Cristina Bojica, Partner, Gruia Dufaut Law Office

by Cristina Bojica, Partner, Gruia Dufaut Law Office

Further to the approval of Law no. 175/2020, in force since October 13, 2020, amended and supplemented by the GEO no. 203 of November 23, 2020, the legislation regulating the purchase and sale of agricultural land located outside built-up areas has been subject to some significant changes lately.

The Law no. 175/2020, amending and supplementing the Law no. 17/2014 on the sale of agricultural land located outside built-up areas comes, indeed, with certain restrictions related to the preemption rights in case of transfer of ownership, to agricultural activity and the regime of agricultural land.

Hereinafter, there is a summary of the main changes brought by the Law no. 175/2020, amended by the GEO no 203/2020 and the provisions of the Law no. 246/2020 on the use, conservation and protection of soil.

1. PREEMPTION RIGHT AND TERMS OF USE OF AGRICULTURAL LAND

1) Who are the beneficiaries of the right of preemption? Several categories

The new law widens the list of beneficiaries of the preemption right (natural or legal persons), while modifying the order of priority of their rank.

Henceforth, the sale of agricultural land located outside built-up areas must abide by the rules on the respect of beneficiaries' right of preemption, in the following order:

Rank I: the co-owners, 1^st degree relatives, spouses, parents and relatives up to 3^rd degree including the owner of the land to sale

Rank II: the owners of agricultural investments for crops of trees, vines, hops, exclusively private irrigations and / or sharecroppers

Rank III: the owners and / or sharecroppers of agricultural land neighbouring the land to be sold. 

Rank IV: young farmers (people under the age of 40 and qualified in agriculture)

Rank V: institutions with an activity in the field of agricultural research, located near the exploited land

Rank VI: natural persons having their domicile or residence in the territorial administrative units where the land targeted by the sale is located or in neighboring territorial administrative units

Rank VII: the State, through the Agency for State Domains ("AGENTIA DOMENIILOR STATULUI")

The law also sets up purchase priority criteria in case the preemption right is exercised by several owners of neighbouring agricultural land.

If no holder of the preemption right shows an interest in buying the agricultural land concerned, the law therefore provides for a right of preference for specialized buyers, namely third parties who cumulatively fulfil certain conditions, such as:

1. have been domiciled in Romania for at least 5 years before the date of registration of the sale offer,

2. for legal persons, justify having had its registered office in Romania for at least 5 years before the date of registration of the sale offer (both the company and the shareholder who holds control over the company);

3. having developed agricultural activities in Romania during the last 5 years before the registration of the sale offer and

4. (for legal entities) prove that a minimum of 75% of the turnover of the last 5 fiscal years comes from agricultural activities.

Finally, if no preemption right aforementioned is being exercised within the 45-working day legal term and no specialized buyer exercises it within the 30-day legal term after the expiration of the 45 days above mentioned, the sale may be freely made towards any other natural or legal person.

As regards how to exercise the preemption right, see point B below.

The conditions imposed are so restrictive that we wouldn’t be wrong to say that this new text is likely to block the transfer of ownership of agricultural land.

2) The obligation to maintain the agricultural usage of the land

One of the sensitive issues with the Law no. 175/2020 concerns the fact that, once purchased, and starting with the purchase date, the agricultural land located outside built-up areas shall be used exclusively for agricultural purposes.

In addition, if at the date of purchase, agricultural lands located outside built-up areas are provided with agricultural investments for the crops of trees, vines, hops or irrigation systems, then the agricultural usage thereof shall be preserved.

In view of this new legal provision, the question that may arise is whether and to what extent the owners will be able, if they wish, to withdraw the agricultural lands located outside built-up areas from the agricultural circuit, and how these provisions will be correlated with those in force regarding the withdrawal of lands from the agricultural circuit.

For the record, the main legal provisions regulating the conditions and documents necessary for withdrawing land from the agricultural circuit are provided for in the Law no. 18/1991 on the land fund and the Order no.83/20018 of the Ministry of Agriculture and Rural Development.

3) Tax conditions relating to the successive sale of agricultural land located outside built-up areas 

According to the new legal provisions, the sale of agricultural land located outside built-up areas before 8 years from the date of the purchase comes with an obligation to pay an additional tax of 80% on the capital gain, set according to the grid of notaries valid on the date of sale.

A similar rule applies to the sale of capital allowing the control of companies where those lands account for more than 25% of the assets. Thus, in the event of direct or indirect alienation, before 8 years, the seller will again have, in this case too, the obligation to pay a tax of 80% on the capital gain realized, calculated on the basis of the notary grid between the time of the purchase and time of the sale of the said control package.

It should be noted that the obligation to pay this additional tax of 80% does not apply to lands acquired in a way other than via sale-purchase (for example via an inheritance, contribution in kind to the share capital, exchange etc.) sold sooner than 8 years from the date of purchase.

2. EXERCISE OF THE RIGHT OF PREEMPTION: MORE BUREAUCRACY

Under the new legal provisions, any transaction concerning the sale of agricultural land located outside built-up areas must follow an administrative procedure. The seller is required to register with the town Hall a request to display the offer for the sale of agricultural land, for information purposes with regard to the holders of the right of preemption within the deadlines which have now been extended as compared to the former legislation (see point A.1 above).

• a 45-working days term for the display of the offer at the headquarters of the Town Hall or, where applicable, on the website of the latter (the previous period was 30 working days) and

• An additional 30-day term from the expiration of the 45-working day term mentioned above for the exercise of the right of preemption by the beneficiaries of this right.

3. TOUGHER SANCTIONS

Starting with October 13, 2020, the signing of a sale contract for the sale of agricultural land located outside build-up areas with a third party in violation of the preemption right or without having obtained prior legal authorisations entails absolute nullity (and no longer relative) of the contract. At the same time, failure to comply with the legal conditions is punished by a contravention fine starting from lei 100,000 to lei 200,000.

4. SOIL QUALITY CERTIFICATE

The Law no. 246/2020 on the use, conservation and protection of soil, in force since January 1, 2021, also brings as a novelty the obligation to obtain a soil quality certificate, which impacts on the sale of agricultural land.

This law defines the Soil Quality Certificate as being the document that certifies the quality of the soil, issued at the end of any type of work damaging the soil or when alienating land that has been damaged by economic activities that have an impact on the soil.

Obtaining the soil quality certificate is mandatory when changing the owner / holder of land on which agricultural, forestry or zoo-technical activities have been carried out.

The certificate is issued by the National Research and Development Institute for Soil Science, Agrochemistry and Environment (ICPA) on basis of a report concerning the quality of the soil drawn up by the OSPA or by persons qualified to such end.

The procedural standards for obtaining the certificate must be approved by a Common Order of competent public authorities within the 12-month term since the entry into force of the law. Unfortunately, these Standards have not yet been adopted and there are no transitory standards, therefore transactions are at this time blocked, given the impossibility to obtain this certificate, which is compulsory for the sale of agricultural land.

5. THE IMPACT OF THESE PROVISIONS ON INVESTMENTS

According to the authorities, the ban on changing the agricultural usage of lands, but also the widening of the categories of beneficiaries of the preemption right are measures intended to preserve the agricultural usage of the land and to promote the consolidation of agricultural lands.

But at this stage these measures rather block sales…. Likewise, the penalizing taxation of the sale of agricultural lands located outside build-up areas before 8 years from the date of purchase, will also promote an increase in the price of agricultural land and also limit the practice aimed at changing the usage of certain agricultural lands thus enhancing other investments (such as wind or photovoltaic parks, logistics parks, etc.).

At the same time, at the European level, we see emerging a jurisprudence according to which, conditions similar to those presented above, for the sale of agricultural land may come into conflict with the principle of free movement of cross-border services and even be considered discriminatory.