European Union: Fewer Restrictions On The Acquisition Of Agricultural Land

Last Updated: 1 August 2019
Article by Michał Pietuszko and Paweł Szymański

In this period, Poland's economy has strengthened significantly and its real estate market remains strong due to the country's location in the heart of Europe, its excellent economic performance, and the availability of a well-trained workforce, combined with historic low interest rates. These conditions provide for excellent opportunities for foreign investment, which is growing year by year.

However, there is one real estate sector in particular which been significantly transformed as a result of Poland's accession to the EU. For the past 15 years, thanks to European funding, Poland's transport infrastructure has been redeveloped so that new infrastructure now connects major Polish cities and gives better access to the existing European highway network. This has the effect of opening Poland to new markets.

The improved roads network allows faster and cheaper movement of goods. This helps the warehouse market in particular which, as a result, has been performing extremely well over the past few years. The influence of technology is another factor affecting the growth of the warehouse market. New services connected with e-commerce, such as the delivery of products bought or sold online, create the need for specially designed warehouse premises.

The above factors combine to create a significant demand for properties which can be developed into warehouse premises. Real estate located outside cities but with suitable access to the main communication channels is sought by developers. Given the structure of land in Poland, such properties are mainly designated for the cultivation of agricultural production or forestry purposes.

The transferability of such properties is currently limited by a law suspending the sale of land belonging to the National Agriculture Support Institution. This was amended in 2003 to limit the possibility of acquiring agricultural and forestry land. It is also applicable to foreign investors.

Ironically, the law was introduced as a result of Poland's accession to the EU because the public authorities feared that foreign investors would have an unfair advantage over Polish investors. Today it is clear that such fears were unjustified, and the excess of demand over supply for property along the main communication routes has resulted in a change of approach from the public authorities in Poland.

The Act on Shaping the Agricultural System was adopted by the Polish Parliament on April 26, 2019 and is now awaiting the presidents signature. This can be viewed as the first step to facilitating the transferability of the agricultural land in Poland. Such changes will offer more opportunities for investors as more land will become eligible for development.

Under the previous regulations, only an individual farmer could acquire real property constituting agricultural land (with a few minor exceptions such as the acquisition of agricultural property by the relatives of the seller, State Treasury or local government authority). As a result, the transfer of agricultural land by foreign investors was all but eliminated (again with a few minor exceptions such as properties located in areas designated in the local zoning plans for non-agricultural purposes). The new Act has introduced significant amendments. First, limitations with respect to the type of entity acquiring agricultural property will no longer apply to agricultural property of less than 1,000 m2 this means those properties can be acquired by entities other than individual farmers, such as special purpose vehicles (SPVs).Additionally, the term for using the acquired property as an agricultural holding and the period for which the property must be held have been decreased from ten years to five. Further, this limitation no longer applies to agricultural property with an area of less than 1,000 m2 located within the city's administrative boundaries.

In relation to foreign investors, who generally act through SPVs, another limitation had a very serious consequence. The previous Act on Shaping the Agricultural System extended the pre-emption right of the National Agriculture Support Institution to any agricultural property (this pre-emption right applied to agricultural properties that were subject to an ownership right or right of perpetual usufruct) and had also introduced a pre-emption right of the National Agriculture Support Institution in relation to the purchase of shares in a commercial company which owned agricultural property or was a perpetual usufructuary of the agricultural property. This meant that any share deal to be undertaken by the company owning agricultural property was subject to a right of pre-emption of the National Agriculture Support Institution. Also, for example, in the case of change of partners in a partnership which owned agricultural property, the National Agriculture Support Institution was entitled to submit a statement on the acquisition of the agricultural property owned by this partnership for the market value of the property.

These limitations no longer apply where the company owns agricultural property with a total area of less than 5,000 m2. As a result, the company's share deals are no longer subject to the National Agriculture Support Institution pre-emption right. This change undoubtedly benefits foreign investors who own, via an SPV, less than 5,000 m2 of agricultural land. Such investors will not be required to notify the National Agriculture Support Institution of the potential transaction and will not have to worry about its exercising the pre-emption right towards the SPV's shares or the property.

At first glance, the changes may not seem revolutionary, but they are undoubtedly the first step to more accessible trade in private and public agricultural land, applying also to foreign investors. Fifteen years' membership of the EU and a steady flow of foreign investments into Poland's market is evidence that Poland remains a competitive and economically attractive country. This has a direct impact on Poland's legislators, who must implement the legislation, required to create an investor-friendly legal environment.

"15 years' membership of the EU and a steady flow of foreign investments into Poland's market is evidence that Poland remains a competitive and economically attractive country."

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