On 30 April 2016, the Act dated 14 April 2016 on Suspending the Sale of Real Properties Included in the Agricultural Property Stock of the State Treasury and Amending Some Other Acts takes effect (Journal of Laws of 2016, item585). The new regulations will significantly restrict direct and indirect trade in agricultural real properties located in Poland. Restrictions should be taken into account when planning transactions of trade in agricultural real properties and shares of companies owning such properties.
Purpose and scope of the new regulations
As of early May 2016, restrictions on purchasing agricultural properties by entities from the European Economic Area and Switzerland will cease to be binding. Such entities purchasing agricultural properties will then not be required to obtain a permit issued by the Minister of Internal Affairs. Therefore, it has been planned for a long time to implement restrictions on trade in agricultural properties to apply to both Polish entities and foreigners.
The Polish legislator has decided to implement several restriction types since some new regulations will apply to real properties owned by the State Treasury only. For example, sale of agricultural properties owned by the State Treasury will be suspended for five years.
However, most restrictions, including the ones regarding terms of sale and purchase of real properties, will apply to all agricultural properties owned or held in perpetual usufruct by private entities.
Applicability of new regulations
New terms will apply to all agricultural properties located in Poland regardless of the legal title to the property of the eligible party. Thus, they will apply to both properties held in ownership and in perpetual usufruct.
At the same time it is important that under Polish laws, agricultural properties are not only properties used for agricultural purposes but also properties that may be used for such purposes (meaning they are classified as arable land in the land register), and have not been intended for other purposes in applicable master plans.
A substantial portion of properties located in towns is arable land, and restrictions taking effect on 30 April 2016 will apply to them. This is also the case for arable land located outside of towns, which land is often used for investment purposes.
Exclusions from applicability of new regulations
The new restrictions will not apply to:
- agricultural properties included in the Agricultural Property Stock of the State Treasury,
- agricultural properties with an area of less than 0.3 hectare,
- arable land with an area of not more than 0.5 hectare, on which there will be residential buildings, and buildings and constructions not used for agricultural production representing an organised business whole on 30 April 2016, and
- agricultural properties which will be intended for non-agricultural purposes in final zoning decisions on 30 April 2016.
However, agricultural properties specified in 3. and 4. above will be subject to the existing restrictions in effect until 29 April 2016. Hence, each transaction concerning such properties will require verification of the previous regulations to make sure whether, and to what extent, they should be applied.
Individual farmer as an exclusive purchaser of agricultural properties
In general, agricultural properties with an area of not less than 0.3 hectare can be purchased by an individual farmer only, ie, a natural person who meets certain requirements.
Subject to a few exceptions, other entities, including commercial companies, co-operatives, foundations and associations can purchase agricultural properties only after they obtain a permit from the President of the Agricultural Property Agency (the “Agency”). Such permit can be issued if it is impossible to sell the property to an individual farmer, the purchaser will warrant to properly carry out agricultural activities, and the purchase does not result in an excessive concentration of agricultural properties. If the permit is refused, the property owner may request that the property be purchased by the Agency at a price set by the property appraiser.
Obligations of the agricultural property purchaser
The purchaser of an agricultural property with an area of not less than 0.3 hectare will not be able to sell or give it for use (eg to lease a property under a lease or tenancy agreement) for 10 years from its purchase date. In cases of random events beyond the purchaser's control, the permit may be given by the court. Furthermore, the purchaser is obliged to run a farm on the agricultural property for 10 years, and if the purchaser is the natural person, he will be obliged to run such farm in person.
Agency's rights to purchase agricultural properties
The Agency has the pre-emptive right with respect to each agricultural property with an area of not less than 0.3 hectare.
If the property owner changes otherwise than on the basis of sale, for instance by way of inheritance or donation, the Agency may make a representation on acquiring that property upon payment of its value. The agency will have an analogous right if the agricultural property is acquired as a result of transformation or merger of commercial companies. Similarly, in the case of pre-emption, the Agency will be entitled to acquire the property with an area of at least 0.3 hectare.
If the property is purchased without respecting the Agency's rights, the sale will be invalid.
Agency's rights concerning companies that are owners or perpetual usufructuaries of agricultural properties
The Agency will also have the pre-emptive right with respect to shares in commercial companies owning agricultural properties with an area of at least 0.3 hectare, except for listed companies. If the share purchase agreement is executed for shares of a company owning an agricultural property in excess of the area specified, and the Agency's pre-emptive right is not respected, the sale of all shares will be invalid. It will be invalid even for the sale of the company whose activities are entirely unrelated to agriculture, but owns an agricultural property with an area of at least 0.3 hectare.
If shares are transferred on a legal basis other than sale (eg inheritance, donation or contribution in kind), the Agency may acquire such shares upon payment of their market value. Similarly, as in the case of pre-emption, failure to notify the Agency of acquisition of shares in a company owning an agricultural property with an area of at least 0.3 hectare will result in the acquisition being invalid.
Restrictions will also apply to partnerships: if a partner is changed or a new partner joins the partnership owning an agricultural property with an area of at least 0.3 hectare, the Agency will be entitled to purchase that property from the partnership upon payment of the property market value.
New limitations on direct and indirect trade in agricultural properties are very restrictive, and also apply to areas unrelated to agricultural activities. They should be expected to impede and restrict the trade in agricultural properties to a great extent, and the implementation of investment projects with the use thereof. They will also complicate M&A transactions for entities that do not operate directly on the real estate market but carry out, for instance, production activities. The sanction of invalidity of actions taken in breach of new regulations will bring about the need to introduce a number of changes in the existing practice of developers and investors operating on the Polish market, and also an in-depth analysis of how new regulations may affect the schemes designed for transactions that may result in the indirect acquisition (even unintended) of agricultural properties.