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Recent Legal Developments in Land Law
The New Strategy for the Regulation of State-Owned Agricultural Land
The Cabinet of Ministers has adopted Resolution No. 413 on The Strategy for Improving the Mechanism in the Usage and Protection of State-Owned Agricultural Land and its Disposal of 7 June 2017. This new “Strategy” aims, in particular, to tackle the problem of corruption in the disposal and use of state-owned agricultural land. The Resolution introduces the following rules for the use and disposal of state land:
the transfer of state land by the lease shall be carried out exclusively by auctions under uniform starting conditions. Leases shall be for a period of seven years at a lease rate not lower than 8 per cent. of the official normative monetary value of this land (which is supposed to correspond to the average for land leases in Ukrainian agriculture);
if the winner of an auction refuses to lease a land plot, its re-leasing is also to be carried out by auctions; and the Resolution introduces a restriction on the amount of the land area which can be transferred at the local level free of charge, providing that no more than 25 per cent. of the land area that was leased on a competitive basis for the previous reporting period can be transferred free of charge, with Anti-Terrorist Operation (“ATO”) soldiers having a priority to receive such land.
It is expected that later in 2018, legal acts should be adopted for the implementation of the Resolution.
Amendments to the Model Land Lease Agreement
The Cabinet of Ministers has adopted Resolution No. 890 On Amendments to Certain Resolutions of the Cabinet of Ministers of Ukraine of 22 November 2017, which provides that a land lease agreement will state indicators of the qualitative characteristics of the soil of a land plot at the time of its transfer into lease, such as data on the agrochemical passport of the land plot. The Resolution also provides for compensation of damages to the owner of the land plot in the case of a deterioration in the quality of the soil or if it otherwise becomes unsuitable for use for its designated purpose, while under lease. This should discourage the deterioration of soil quality based on the misuse of leased land plots.
This Resolution also changes the terms for paying for land leases, as follows:
deadlines for payment: (i) for the first year, for state and community owned land, leased on the basis of auctions – the annual payment should be made not later than three banking days from the date of the conclusion of the land lease, and (ii) for state and community owned land, leased without auctions, the land lease should be executed within a five calendar day term starting from the date of the leasing in accordance with the Tax Code.
in the case of non-payment of rent within required term, a penalty or a fine, in the amount of 100 per cent. of the annual rent specified in the land lease contract, must be paid.
The Project For Online Registration of Land Plots has Started to Function
Starting on 1 January 2017, the Project for online registration of land plots throughout the website e.land.gov.ua has functioned throughout Ukraine. This innovation should save time and reduce corruption. It, for example, allows certified land surveyors to apply for a site registration online, and is part of a “clerk-free” strategy that has been implemented for land over the past three years.
Previously, registration required two visits to the local state authority. The introduction of this e-service makes it possible to skip both visits and receive the documents at the end of an on-line registration procedure (or to be able to collect the document directly). This considerably accelerate the registration process.
Agrarian Receipts are in Force Throughout Ukraine
The Agrarian Receipts Project, that is being implemented by the International Financial Corporation (“IFC”) (a member of the World Bank Group) in partnership with the Swiss Confederation, is now fully effective throughout Ukraine. Although the basic legislation that regulates the procedure for the circulation of agrarian receipts, Law of Ukraine No. 5479-VI On Agrarian Receipts, that created the Register of Agrarian Receipts (the “Register”), was approved in 2012, its actual application for agricultural receipts only began in 2015 on a limited territory in the Poltava Region, by the joint Order of the Ministry of Agrarian Policy and Food (the “Agriculture Ministry”) and the Ministry of Justice, No. 331/1471/5 of 4 September 2014.
From 16 January 2018, based on the Law On Agrarian Receipts, agrarian receipts may now legally be used throughout Ukraine. An agrarian receipt is a commodity-handling document, which fixes an unconditional obligation of the debtor, secured by a pledge over future crops, to carry out the supply of the named agricultural products or to pay cash. Agrarian receipts may be issued by persons or entities which have either (1) ownership of a land plot having agricultural zoning, or (2) a lease of such a land plot for the production of agricultural products.
According to the Agriculture Ministry, over UAH 1 billion has been raised so far using agrarian receipts in Poltava Oblast alone on an experimental basis, so it appears that this use should become widespread now that they can generally be used throughout Ukraine to finance farms.
A New Land Valuation Method Enters into Force
On 1 March 2018, a new nominal monetary assessment came into force, according to which the average value of a hectare of arable land in Ukraine has been reduced from UAH 31,000 to UAH 27,000. As the amount of land tax payable by farmers qualifying in the 4th group (medium and small farmers), directly depends on the value of this land valuation, this reduction should reduce the financial burden on them.
Other innovations include the following:
the incorporation into the formula for the calculation of the nominal monetary assessment of a soil quality index. Thus, land with a higher quality index score will receive a higher nominal monetary valuation;
the division of the territory of Ukraine into agricultural valuation areas based on weather and other conditions.
The nominal monetary assessment is also used to determine the amount of the rent for land plots of state and communal property, and the state fees for inheritance and the transfer of land plots. As a result, the new nominal monetary assessment rates should principally benefit those users of state land, and those who inherit land, in the southern regions suffering adverse climatic conditions.
The Moratorium on the Sale of Land has Continued, but There is Hope for its Abolition in 2019
On 7 December 2017, the Parliament extended again the moratorium on land sales until 1 January 2019. In May 2018, the European Court of Human Rights adopted the decision in the Zelenchuk and Tsitsyura v. Ukraine case, stating that “the absolute prohibition on the purchase and sale of agricultural land in Ukraine violates the European Convention on Human Rights.” The Court ruled that “the Ukrainian Government should adopt legislative measures to ensure the necessary fairness of the balance [of interests] for the owners of agricultural land, although this does not mean that Ukraine should immediately introduce [such measures]”.
On 29 May 2018, the President of Ukraine stated that he supported the lifting of this moratorium, but observed that this is not yet supposed by the majority.
The Need to Correct Certain Problems in the Agricultural Land Lease Law Previously Created that Facilitated Corporate Raiding
Most agricultural and oil and gas land leases in Ukraine still risk legal challenge to their validity because they lack a material term, the requirement for which was added after adoption of the 2004 Model Form of Land Lease Agreement by the Resolution of the Cabinet of Ministers No. 220 of 3 March 2004 (as amended in 2008, the “Model Lease Form”). This situation resulted because under the amendments adopted in October 2008 (the “2008 Amendments”) to Article 15 of the Law of Ukraine No. 161-XIV On the Lease of Land of 6 October 1998 (the “Land Lease Law”), an additional material term was imposed for agricultural land leases, being the requirement that the conditions for (1) pledging the rights under a land lease and (2) contributing such rights to a company’s charter, must be expressly stated in the lease agreement.
However, this term was never been incorporated into the official 2004 Model Lease Form, which was used during 2008-2016. Although this Model Lease Form was not strictly required to be used for agricultural leases as a matter of law, a land lease is not valid until it is registered and, in practice, Ukrainian land registrars generally insisted on the use of the Model Lease Form as a condition for registration, without allowing any revisions, including to reflect the cited additional required material term. The 2008 Amendments were repealed in 2016 (as a consequence of a campaign by the British Ukrainian Chamber of Commerce), but most land leases executed between 2008 and 2016 continue to be invalid as a result of their having failed to include this added material term.
This problem should be cured by the adoption of a further amendment to the Land Lease Law to provide for the implied addition to all land leases entered into in 2008-2016 of this previously required additional material terms, which amendment should also expressly provide that no land lease should therefore be canceled based on the previous requirement.