipulating alienation of land plots in the future (from the moment of lifting the moratorium). Later the lawmakers eliminated such loopholes by introducing certain amendments to the Land Code of Ukraine.

On October 06, 2016 Verkhovna Rada of Ukraine 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 as soon as according to paragraphs 14 and 15 of the Transitional provisions of the Land Code of Ukraine sale of such lands will become possible only after adoption of the law on land turnover.

The supporters of lifting the moratorium insist that the owners of agricultural land must enjoy the right of their land plots. Impossibility of selling such lands makes it impossible for the banks to render credits on the security of lands as a result of which lack of monetary assets hinders development of small agricultural producers.

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 renew them periodically. 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.

Opponents of free sale of land assert that lifting the moratorium may lead to depriving a large quantity of Ukrainians of their title to the land and concentration of substantial land resources in the hands of a few large land owners, in particular big foreign producers.

The position of the opponents of lifting 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.

It also must be taken into consideration that in modern circumstances of the population’s low paying capacity, absence of credit facilities and low lease payments the cost of the land plots, regardless of their worth, may be understated.

In view of the aforementioned arguments in favour of adoption of the law on extension of the moratorium on sale of agricultural lands seems reasonable and substantiated as soon as to organize a full-scale land market would be necessary to adopt the law on turnover of agricultural lands. It is also necessary for the lawmakers to conceptually decide whether they are ready to allow access of foreign producers to land ownership, 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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