On 14th April 2016 Polish Parliament passed an act suspending the sale of agricultural real  properties of the Treasury Agricultural Property Stock (in Polish: Zasób Własności Rolnej Skarbu Państwa) with amendments on other certain acts related to agricultural real properties (“Agricultural Act”) which implements significant restrictions in the sale of agricultural land and the sale of shares in companies owning agricultural land.

The Agricultural Act will now be submitted to the President for signature. As the Agricultural Act is to come into force on 30 April 2016 and because it will implement serious restrictions in civil law transactions, we would like to present its key aspects straight away.

The amendments will have an impact on:

  1. the sale of agricultural land provided that the classification of agricultural land is extended and the definition covers real properties that currently are not deemed as agricultural;
  2. merger and acquisition transactions of companies owning agricultural land;
  3. rules on establishing mortgages on agricultural land;
  4. the possibility to acquire agricultural land from the State Treasury

This overview presents only the key aspects and should only direct your attention to the recent amendments in Polish law. Further, this overview should not be set as a basis for making investment decisions of any kind. Should you have specific questions we would be delighted to assist you.

Please find below the most important changes:

1.  SCOPE OF RESTRICTIONS – DEFINITION OF AGRICULTURAL LAND

1.1. The restrictions will apply to all real properties which are or can be used for agricultural activity with the exception of real properties designated in local master plans for non- agricultural purposes. Although the pure definition of agricultural land included in the currently binding act is not going to change, it can be interpreted from the wording of the Agricultural Act that the interpretation will be significantly different. In our view, from the pure practical perspective, the definition of agricultural land will refer to all real properties marked in the land registry as agricultural and not covered by a local master plan designating these properties for purposes different than agricultural.

1.2. The restrictions will apply to real properties located within city boundaries if they are marked in the land registry as agricultural land and are not covered by the local master plan.

1.3. The restrictions will apply to real properties covered by zoning permit if the real property is marked in land registry as agricultural land. The exemption is an agricultural land covered by zoning permit which is legally binding on 30 April 2016 at the latest.

1.4. The restrictions will apply to acquisition of land held under perpetual usufruct title.

1.5. The restrictions will not apply to the real properties with a maximum area of 5,000 sq.m. that as of the date of coming the Agricultural Act into force are build up with buildings not related to the agricultural activity, including neighbouring real properties which allow their proper use. Such properties should constitute an economic whole.

1.6. The restrictions will not apply to real properties with the area less than 3,000 sq.m. The Agricultural Act does not include restrictions as to the number of such properties which can be purchased by other entities than individual farmer.

2. PROHIBITION ON ACQUIRING AGRICULTURAL LAND

2.1. The Agricultural Act implements a prohibition on acquiring agricultural land by persons other than individual farmers. Exemptions from this rule refer to limited cases such as acquisition by relatives, the State Treasury or the Church. Notwithstanding the above, it is possible to obtain consent for acquiring agricultural land; however, this is only under the condition that the agricultural land is to be acquired for agricultural activity.

2.2. The prohibition on acquiring agricultural land will refer to acquisitions made on the basis of almost all legal actions including ownership transformations within a capital group and mergers of companies.

3. PRE-EMPTION RIGHT

3.1 In the case of a sale of agricultural land only an individual farmer can be the purchaser (subject to the exemptions described above). In each case the State Treasury will have a pre-emption right and a right to challenge the price of such land if it determines that the price grossly deviates from the market value of the property.

4 RIGHT TO ACQUIRE SHARES (IN POLISH: UDZIAŁY/AKCJE)

4.1 In the case of a sale of shares of companies owning agricultural land (subject to the exclusions set out above in particular concerning properties of less than 3000 sq.m.), the State Treasury will be entitled to exercise the pre-emption right to such shares. In principle, the acquisition of the shares will occur for a price previously determined by the parties. However, the price could be challenged by the State Treasury if it determines that the price grossly deviates from the market value of the property. The preemption right will not apply to any shares admitted to an official listing on a stock exchange as well as in the case of a disposal of shares for the benefit of a relative.

4.2 If a shareholder changes or a new shareholder joins a partnership owning agricultural land, the State Treasury will be entitled to acquire such real property for its market value. 4.3 The regulations described above will apply regardless of the proportion of the value of such property to the company value.

5 LIMITATION OF MORTGAGE VALUE ESTABLISHED OVER AGRICULTURAL LAND

5.1 The total value of a mortgage established on agricultural land cannot exceed the market value of such land determined as of the day of establishing the mortgage. In such a case an estimate prepared by an expert appraiser in accordance with those respective provisions of the Property Management Act will constitute an attachment to the application for registration in the land and mortgage register.

5.2 The rules described above will not apply to mortgages entered in the land and mortgage register prior to the date of entry into force of the Agricultural Act. The Agricultural Act may be applicable if the declaration on establishing a mortgage was made prior to the date of entry into force of the Agricultural Act and the application for registration a mortgage in the land and mortgage register was filed with a court, but the court has not examined the application before that day.

6 PROHIBITION ON THE DISPOSAL OF AGRICULTURAL LAND OF THE STATE TREASURY

6.1 Regardless of the limitations described above which are provided for in the Agricultural Act, a prohibition on the disposal of land constituting the Treasury Agricultural Property Stock (in Polish: Zasób Własności 3 Rolnej Skarbu Państwa) will be introduced for a period of 5 years of the entry into force of the Agricultural Act.

The prohibition does not apply to:

  1. real property or its part designated in a local master plan, spatial development conditions and directions study or final zoning permit for purposes other than agricultural, in particular for purposes of technological and industrial parks, business and logistics centres, and warehouses;
  2. agricultural real property which does not exceed 20,000 sq.m.;
  3. real property located within a special economic zone;
  4. other properties for the disposal of which the minister relevant for issues of rural development grants its consent if it is justified for social and economic purposes.