Poland: Will EAA And Swiss Investors Be Able To Freely Acquire Agricultural And Forest Real Properties As Of May 2016?

On 2 May 2016, restrictions on acquiring agricultural and forest real properties located in Poland by foreigners from the European Economic Area (EEA) and Switzerland will cease to be binding. Does this mean that trade in agricultural real properties will be entirely free and not subject to any restrictions as of that time

Current legal status

Pursuant to the currently applicable Real Property Acquisition by Foreigners Act dated 24 March 1920 (consolidated text: Journal of Laws of 2014, item 1380), foreign nationals and entrepreneurs acquiring a real property located in Poland are required to obtain a permit issued by the Minister of Internal Affairs. Acquisition of a real property without the required permit is invalid by operation of law.

The above rule, i.e. the obligation to obtain a permit, applies not only to direct acquisition of a real property, i.e. acquisition of ownership or perpetual usufruct of a real property. It also applies to indirect acquisition, i.e. acquisition or taking up of shares in a commercial company by a foreigner if, as a result, the company that is the owner or perpetual usufructuary of the real property becomes a controlled company or such company is a controlled company and shares are acquired or purchased by a foreigner that is not its shareholder.

Exception for entrepreneurs of the EEA and Switzerland

Upon Poland's accession to the European Union, i.e. on 1 May 2004, the Act was amended inter alia by excluding the obligation to obtain a permit to acquire a real property by foreigners who are nationals or entrepreneurs of the EEA or Switzerland. However, this exception did not apply to agricultural and forest real properties: the need to obtain the said permit to directly acquire such properties was to continue to exist for a transition period of 12 years following Poland's accession to the European Union.

Market practice

Foreign entrepreneurs interested in acquiring agricultural and forest real properties located in Poland occasionally and in specific cases acquire such real properties directly. Much more frequently, they acquire shares in companies that are owners or perpetual usufructuaries of real properties. In doing so, they avoid the need to obtain the permit of the Minister of Internal Affairs for the planned transaction. Such action, however, requires an adequate transaction scheme to be designed and implemented since, as a result, the acquisition comprises not only a specific real property, but also all rights and obligations of a shareholder in a company along with all the company's liabilities and debts.

The 12 years' transition period agreed between Poland and the European Union will end on 1 May 2016. It is commonly believed that after that date, foreigners from the EEA or Switzerland will be able to acquire agricultural and forest real properties located in Poland without any restrictions. But will that really be the case?

Changes considered

Those expecting the implementation of absolute freedom in acquiring agricultural and forest real properties stand to be disappointed. As the end of the transition period is approaching, proposals for implementing commonly applicable restrictions on trade in agricultural and forest real properties are increasingly becoming the subject of intense debates.

Naturally, restrictions on trade in agricultural and forest real properties are nothing new and apply in a number of "old" EU member states, e.g. in France. Several "new" EU member states also implemented similar limitations upon the expiry of agreed transition periods. For example, this was done in Bulgaria, Hungary, Latvia, Lithuania, Romania and Slovakia. The scope of limitations varies from state to state, but in principle they include the need for the real property acquirer to demonstrate its adequate qualifications and experience in agricultural activities in a given EU member state, limitations on the size of the real property to be acquired, or implementation of the priority right upon real property acquisition for specific entities.

Relying on the experience of other states, the discussion in Poland is addressing, for example, whether to introduce a maximum area of agricultural real properties possessed, mandatory intermediation of a state agency upon the sale of such real properties, offering such properties first of all to individual farmers, and limiting parties to the sale agreement in setting sale prices. As in the other "new" EU member states, these restrictions will apply to the same extent to Polish nationals and entrepreneurs as they will to nationals and entrepreneurs coming from other EEA member states and Switzerland.

Thus, perhaps it is worth acquiring a real property before the transition period ends?

Bills limiting trade in agricultural and forest real properties have already been submitted to the Polish Parliament. In a standard situation, this would mean that any potential changes would only be adopted after a long time. However, the year 2015 is an election year in Poland: planned presidential and parliamentary elections may sharply accelerate legislative works and are likely to lead to limitations being implemented prior to 2 May 2016. The effect of such works will represent a compromise among a large number of political circles and it is very difficult to anticipate what restrictions will finally be passed. In this context, given limitations that at present are not sufficiently specified and which in the worst-case scenario can even entirely prevent acquisition of agricultural and forest real properties by certain entities, it seems worthwhile to consider using legally admissible schemes established on the market during the last 12 years in order to finalise planned transactions before 2 May 2016. This may prove to be an attractive option specifically for investors interested in long-term investments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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