Romania: New barriers for purchasing agricultural land

This article is providing a brief analysis of the amendments of Law No. 17/2014.

Law No. 175/2020 on amending and completing Law No. 17/2014 on some measures regulating sales of agricultural land outside built-up areas has been published in the Official Gazette no. 741, as of August 14, 2020.

Law No. 175/2020 will be effective 60 days after its publication in the Official Gazette starting with October 13, 2020.

The main amendments may be classified as follows:

1.   Ranking of pre-emptors and sequence of exercising the right of refusal to buy land.

2.  Imperative, restrictive and cumulative requirements that purchasers (individuals and/or companies) intending to purchase agricultural land in Romania must comply with.

3.  Examination of right of refusal proceedings and the procedure for issuing land disposal permits.

4.  Establishment of an 80% tax payment levied on the amount representing the difference between the sale price and the purchase price, for sales of agricultural land outside built-up areas within 8 years from purchase.

We shall briefly analyse the main changes of law no. 17/2014 that, in our opinion, are in breach of numerous fundamental rights and freedoms, guaranteed both internally by the Romanian Constitution and also at a European level, by the European Union Treaties, due to their effect upon the business environment.

It should be noted that the new regulation contains at least 85 important amendments, which completely modify legislators’ scope at the moment of enacting the initial Law No. 17/2014.

Ranking of pre-emptors and sequence of exercising the right of refusal to buy land

The first amendment is the classification of land buying refusal-right holders into 7 ranks, thus introducing 4 new categories and completing 2 other categories, compared to the original regulation:

i)     Co-owners, first-degree relatives, spouses, relatives, and spousal relatives up to and including the third degree.

ii)   Owners of agricultural investments for crops of trees, vines, hops, exclusively private irrigation and/or leaseholders. The law also states that owners of agricultural investments in trees, vines, hops or irrigation crops take precedence over purchases if such investments have been made on the land in issue.

iii)   Landowners and/or tenants of neighbouring agricultural land.

iv)   Young farmers. According to paragraph 4 of this Article, young farmers are defined by Article 2, line 1 (n) of European Union Regulation No. 1305/2013 of the European Parliament and of the Council of December, 17, 2013 on support for rural development from the European Agricultural Fund for Rural Development (EAFRD/FEADR) and for revoking European Comission Regulation No. 1698/2005 of the Council, as further amended. Therefore, young farmers are “individuals up to 40 years-old at the time of application, holding the appropriate professional skills and qualifications, as well as the title of holding head for the first time on such agricultural holdings.” Furthermore, according to paragraph 3 of this Article, if young farmers exercise their right of refusal, those carrying out livestock activities take precedence.

v)   The Agricultural and Forestry Sciences „Gheorghe Ionescu Şișeşti” Academy, agriculture, forestry and food industry research and development units as well as agricultural education institutions. Pre-emptors under this category are allowed to purchase agricultural land if strictly necessary for agricultural research and only their neighbouring lots.

vi)  Individuals having their domicile/residence in administrative-territorial units of the land or in a neighbouring territorial unit.

vii) The Romanian state, through the Agency for State land ownership.

The sequence of ranks and the wording are unclear and even contradictory. For example, rank III mentions land owners and/or tenants, but these two categories cannot suddenly become competitive holders of the right of refusal because they exclude each other by definition. Limiting tenants only to those of neighbouring land is also new.

Rank VI only mentions individuals, implicitly and unreasonably excluding companies, despite recent national economic policy to stimulate corporate agricultural investments.

New requirements according to pre-emptor ranks

Tenants must ”hold this status under a valid tenancy agreement, legally concluded and registered at least one year before the sale offer is displayed at the town hall.”

The change consists of setting up a 1-year term, an amendment which, in our opinion, affects the predictability of the law and makes it effective retroactively. Therefore, if the provision becomes effective, it gives rise to legal effects for the future that are related to past facts (actions/inactions), at least during the previous year.

The Constitutional Court has repeatedly ruled on the approaches and principles that must be taken into consideration when drafting laws:  on the one hand the wording of laws must enable those concerned to reasonably foresee the conduct to adopt; on the other hand laws must be characterised by clarity and predictability, which are sine qua non elements of constitutionality. Therefore, the remedy is, for instance, entry into force of a new provision within at least one year from the date it becomes effective.

The law introduces a new requirement for tenants that are both individuals and companies, as well as their associates. This way they must “provide proof of having been holding domicile/residence in Romania for at least 5 years before registration of the offer to sell agricultural land outside built-up areas.” The criticism concerning the predictability of laws remains valid also for this provision. Moreover, we can say that neither the freedom of establishment of domicile and residence according to Article 25 Line 2 of the Romanian Constitution nor Article 49 of the Treaty on the Functioning of the European Union are complied with, which may inevitably give rise to discrimination. Furthermore, companies with other legal entities as shareholders/associates are required to prove that „shareholders managing such companies have had their headquarters/ secondary establishment in Romania“ for 5 years before the sale offer.

The domicile requirement is apparently also maintained if young farmers exercise their right of refusal according to Article 4, Line 3. In addition, those “carrying out livestock farming” take precedence.   We say “apparently” because it is not clear whether this requirement concerns any young farmer or just those who carry out livestock farming. A new category of pre-emptors arises from this wording: “young farmers carrying out livestock activities”.  This category belongs to rank IV of pre-emptors, namely young farmers. This method of legislating is unclear, open to interpretation and causes multiple confusions.

What if the right of refusal is not exercised

If pre-emptors do not express their intention to purchase a property within the established deadline, sellers are free to choose a purchaser, a situation best known in practice as free sale.

As pointed out, the new regulation introduces a set of new cumulative requirements that pre-emptors must comply with in order to purchase properties. In addition, the regulation introduces requirements that purchasers who are not pre-emptors must meet in order to purchase agricultural land outside built-up areas if pre-emptors do not exercise their right of refusal.

The following cumulative requirements are established for individuals acting as purchasers:

–   having held domicile/residence in Romania for at least 5 years before registration of the sale offer;

–   have been carrying out agricultural activities in Romania for at least 5 years before registration of the sale offer;

–   had registered with Romanian tax authorities at least 5 years before registration of the sale offer.

The following cumulative requirements are established for companies acting as purchasers:

–   have held their headquarters/secondary establishment in Romania for at least 5 years before sale offer registration;

–   have been carrying out agricultural activities in Romania for at least 5 years before sale offer registration;

–   submit documents “proving that at least 75% of the total income of the last 5 fiscal years has come from agricultural activities”;

–   managing associates/shareholders of purchasing companies should have been holding domicile in Romania for at least 5 years before sale offer registration;

–   if other companies are managing purchasing companies, managing associates/shareholders of purchasing companies need to provide proof of having held domicile in Romania for at least 5 years before sale offer registration.

As pointed out for tenants, criticism regarding lack of law predictability, as well as criticism regarding the impact on freedom to establish domicile and residence for individuals acting as purchasers, also apply in this case. Limiting the possibility of purchasing agricultural land to establishment of residence in Romania in the last 5 years prior to the sale offer is a violation of European Union law. At the same time, it creates discrimination not only for residents of the European Union- citizens of the European Union, compared to Romanian citizens, but even among Romanian citizens.

Restrictions of individual rights and freedoms must comply with the principle of proportionality and must be a necessary and proper measure for the protection of general interests. Considering this, restrictions on the criterion of domicile or residence do not comply with the stated principle. Therefore, it is necessary to take into account that the obligation not only restricts purchasers` right of free choice of residence (provided that the right is guaranteed), but also freedom of movement of capital guaranteed by Article 63 of the Treaty on the Functioning of European Union.

By acceding to the European Union, Romania accepted that all provisions and measures implemented by national states, with the effect of limiting and preventing investments, breach the European Union treaties. The draft has this direct purpose: to restrict the freedom to purchase agricultural land outside built-up areas.

On the other hand, the Romanian Constitution guarantees freedom of choice regarding employment, profession, occupation and free access for each individual to economic activities. Setting the requirement to carry out agricultural activities in Romania for at least 5 years prior to the offer registration also infringes those guaranteed freedoms. In addition, it is not a foreseeable rule because it is retroactive and because of limiting purchasers to pursuit of agricultural activities harms all those who have not chosen this occupation in recent years. Individuals beginning farming careers may be hindered by these provisions when acquiring agricultural land, for not having started pursuing the business 5 years sooner. These provisions are also discriminatory towards individuals engaged in agricultural activities in Romania and those carrying them out within the European Union.

If potential pre-emptors or purchasers who meet the above requirements do not express their intention to purchase, only then can land subsequently be freely sold to any individual/company. In all cases price and selling requirements in the offer must be complied with.

New requirements for sellers

Another new requirement set for sellers is the obligation to pay taxes amounting to 80% of the difference between the sale price and the purchase price if disposal takes place prior to the 8-year deadline from the purchase. This requirement is maintained by the new regulation in the following paragraph. It is also kept for direct or indirect disposal of company controlling packages that include agricultural land outside built-up areas that represent more than 25% of their assets. In the latter situation, double taxation is prohibited.

Another new requirement is that land owners must use their land “by strictly carrying out agricultural activities assumed at the purchase date” and to preserve the agricultural designation exclusively to “agricultural investments for trees, vines, hops and irrigation”.

In our view the legislature is threatening the exercise of rights to private property by imposing a disproportionate and burdensome tax, therefore reducing land owners` possibility of disposing of their property freely and without constraints.

According to the relevant Community case-law, any interference with property rights must meet the requirement of proportionality. The balance is damaged if individuals bear a peculiar and enormous charge. However, this might just happen in Romania when Law No. 17/2014 is effective.

Withdrawal of offer

The draft provisions regarding the possibility to withdraw an offer could adversely affect the course of trade. This is due to the possibility of both sellers and purchasers to withdraw their offer, respectively their acceptance, within 45 days from the offer display at the premises and on the town hall website.

However, there is no mention regarding deadlines for transmitting such information or for removing information from town hall premises or from the Ministry of Agriculture website.

The national register on trade and designation of agricultural land outside built-up areas

The Ministry of Agriculture and Rural Development is responsible for creating and managing the National register on register on trade and designation of agricultural land outside built-up areas. This is an electronic system, established based on information provided by local authorities and the National Agency for Cadastre and Real Estate Registration. The purpose of the new system is to collect information on the completion of procedural steps, cadastral documents and conveyancing acts related to agricultural land outside built-up areas.

Compliance with Law No. 17/2014 procedural steps is checked by notaries public, as transaction facilitators and by the Local Cadastre Agency when registering ownership in the Land Register for each transfer of agricultural land outside built-up areas. As a result, the National Register will double the role and functionality of the National Agency for Cadastre and Real Estate Registration.

Failure to comply with the above requirements results in not only absolute nullity of such agreement, but also sanctions by way of a 100.000 – 200.000 RON fine.

Application of the new provisions

The provisions on sale offer proceedings, exercising the right of refusal, examination of right of refusal proceedings and the procedure for issuing land disposal permits will apply to all requests submitted after the law becoming effective and to requests pending at that time.

This rule is also ambiguous because it is unclear what provisions the wording “exercise of refusal right” actually refers to. It is also unclear if the new limiting provisions on the requirements that purchasers must meet apply to requests pending at the time of its entry into force.

The methodological rules for the application of this Law will be amended and will be published within 15 days of effectiveness. From the day the law becomes effective and until the methodological rules are adopted, the rules will remain unclear. This is most likely going to give rise to a blockage, given that the law is not sufficiently clear and complete to ensure immediate application of the new rules from the authorities. Furthermore, they rather red tape the entire administrative procedure.

In conclusion, disposal of agricultural land outside built-up areas changes not only significantly, but essentially, with the consequence of blocking sales and creating an advantageous situation for a small category of potential purchasers in Romania.

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