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Potential Cancellation of Prohibition on Sale of Land: What Is Going to Happen?


Iryna Kuzina, attorney, Head of Kharkiv Office at Ilyashev & Partners Law Firm
Source: Agravery

On February 17, 2017 fifty five people’s deputies of Ukraine made submission to the Constitutional Court of Ukraine regarding conformance (constitutionality) of paragraphs 14, 15 of the Section X “Transitional provisions” of the Land Code of Ukraine with the Constitution of Ukraine. As of October 06, 2016 the paragraphs 14 and 15 of the Law of Ukraine No. 1669-VIII read as follows:

14. Prior to the moment when the law on turnover of agricultural lands, but not earlier than January 01, 2018, comes into force introduction of the right to the land share into the charter capitals of the companies shall be forbidden.
15. Prior to the moment when the law on turnover of agricultural lands, but not earlier than January 01, 2018, comes into force the following shall not be allowed:

a) sale and purchase of agricultural land plots in state or communal ownership, except for their alienation (buy-out) for the public purposes;
b) sale and purchase or another alienation of land plots and change of the designated purpose (exploitative use) of the land plots owned by private persons and legal entities for commercial agriculture purposes, land plots provided in kind (on the ground) to the owners of land shares for private farming purposes, as well as land shares, except for transferring them as inheritance, exchange of a land plot for another land plot pursuant to the law, as well as alienation (buy-out) of land plots for public purposes, and except for change of the designated purpose (exploitative use) of land plots with the aim of their provision to the investors – parties to the agreements on distribution of products for performance of the activities in accordance with such agreements.

Sale and purchase or another alienation of land plots and land shares defined by the sub-paragraphs “a” and “b” of this paragraph shall be used subject to entry of the law on turnover of agricultural lands into force, but not later than January 01, 2018, under the procedure established by this law.

The agreements (including Powers of attorney) concluded within the period of validity of the prohibition on the sale and purchase, as well as other alienation, of land plots and land shares defined by the sub-paragraphs “a” and “b” of this paragraph, in the part of sale and purchase and other alienation, as well as in the part of transfer of rights to alienation of these land plots and land shares for the future, shall be null and void from the moment of their execution (certification)”.

The moratorium was imposed as a desperate measure in the course of duration of which the Parliament was supposed to legislatively establish such prevention mechanisms which would prevent the major companies from purchasing land plots in bulk from people at cheap prices, as well as prevent local authorities from receiving corrupt profits from sale of land. However, this temporary measure has been in force for over 16 years (if was initially introduced by the Law of Ukraine No. 2242-ІІІ as of January 18, 2001) in the course of which the legislator has been very inactive.

The people’s deputies Mushak A.P., Khlan S.V., Rizanenko P.A., Chumak V.V., Belkov O.V., Romaniuk V.M. introduced a draft law No. 5535 as of December 13, 2016 for the consideration of the Parliament. These people’s deputies were among those 55 deputies who made submission to the Constitutional Court of Ukraine. As of the present moment the draft law has not passed the stage of consideration on the level of the parliamentary committees.

The constitutional submission probably represents an effort to “force” the draft law through the Parliament because currently there are no alternative draft laws and the threat of lifting the moratorium without the special legislative regulation of circulation of such lands is quite real. However, such tactics may not prove successful and the Constitution Court of Ukraine will (hypothetically) “acknowledge non-conformance of paragraphs 14, 15 of the Section X “Transitional provisions” of the Land Code of Ukraine with the articles 8, 13, 14, 24, 41, 42, 48 and 64 of the Constitution of Ukraine” without sufficient legislative regulation of the market of agricultural lands. And what will be done it such case?

And in this case the “dormant” provisions of the Land Code of Ukraine related to the lands will enter into force in reality. In such way, pursuant to the Article 90 (1) of the Land Code of Ukraine the owners of the land plots have the right to sell or otherwise alienate the land plot, transfer it into lease, mortgage or as inheritance.

The local councils and district state administrations will be able to sell agricultural lands to private persons and legal entities within the scope of their competence or under the results of the auctions (see the Article 116 of the Land Code of Ukraine). Pursuant to the Article 134 of the Land Code of Ukraine such land plots are sold at the land auctions and the exclusionary list is quite short.

The general procedure for preparation and holding of the land auctions is defined by the Articles 135-139 of the land Code of Ukraine. However, this procedure does not account for the specifics of the market of agricultural lands. For example, no consideration was given to the circumstances that the land plot may be a part of a single land mass and be inside of it. Or it is not known how the transfer of the title to the land plot will influence the legal regime of melioration systems located at the land plot.

Also both individual persons and legal entities will be able to alienate agricultural land plots under the principle of freedom of the agreement. Suchwise, the agreement on sale and purchase of a land plot is subject to notarial certification (Article 657 of the Civil Code of Ukraine) and the title acquired by the buyer will be subject to registration in the State Register of titles to immovable property (it is carried out by the notary public who certifies the agreement). No compulsory auction is stipulated and evaluation procedures are carried out for the purposes of taxation and under the requirements of the Law of Ukraine “On evaluation of lands”. It means that under the circumstances of having no special regulation (unless the law “On turnover of agricultural lands” is passed) the procedure of alienation of agricultural lands will be identical to the existing procedure – related to the lands of another designated purpose.

The leaseholders of agricultural land plots have started voicing their concerns regarding the fact whether lifting of this moratorium will influence validity of their lease agreements.

Pursuant to the Article 116(5) of the land Code of Ukraine the land plots which are owned or used by private persons or legal entities are transferred into ownership or use under the decisions of executive authorities or self-governance bodies only after due and proper termination of title or withdrawal of the tight to use under the procedure established by law.

The Article 31 of the Law of Ukraine “On lease of land” stipulates for a list of causes when lease agreements must be terminated. The mentioned article does not stipulate for compulsory termination of the lease agreement in case of alienation of the land plot by the owner. However, the agreement itself may contain provisions stipulating the reasons for unilateral termination of the agreement by the lessor.

Suchwise, by virtue of the law lifting of the moratorium on sale of agricultural lands will not result in mass unilateral termination of lease agreements.

It needs to be noted that the Article 12 of the mentioned draft law No. 5535 clearly established that transfer of title to such land plot does not terminate the right to use it (and the new owner becomes the legal successor within the frames of relations with the land user).

The readers are also interested whether lifting of the moratorium would result in an increase of probability of forcible takeovers of lands. It needs to be said that the likelihood of “forcible takeovers” of land plots will be on the same level as towards other objects of real estate, if not wider. Such takeovers will be carried out in the same way: through committing manipulations with the State register of proprietary rights (the “villain” notaries who have access to the register will be able to perform alienation) as a result of unlawful receipt of corporate rights in the agricultural companies – land owners – in collusion with certain corrupt judges.

In addition, quite possible is the participation of certain corrupt representatives of executive authorities and self-governance bodies who will act with excess or in violation of their official powers (which is less widespread in relation to other property). The methods of protection of the interests of the land owners against takeovers vary and depend on the certain situation. However, in any case, one needs to start systematic monitoring of the information about his real estate and corporate rights in the on-line registers access to which is freely open now.

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