The new agricultural revolution: Changes in the legal regime of agricultural areas in Romania
By Alina Iozsa & Alexandra Burdulea, Hategan Attorneys
The legal regime of unincorporated agricultural areas in Romania has been the subject of longstanding debate. Authorities claimed that the purpose of the new conditions introduced in 2020 and 2022 was to increase usage of farmland and consolidate the market; however, they seem to be doing quite the opposite so far. As a result, new burdensome obligations for both landowners and buyers have been introduced, restricting national and foreign investors from concluding sale agreements over such lands. Numerous concerns have been raised about the compliance of these new conditions to fundamental principles of the European Union, such as non- discrimination.
More priority, fewer transactions
Unlike the previous version of the legislation which provided four types of pre-emptors, the current form contains no less than seven, with different ranks of priority for the acquisition of agricultural lands, as follows:
- Owners of agricultural investments located on the land; co- owners, spouses, and relatives up to the third degree, in that order;
- Owners of agricultural investments for the cultivation of trees, vines, hops, and irrigation exclusively for private use, located on the land subject to the sale offers and/or lessees;
- Owners and/or lessees of agricultural land adjoining the land;
- Young farmers, as defined by EU Regulation no. 1.305/2013;
- Research and development units in the field of agriculture, forestry, the food industry, and agricultural educational institutions;
- Natural persons residing in the localities where the land is located or in neighbouring localities;
- The Romanian State.
Moreover, the conditions imposed on some of the pre-emptors have been modified. For example, a lessee of agricultural land is obligated to have their lease agreements registered with the competent town halls at least one year before the display of the sale offer. Also, lessees must prove the fulfilment of additional conditions regarding the domicile/ residence/registered office on the Romanian territory for five years before the sale offer. This change is, at least theoretically, justified by concerns regarding the longstanding practice of concluding fictitious lease agreements to have priority for purchase.
The eighth category of pre-emptors
Under the current form of the law, if none of the pre-emptors manifests their intention to acquire the agricultural land, the owner may sell the land to any natural or legal person, subject, however, to restrictive conditions that have made the access of foreign investors to agricultural areas nearly impossible. These conditions give preference to buyers having a domicile or residence in Romania for a period of at least five years, and to buyers with past experience in farming in Romania. Similar conditions have controlling shareholder who must have their domicile located in Romania for a period of at least five years before the date of the sale offer's publication. Considering these limitations, it has been argued that, even if they are not specified as such under the law, persons fulfilling the above-mentioned conditions, represent an additional eighth category of pre-emptors.
Therefore, only as a last resort, if neither the pre- emptors nor any persons fulfilling the conditions described above do not express their intention to purchase, the land may subsequently be freely sold to any natural or legal person, at the same price and conditions.
Prohibition to sell
One of the most controversial provisions concerns the temporary prohibition to sell any unincorporated agricultural land for a period of eight years after purchase. Any breach of this obligation is sanctioned, even if indirectly, through the application of an 80 percent tax on the amount representing the difference between the sale price and the purchase price, based on the notary's price list. This tax is also payable on the direct or indirect alienation, that is on corporate transactions of agricultural companies.
The application of these provisions has been unclear until recently. GEO no. 104/2022, adopted in June 2022 provided the calculation mechanism of the base for taxation (the value of the land), as well as the destination of the tax. The determination of the value of the land follows the long-standing practice in Romania of taking as a reference point the indicative value established by the grid of notaries, or the minimum value established by the market survey carried out by the Chambers of Notaries, for the relevant period. The tax paid to the Romanian Treasury is allocated in a proportion of 60 percent to the state budget and 40 percent to the budget of the administrative-territorial units on whose territory the land is located.
Legal reforms such as the one in the Romanian agricultural sector have given rise to a series of concerns, as the conditions imposed concerning citizenship and residence could affect much-needed foreign investments and considerably limit the free movement of capital and freedom of establishment in Romania. Moreover, the explanations issued this year bring very little hope to a sector that has been highly impacted by a lack of clarity. For the moment, transactions remain mostly blocked, making further measures highly necessary for the market to regain its dynamism.
Alina IozsaGGI member firm
Law Firm Services
T: +40 256 430 454
Hategan Attorneys is an independent, full-service business law firm located in Timisoara, Romania, providing a tailored and integrated range of legal services to meet the needs of a wide variety of businesses, individuals, and organisations. More than three quarters of their clients are international companies which plan to invest or are already doing business in Romania.
Alina Iozsa is Partner and leader of the Real Estate and PPP department with Hategan Attorneys. She has advised and provided innovative solutions on a wide range of complex real estate projects. Alina has also successfully advised projects in the industrial, public procurement, construction, agricultural, residential, and energy sectors, and is a recognised real estate specialist on the real estate market of western Romania.
Alexandra BurduleaGGI member firm
Law Firm Services
T: +40 256 430 454
Alexandra Burdulea specialises in various aspects of labour law, ranging from day-to-day employment matters to large-scale collective dismissals. She has been involved in drafting complex commercial contracts for several multinational companies, tailored to their specific business strategies. She is currently studying towards her PhD in European Law and Economy at the West University of Timisoara and Université de Pau et des Pays de l'Adour.
Published: Real Estate Newsletter, No. 15, Autumn 2022 l Photo: Wirestock - stock.adobe.com