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Instruments that facilitate trade in agricultural property

On 13 July, the Sejm adopted an amendment to the Act on the Management of Agricultural Property of the State Treasury and certain other acts. The changes made include amendments to the Act on the Structuring of the Agricultural System.

The Act provides for changes that facilitate trade in agricultural property. From a business perspective, the most important change is clarification of when the Act does not apply, and thus once the amendment takes effect, the restrictions on trade in agricultural property will not apply to real estate where there is no more than 0.3 ha of agricultural land.

At first glance, the change seems purely semantic; up to now, instead of using the term ‘area of agricultural use’, the Act used the term ‘area of agricultural property’. In fact, this change is of the utmost significance, as in business practice plots often have a mixed designation in the land and buildings register. For example, a particular registered plot may be partly agricultural and partly designated for construction use. Consequently, on the basis of the current regulations, the question arose as to what, in such a situation, should be understood by the term ‘agricultural property – the entire registered plot of land or only the ‘agricultural’ part? Market practice, supported by views of scholars and case law, took the first view. Thus, even if a given plot is designated for agriculture to a very small degree, this “taints” the entire plot irrespective of its size and the proportion of agricultural use to non-agricultural use. The new restrictions under the Act on the Structuring of the Agricultural System need to be considered, especially due the fact that in practice a “property” is understood as a whole according to its registration in a particular land and mortgage register, and not in terms of geodesic separation. Previously under the law, even agricultural use to a very small degree on one of the plots making up a property meant that all the registered plots included in the same land register had to be treated as agricultural property. It was not at all uncommon to find that a multi-hectare property was determined to be agricultural where only 5 sq. m. was used in this way.

To date, such situations have been dealt with in practice by making appropriate geodetic divisions and separating the agricultural parts from the main object of the transaction. However, this would have an adverse impact on the timing of the transaction. Moreover, such measures were sometimes questioned by the National Centre for Agricultural Support as an attempt to evade the law.

The amendment should significantly improve land acquisition processes, as it eliminates the problem of real estate being ‘tainted’ as described above. Only those properties where the area of agricultural use – and not the area of the property – exceeds 0.3 ha will be subject to restrictions on trading. Thus, the new regulations will aid investors seeking land for development, particularly in the logistics and warehousing sector. Furthermore, reducing the level of legal uncertainty will also improve security of transactions. After all, it is not uncommon for a land acquisition to be questioned due to irregularities by the financing bank or the final investor at the due diligence stage of a project, which usually resulted in the need to take out an appropriate insurance policy at the seller’s expense.

The legislation, as amended, has now been referred to the Senate.