Slight facilitation of agricultural real estate acquisition

The Ministry of Agriculture and Rural Development has prepared a draft amendment to the provisions of the Act on the Formation of the Agricultural System. The draft was prepared back in 2022. As a result of inter-ministerial consultations, minor amendments were made to the draft in February 2023.

The draft provides for several changes to the provisions that will slightly facilitate the trade in agricultural land.

Larger area exempt from restrictions

The change that seems to be the most significant in practice is the change in the definition of agricultural property excluded from the application of the Act on Formation of the Agricultural System. Until now, the provisions of the Act did not apply, inter alia, to agricultural real estate with an area of less than 0.3 ha. In the practice of trading, this concerned extremely rare cases.

The proposed amendment provides for a change in the area standard defining the threshold for exemption from the Act, so that the provisions of the Act will not apply to agricultural property where the area of agricultural land is less than 0.3 ha. Thus, mixed properties with a larger area, in which the agricultural area is less than 0.3 ha, will also not be subject to the restrictions on agricultural land. Usually this type of land is located in a residential development area and is acquired for the purpose of building developments. They are not very important for improving the area structure of family farms.

Broader catalogue of relatives

The draft law provides for the expansion of the catalogue of relatives to include parents of the spouse, stepfather and stepmother. Such a change is intended to facilitate the transfer of agricultural holdings within the family. According to the legislator, in practice there are situations in which there are no other persons entitled to acquire agricultural real estate other than the indicated persons. A close person may, inter alia, freely acquire agricultural real estate without the consent of the NEB and bypassing the pre-emption of the lessee or the KOWR.

Transformation of an entrepreneur and a civil partnership into a capital company

The current legislation provides for an exception to the ‘land for the farmer’ rule in the case of acquisition of agricultural real estate as a result of division, transformation or merger of commercial companies. Meanwhile, the Commercial Companies Code provides for the possibility to transform not only commercial law companies, but also to transform an entrepreneur or a civil partnership into a commercial law company. In the current legal state, it is doubtful whether the transformation of such entities into a commercial law company, if the assets of the transformed entity include agricultural real estate, requires the approval of the Director of the National Agricultural Property Agency (KOWR) for effective transfer of the ownership of agricultural real estate to the company established as a result of the transformation. The planned legislation is intended to remove these doubts by clearly indicating that such a transformation will not require the consent of the Director of the KOWR.

Acquisition of shares in an agricultural company for the purpose of redemption

The draft law provides for the exclusion of the right of first refusal in favour of the Director of the KOWR in the event of acquisition of own shares or stocks by a agricultural company for the purpose of their redemption. So far, in such a situation, doubts have arisen as to whether such acquisition by a company of its own shares or stocks, if the company is the owner or usufructuary of at least 5 hectares of agricultural real estate, is encumbered by the pre-emptive right in favour of the KOWR. However, it is clear that such legal actions do not require interference from the Director of the KORW, as there is no need to protect the improvement of the area structure of agricultural holdings or to counteract excessive concentration of agricultural real estate.

Acquisition of assets also by a non-farmer

According to the currently binding regulations, acquisition of agricultural real estate by acquisitive prescription is only possible if the spontaneous holder of such real estate is an individual farmer and if the area of the acquired agricultural real estate together with agricultural real estate owned by him does not exceed 300 ha of agricultural land. This means that statutory exceptions do not apply with respect to acquisitions by way of seizure, nor is it possible to obtain the consent of the Director of the KOWR to an acquisition by way of seizure, which makes it significantly more difficult to establish seizure and thus to sanction a state of possession of such real estate that has lasted for several decades. The draft amendment provides for the repeal of the requirement to have the status of an individual farmer in order to establish the acquisitive prescription of an agricultural property by its spontaneous holder.

The proposed changes will facilitate the trade in agricultural land only to a small extent. In practice, the vast majority of agricultural land will still be subject to rationing of its sale. Such restrictions are understandable in the case of valuable agricultural land used for agricultural production. On the other hand, it seems unjustified to continue to maintain restrictions on the free disposal of class V or VI land located within the administrative boundaries of cities.

The regulations limiting the trade in agricultural land in Poland may significantly affect asset-deal or share deals. Therefore, we encourage you to contact lawyers from our Real Estate Law team to provide an opinion and secure the planned transaction. Contact: [email protected]