On 31 March 2020, the Ukrainian Parliament voted for the law on agricultural land market. Within the "Land Reform in Ukraine" project, Asters experts will analyze practical issues or other areas of interest that we anticipate in the course of further implementation of the land reform in Ukraine.
The first article of the series is available following this link >>
Priority right status
The Law introduces an interesting new option for the market – "alienation of priority right to acquire land" (regardless of land designation). In practice, significant number of agricultural land lease and emphyteusis (perpetual lease) agreements contain clauses on priority right of lease holders and perpetual lease holders to purchase plots (subject to market opening). At the same time, the Law of Ukraine "On Land Lease" links the existence of the lease holder's priority right with the possibility to legally possess the leased land, while the Civil and Land Codes do not regulate the priority right in the perpetual lease relations.
Below are our considerations in terms of the Law:
Price of privately owned agricultural land
The Law provides for state regulation of sale price of agricultural land allocated in kind (on site) to owners of land shares at the level not less than the value of the normative monetary evaluation (NME) until 1 January 2030. At the same time, the following aspects appears to us controversial:
We are inclined to believe that, in the absence of additional clarifications on the matter, any sale of land allocated in shares has to take place at a price not less than its NME.
The Law prohibits purchase (or any other payable acquisition) of agricultural land in absence of documents confirming the sources of funds or other assets used to acquire the title. Notaries or banks, as well as the parties who are naturally interested in “cleanness” of their transaction, are likely to be required to monitor compliance with this requirement (relevant instructions have yet to be developed).
We find that in the future an essential element of auditing agricultural land will be verification of availability of the documents confirming the sources of funds in the prior alienation transactions. As there are no clear requirements for such documents or criteria for the adequate sources of funds, it can turn out to be quite difficult to establish legality of agricultural land acquisition.
In addition, the Law establishes mandatory non-cash payment under agreements on agricultural land alienation.
We anticipate that transparency of the land market and the overall level of its complexity will increase.