Seven ways to buy agricultural lands in Ukraine

Although the moratorium was introduced in order to consolidate agricultural lands in the hands of their hosts and, thus, to guarantee the use of this category of lands only for its intended purpose, however, moratorium in fact assisted the prosperity of various schemes, shadowing the land market. As a result both society and state suffer from this process, because unofficially obtained means aredocumented nowhere, taxes aren’t paid in state and local budgets and, therefore, grants aren’t allocated for state programs to support the poor. It should be noted that 80% of the agricultural lands’ market participants evade the moratorium using completely legal methods that can be traced by analyzing the rules of land legislation. The remaining 20% of the participants ​bypasse the ban on the alienation of such lands by illegal means. Thus, there are following methods of alienation of agricultural lands nowadays:

1) inheritance, exchange, withdrawal (redemption) for public purposes. Enshrining the ban of sale and “otherwise disposalof lands and change of target destination (use) of lands, owned by citizens and entities for the conduct of commercial agricultural production, lands allocated in nature (on ground) for holders of lands for subsidiary farming, as well as land shares (stocks)”, the Land Code of Ukraine allows to transfer such lands by inheritance, exchanging one plot to another (barter) and by withdrawal (redemption) of lands for public purposes. In this case the most effective way of alienation of lands for agricultural purposes is the conclusion an agreement of exchange (barter) by contracting parties, according to which “each party undertakes to the other party one commodity in exchange for other goods on the basis of property. Under this agreement each of the parties is the seller of the commodity, which he transmits to the exchange, and the buyer of the goods which he receives in return”(parties 1, 2 article 715 of the Civil Code of Ukraine). In fact, barter is a legal way to alienate the agricultural lands, because the law doesn’t impose to exchange equivalent land plots;

2) land lease. According to the law the tenant has no right to dispose of land as opposed to owner, but the parties may enter into a land lease with the tenant’s priority right to buy the land after the moratorium. In fact it’s a convenient way to alienate the land for agricultural purposes. There are 62% of parted lands used on the basis of lease nowadays. In particular, the highest number of leased lands (about330 thousand hectares) are concentrated in the hands of “Ukrainian Agrarian Investments”; whose main beneficiary is a New Zealand citizen, co-owner of “Renaissance Group”, Stephen Jennings.

It should be noted that Ukraine has a practice of entering short-term leases of agricultural lands, which impacts negatively on the natural properties of the land, as for a short period of time the tenants desire to achieve maximum profits for themselves and do not thinkabout the depletion of the land;

3) proxies. Since 2004, the cases of alienation of agricultural lands by proxies enlarged greatly in Ukraine. Article 244 of the Civil Code of Ukraine stipulates that under the proxy a representative has the right to represent the principal’s interests to third parties, as well as to make transactions on his behalf. In our opinion, representation, based on the agreement according to which the owner of agriculturalland provides the representative the right to alienate such land must be qualified as an imaginary. The relationships of the parties must be governed by the trade they have really committed.

Besides, there has been formed the practice of concluding preliminary contracts for the alienation of agricultural lands for future in accordance with article 635 of the Civil Code of Ukraine. It should be noted that in 2006 the Land Code of Ukraine has been amended according to which “agreements (including proxies), concluded at the time of the ban on the sale or otherwise dispose of land plots … in part of their sales and other means of exclusion, as well as in parts of  transfered rights to dispose these land plots for the future are invalid from the moment of their conclusion” (Part 3 of Art. 15 Section X “Transitional Provisions” ). So, we can assume that such agreements areworthless from the moment of their detention, therefore the recognition of such agreements as invalid by a court is not required;

4) emfitevzys, according to which the owner transfers his right to use the land for agricultural purposes to another person for the long-term period (up to 50 years). This right may be alienated and transferred by inheritance (except for adding the land plot to the statutory fund, pawning). Ukrainian legislation doesn’t decide the fate of these lands upon expiration of the contract of emfitevzys. We can assume that a user of such land plot isn’t interested to return the land to its formal owner. By nature and consequences the contract of emfitevzys has common features with the land lease contract, so methods of alienation are similar;

5) pledge is one of the most effective ways of alienation of agricultural lands, according to which “the lender (mortgagee) is entitled to obtain satisfaction from the mortgaged property prior to other creditors of the debtor in case of the debtor’s (mortgagor’s) failuredobligation, secured by collateral, if otherwise established by law” (Part 1 of Art. 572 Civil Code of Ukraine). However, such a mortgagehas often the “imaginary” content. For example, a prospective “buyer” of the land plot “borrows” the owner of agricultural land some sum ofmoney, evidenced by a receipt. At the end of the term the “debt” is not returned as the debtor has no money or other liquid assets, except land. “Bona Fide” creditor files a claim for forced recovery of this “debt”. As a result, the debtor has no other way to return the “debt”, but the foreclosure on land owned by him for agricultural purposes. As a consequence, the land plot becomes the property of “lender” on the basis of the court decision;

6) in the period from 01.01.2008 to 13.01.2008 the moratorium didnt act because the President of Ukraine imposed veto onthe Law of Ukraine “About Amendments to the Land Code of Ukraine concerning the prohibition of the sale of agricultural lands prior to the adoption of appropriate legislation acts” from 19.12.2006 according to which the moratorium had to be extended until 01.01.2008. In fact, during this period of time the parties could enter into agreements on the alienation of agricultural lands. In particular, the plaintiff canapply to the court demanding the expropriation of the land justifying this by saying that in early January, 2008 he concluded a purchase agreement with the owner of agricultural land plot, handed the seller (the land owner) money, evidenced by a receipt, and made arrangements to certify the contract notarized. However, the seller refused such certification and didn’t appear to the notary. According to Part 2 of Art. 220 of the Civil Code of Ukraine “if the parties have agreed on all material terms of the contract, which is confirmed by documentary evidence, and held a full or partial fulfillment of the contract, but one of the parties deviated from its notarization, the court may accept such a contract as valid. In this case, a subsequent notarization of the contract is not required”. Therefore, it’s possible that the court satisfies the requirements of the plaintiff, even if such agreement has not really been concluded at a specified period of time. It should be mentioned that there is an appropriate opinion of the Supreme Court of Ukraine, according to which such claims should not be satisfied as the purchase contract of the land plot is subject to state registration;

7) sale of land plot in parts. At first the owner of agricultural land plot allocates a separate part of it. According to Clause 7 of the Law of Ukraine “About Amendments to Certain Legislative Acts of Ukraine on documents certifying the right to land, as well as the order of division and unification of land” from 05.03.2009r. “the alienation of the land to release it in a separate plot is carried out after obtaining a state act by the owner certifying ownership of the new-formed land”. As a result, there is a new land plot registered as a land for building. Consequently, the last one is free to be the subject of the purchase contract.

Thus, we can see that the formal ban on the sale of agricultural lands doesn’t mean the impossibility of their alienation as a whole. At present, society is differentiated into two camps: the supporters and opponents of the moratorium. In this situation it’s difficult to give an objective assessment of the necessity or harmfulness of such a prohibition of alienation of lands, because the question of land is the eternal question of our people. It should be noted that the harsh reality we are having today isn’t normal, it makest a disadvantage not onlyfor land owners, who want to realize their competence to manage the land in full, but potential buyers of lands who are forced to stimulate the development of shadow land market. In addition, this situation contributes the degradation of agricultural lands, as most owners of landplots are not able to use them effectively due to the lack of special equipment for processing lands or in connection with the expiration thedate of the last one. On the other hand, the land is the property of the Ukrainian people and the free market of agricultural lands can lead totheir concentration in the hands of a small group of people who actually will be able to become  monopolists on the land.

Jurisconsult of Ukraine – Middle East Business Center, Tamara Rahnianska