Purchase of agricultural land

Purchase of agricultural land – opportunities and threats – Polish perspective

A recent, last-year amendment of Polish Land Administration Act has further entangled procedures related to purchase of agricultural land. This does not mean, that such purchase is impossible – the Polish lawmaker left us a few options and legal loopholes which may be of use to non-farmers.

The first step for any non-farmer or legal entity interested in such purchase is to check, whether the land in question and its use is governed by local land use plan (MPZP – Miejscowy Plan Zagospodarowania Przestrzennego). The plan is a binding source of law for the area it covers, so if the plan designates an area as designed for non-agricultural use, purchase should pose no problems whatsoever. The plans, however, are not mandatory for local administration, which may use a study on future physical development of the commune instead – this document is mandatory, yet not binding. As a result, its provisions will be basically irrelevant to the purchasing party. Farmlands are often excluded from the binding plans, and even though we may file for establishment of the MPZP for an area in question, such procedure may last for years. Such pace of proceeding is obviously out of question for most potential buyers. If, however, the estate is not influenced by MPZP, we can take further steps into consideration.

Agricultural Real Estates below 0,3 hectares

The smallest farmlands, measuring up to 30 ares, are excluded from the Land Administration Act regime, meaning that we can purchase them freely – just like any other real estate. Such piece of land is more than enough for consumers willing to build a house, but in case of entrepreneurs this might be not enough even for minor investments. There is always a possibility to divide the estate into small plots of land and buy them singularly. If such solution is unavailable, another option is available for plots of land up to one hectare.

One hectare – one major issue

Up to one hectare, agricultural plot of land can be purchased fairly easily, as long as the National Centre for Agricultural Support (Krajowy Ośrodek Wsparcia Rolnictwa, KOWR), a body administering state-owned farmlands, does not make use of its right of pre-emption. The procedure in this regard is simple for both parties. Firstly, we need to draft a preliminary agreement on purchase of land, in which the purchase itself shall be deemed dependant on refrainment from pre-emption of KOWR. Copy of the agreement is then sent a notary to the Centre, which has one month to make use of its right. If that is the case, the Centre notifies the seller of property by registered mail and publishes the notification on KOWR’s website. Later on, the final agreement between KOWR and the seller is drafted and concluded at price as declared in the preliminary agreement. If the price is considered flagrantly overpriced, the KOWR may ask the court, within 14 days after its notification, to establish a fair price for the estate. This may result in a radical cut on the price and a loss for the seller.

If KOWR is unwilling to buy the estate, it may notify the seller in writing or refrain from any actions altogether. The most certain way to check if we are free to finalise the purchase is monitoring the website of KOWR, where any notification will appear first. As soon as we make sure that KOWR is not interested in the land, we can proceed with the purchase.

Large farmlands – a risky game

Any plot of agricultural land larger than one hectare will prove extremely problematic for both parties concerned. Before the amendment it was enough to offer an estate for sale to farmers using an Internet platform provided by KOWR for virtually any price. If there were no bids, all we had to do was to ask the KOWR for permission to sell the land to someone else, e.g. a non-farmer, and it was rather easy to achieve such permission.

At the moment, if we want to fulfil requirements listed in the Act, we have to offer the estate for sale for a price no higher than 149% of price of land of similar class and quality, as established by the Central Statistical Office for every voivodship. This new requirement means that the initial price might be extremely low – even 149% of the centrally established price is much less than usual market prices. Additionally, the offer made on the KOWR virtual sales platform is binding, meaning that if we choose to take a risk and publish an offer there, we will be forced to sell the land to any other farmer who places a bid. That way, both parties which originally intended to conclude an agreement lose everything. The seller is basically forced to sell his land at an exceptionally low price, and the would-be purchaser must look for another estate once again. One of the most obvious results of the new requirement is a decline in prices of agricultural property in general. The only way to ease this radical procedure is to order and provide an appraisal report which will prove, that the estate is worth more than 50% more than the officially established price. Such appraisals will be, however, available only for the most valuable and healthy soil. The valuable lands are in turn much more problematic in any further proceeding, which we will discuss below.

To summarise, the whole procedure looks as follows: firstly, the land must be offered for sale on the website with a proper price. The offer must contain designation and description of the estate, its price, its purpose in accordance with local spatial planning acts, as well as a deadline for submission of bids, which should be no shorter than 30 days after publication. If the seller does not receive any bids in the designated timeframe, he can ask KOWR for a permission for purchase of agricultural land by a non-farmer, attaching relevant proof of failure to sell the land online, a declaration of potential buyer regarding further performance of agricultural activity and a declaration that the purchase will not result in an excessive concentration of agricultural lands, as well as other documents required by law. If KOWR disagrees for the purchase, we may file an appeal to the Minister of Agriculture. Alternatively, the seller may request KOWR to purchase the estate at a market price established by KOWR itself. The price may sadly turn out to be low, comparable to pricing indicated by Central Statistical Office.

Farmland in a company?

The above mentioned procedure is risky, but there is a much safer alternative – if we are keen on purchasing a large agricultural estate, we can bypass the toughest procedures easily by contribution of the estate to a limited liability company. This is the safest and arguably one of the quickest methods to acquire such land. The first step is obviously a conclusion of a company contract and creation of the company. The estate should already be mentioned in a contract as a non-cash contribution of one of shareholders, but there should be also a provision reaffirming, that ownership of the estate will pass to the company only through conclusion of a separate notary contract. This way we clarify the situation and reject any possible accusations of KOWR, that the acquisition of land was finalised without the Centre’s consent. After conclusion of the contract, the company is already capable of informing KOWR about the contract, asking for permission for acquisition. The notification should include relevant excerpts from land registry. Additionally, it is a good idea to make a declaration on further performance of agricultural activity. This document will greatly enhance our chances for permission, while creating very vague and general obligation that is, in fact, quite easy to fulfil – for example, by regular maintenance of grass in the area. The permission will allow us to conclude the agreement transferring right to the property to the company in a form of notary contract. If KOWR does not approve of acquisition, the only other option it has is to purchase the land by itself within a month, which is highly improbable in practice. Only then, after the ownership is transferred to the company, we can successfully register it. Importantly, the limited liability company can exist without registration up to six months – this is our deadline to perform the acquisition and file for registration of the company. Otherwise, the entity will cease to exist by law.

The previous owner of the land should be encouraged to join the company by security of this procedure, as he will not be obliged to put his land for sale at a terrible price. If KOWR by any chance decides to buy the estate to stop it from introduction to company, it will usually pay a market price for the land. Of course, the seller will receive his payment quite late – only at the moment when he sells his shares – but the traditional proceeding described above is comparably long anyway.

As soon as we decide to transfer ownership to a company, we should separately launch proceeding to exclude the estate from agricultural production. As long as the land remains agricultural, KOWR will be involved in every major proceeding related to changes in company, such as purchase of shares. KOWR has a right of pre-emption to shares of every company owning more than 5 hectares of farmland. The faster we exclude the estate from agricultural protection, the better. In most cases, we will have to change the status of farmland first.

Change of farmland status

An important step on our path to successful investment is a change of farmland status of the estate. This procedure is once again dependant on the MPZP – If the estate is influenced by the MPZP and designated for agricultural purposes, the change of status must occur through a change in the plan. As we discussed earlier, this is an extremely lengthy proceeding, often completely depriving the estate in question of any potential. If, however, spatial planning is on our side, we can act further in line with its valuation class and chemical composition. The valuation class, ranging from I (the best soil) to VI (poor soil), is mentioned in an excerpt from land registry, whereas the composition (either organic or mineral) can be checked in an environmental department of a district office. The best lands, marked I-III, require a ministerial approval for change of farmland status, which in practice is available only through establishment or change of MPZP for the area. The lengthy process does not necessarily have to be successful in this case, as the best lands can still prove to be too good and valuable for the government to let go. It might be easier, and the change might occur without these complications, if:

-at least half of every consistent plot of land must be located within an area of a dense architecture,

-they are no further than 50 meters away from the nearest building plot,

-they are no further than 50 meters from a public road,

-the overall land is no larger than 0,5 hectare, regardless of its division into separate plots – artificial division into smaller plots is therefore out of question.

On the contrary, all lands with IV-VI class rating, as well as I-III-rated lands meeting the criteria above, do not require any decision at this point. We can immediately launch a proceeding for a decision on development conditions. If we are looking for a location for our investment, it is these ground that we should take into consideration in the first place.

Development conditions

The proceeding related to a development conditions decision is fairly simple and straightforward – it should not take more than a month. Virtually anyone can file for it, even a potential purchaser of an estate, but only an owner is able to do it free of charge. The application must contain characteristics of a planned investment, including information on size, technical parameters, and environmental impact of planned structures. Compulsory attachments include a set of official maps, decision on environmental aspects (if applicable), a confirmation of possibility of land development, as well as confirmation of payment of applicable charges and power of attorney document if necessary.

The application will be reviewed in terms of urban development coherence. The investment should serve as a continuation of functions, parameters, and specification, including architectural specification of buildings, outline of buildings and density of architecture, of at least one neighbouring plot of land, in accordance with the so-called principle of good neighbourhood, which is one of the crucial spatial planning rules in Poland. Apart from this, the plot of land in question must have access to a public road, and its existing as well as planned development is sufficient for the investment. Of course, the decision must be issued in accordance with other legal provisions, such as construction law.

If the issued decision is not satisfying for us, we can file an appeal to a local board of appeal. Throughout the proceeding we may also file complaints for opinions of relevant organs, which usually constitute administrative decisions.

Exclusion from agricultural production

Finally, the last step is an exclusion from agricultural production. After this stage is over, the plot of land will no longer be considered a farmland and can be purchased or acquired without interference of KOWR and without farmers competing for purchase. The Land Administration Act will no longer apply.

Yet another application must be filed in case of any land marked I-III, as well as in case of IV-VI class lands of organic composition. In the latter case, the application is binding for the local government and we can be certain to receive a positive answer. Application forms are easily accessible on websites of district offices, and their compulsory attachments include land registry excerpts, excerpt from the MPZP if applicable, a decision on development conditions, documents confirming a title of ownership, indication of worth of land, as well as a project of development of the land. The obvious key to success is a compatibility of the investment with provisions of the respective decision on development conditions. The application itself is free, but the exclusions process may be expensive in its own right – it imposes a price on the process, which acts a bit like a reimbursement to the state for its loss of agricultural power. This Includes a singular charge and another, equal one divided into 10 yearly payments, each clearly amounting to 10% of the original charge. Charge rates per 1 hectare are established by law and they are highest for lands of best quality. The overall sum calculated on such basis is reduced by a market value of the land, with the result being the actual charge we are obliged to pay. Only the worst lands – marked IV-VI of mineral composition, are free of charge. Interestingly, an exclusion of up to 500 square meters designated for a single-family house, as well as an exclusion of up to 200 square meters per every planned apartment may be free of charge. The latter option may be extremely important in case of investments in housing, as it may drastically reduce costs of exclusion from agricultural production. In general, a decision should be issued within a month.

However, the exclusion will be effective only after any works in the area are started. Beginning of construction works is considered a moment, in which an actual, material change of purpose of land occurs. The final exclusion can be declared by a surveyor as soon as the works begin. Only then can a relevant entry in registry be altered, with the code R, indicating agricultural land, being replaced with Bp marking, indicating an urban land under construction. At this point any regulations on agricultural land cease to apply, as long as we managed to exclude the whole plot of land.

Is it worth the fuss anymore?

Changes in the Land Administration Act may result in a prolonged loss of value of agricultural lands, resulting from forced application of Central Statistical Office pricing. Nevertheless, every agricultural plot of land requires a careful and thorough examination before we start any proceeding. Proceedings on farmlands can prove both too expensive and too long to be feasible. Depending on characteristics of the land and path of proceedings we choose to follow, we must take into consideration that there may be a risk of substantial charges to be paid for exclusion from agricultural production, as well as a risk of losing the estate either to KOWR or to individual farmers. In practice, entrepreneurs should focus on lands marked IV-VI. These are most promising as they are not protected by as many proceedings and costs as the better ones.

The last thing to consider is an actual risk of losing an estate to KOWR. In fact, it is not a major threat by itself. Statistics published by the Centre itself and our experience prove, that KOWR exercises its rights very rarely, mostly with regards to large lands bordering the ones which are already state-owned. In the end, the risk is in general extremely low, but even though KOWR may be obviously uninterested in the particular estate, we still have to follow procedures and waste a lot of time waiting for its approval or lack of reaction. Sadly, procedures relating to agricultural estates are a substantial and hardly avoidable burden in acquisition of farmland.

Author: Filip Walczak