New rules and restrictions on the sale of agricultural land

31. August 2020 | Reading Time: 5 Min

Law no. 175/2020 amends the existing law on the purchase of agricultural land and establishes a new order of pre-emption and new purchase conditions. The new rules will apply as of 13 October 2020. The main changes to the law are as follows:

A. Temporary ban on the alienation of agricultural land

The new provisions introduce a prohibition on the alienation of agricultural land for a period of 8 years, with the exception of agricultural land located outside built-up areas that may still be alienated, by sale, before the passing of 8 years from the date of purchase, on condition of payment of a tax equal to 80% of the difference between the sales price and the purchase price, as calculated based on the notaries’ grid valid for the period in question.

In the event of a direct or indirect alienation, prior to the passing of 8 years from the date of purchase, of a controlling interest belonging to companies in possession of agricultural land located outside built-up areas and representing more than 25% of their assets, the seller will be obliged to pay a tax equal to 80% of the difference in value of the land in question, as calculated on the basis of the notaries’ grid, on the date of acquisition of the land and the date of alienation of the controlling interest. In this case, the profit tax on the difference in value of the shares or equity interests sold will be applied on a reduced basis commensurate with the percentage for which the agricultural land in question accounts in the fixed assets, with any double taxation being prohibited.

Failure to comply with these provisions will result in the absolute nullity of the transaction, and after acquisition the agricultural land in question must be used exclusively for the purposes of carrying out agricultural activities from the date of purchase.

These provisions do not apply to the reorganization or reallocation of assets within the same group of companies.

B. New categories of preemptor and the imposition of new conditions

The alienation by means of sale of agricultural lands located outside built-up areas is to take place in compliance with the substantive and formal conditions provided for under Law no. 287/2009 on the Civil Code and the right of preemption, at the same price and under the same conditions, and in the following order:
a) 1st rank preemptors: co-owners, first degree relatives, spouses, relatives and relatives up to and including the third degree
b) 2nd rank preemptors: owners of agricultural investment projects for the cultivation of trees, grape vines, hops, exclusively for private irrigation and/or lessees. If there exist agricultural investment projects for the cultivation of trees, vines, hops and irrigation on the land subject to sale, the owners of these investment projects have priority in the purchase of these lands
c) 3rd rank preemptors: the owners and/or lessees of agricultural land adjacent to the land subject to sale
d) 4th rank preemptors: young farmers
e) 5th rank preemptors: the Gheorghe Ionescu-Șișești Academy of Agricultural and Forestry Sciences and the research and development bodies in the fields of agriculture, forestry and the food industry established and regulated by Law no. 45/2009 on the establishment and functioning of the Gheorghe Ionescu-Șișești Academy of Agricultural and Forestry Sciences and the research and development system in the fields of agriculture, forestry and the food industry, as well as tertiary educational institutions specialised in agriculture, with the aim of purchasing agricultural land located outside of built-up areas with the use designation strictly required for agricultural research and located in the vicinity of existing lots belonging to their estate.
f) 6th rank preemptors: natural persons with domicile/residence in the administrative-territorial units where the land is located or in neighbouring administrative-territorial units
g) 7th rank preemptors: the Romanian State, through the State Property Agency.

C. New rules for lessees

A lessee wishing to purchase agricultural land located outside of built-up areas must have obtained the capacity of lessee by means of a valid lease concluded and registered according to the relevant legal provisions at least one year prior to the date of posting of the offer of sale at the town hall and must meet the following conditions:
a) lessees who are natural persons/legal entities/associations must prove they have been domiciled/resident in Romania for a period of 5 years prior to registration of the offer of sale for the agricultural land located outside a built-up area
b) in the case of lessees who are legal entities and whose shareholder is another legal entity, the shareholders in control of the company must prove they have had a registered/secondary office in Romania for a period of 5 years prior to registration of the offer of the sale of agricultural land located outside of a built-up area

D. Restrictions for natural/legal persons who are not preemptors

Law no. 175/2020 establishes the cumulative conditions for the purchase of agricultural land by natural/legal persons that do not fall under the category of preemptors, as follows:
1. they must have been domiciled/resident or had a registered and/or secondary office in Romania for a period of at least 5 years prior to the registration of the offer of sale (including for the partner/shareholder natural/legal person in control of the company)
2. they must have been registered with the tax authorities in Romania for a period of at least 5 years
3. in the case of individuals, at least 75% of the total income from the previous 5 tax years must have been derived from agricultural activities, etc.

E. Other provisions

The request and use of the land book extract/certificate of tasks and the cadastral documentation valid upon conclusion of the transfer of ownership contracts regarding real estate and other real rights fully demonstrate the good faith both of the parties to the contract and before the notary public with regard to the owner’s capacity as the seller of the real estate subject to sale as described in the land book.

The period for which the offer of sale must be displayed is extended to 45 days and the obligation to notify the holders of preemption rights over the registered offer of sale falls on the mayoralties in question.

Sellers and preemptors will be able to withdraw offers, including the acceptance of offers, up until the completion of the sales procedure.

A Single Register of the sale and use of agricultural land located outside built-up areas has been established to record information about real estate transactions involving this type of land.

Law no. 175/2020 also introduces a series of harsher penalties, including the absolute nullity of acts of alienation by sale of agricultural land located outside built-up areas that do not respect the right of preemption or which are concluded without obtaining the approvals required by law. It also establishes fines for the non-observance of preemption rights with respect to the sale of agricultural land ranging between RON 100,000 and 200,000.

Source: Law 175/2020 on the amendment and supplementation of Law no. 17/2014 on various measures to regulate the sale and purchase of agricultural land located outside built-up areas and the amendment of Law no. 268/2001 on the privatization of commercial companies managing the State’s publicly and privately-owned land designated for agricultural use and the establishment of the State Property Agency, as published in the Official Gazette no. 741 of 14 August 2020.

Legal Newsletter August 2020