The Land Reform in Ukraine: intricacies of the agricultural land acquisition and investment opportunities for foreign investors
The new land reform in Ukraine became effective on July 1, 2021. We discuss the legislative changes, current regulation for purchasing and selling agricultural lands and whether land is an attractive asset class for investors.
Can foreign investors buy agricultural land in Ukraine?
Although the new Law “On Amendments to Certain Legislative Acts of Ukraine Concerning the Turnover of Agricultural Land” opened the Ukrainian land market, at this point however, the optionality for foreign investors to buy land remains unresolved.
In particular, the Law stipulates that through January 1, 2021, only Ukrainian citizens were allowed to buy agricultural lands. Further, even for Ukrainian citizens, the legislation sets a number of restrictions, including the fact that an individual can buy only up to 100 hectares of land in the first two years of the active law. Starting 2024, the legislature enables legal entities to purchase agricultural land, but sets a limit of up to 10, 000 hectares. Currently, the land buyers are not allowed to own a company/legal entity registered abroad or offshore.
Foreign investors, persons without the Ukrainian citizenship and foreign legal entities may be able to purchase agricultural lands in Ukraine only if the countrywide referendum votes to provide such rights. Yet, even after a successful outcome of the referendum, some limitations will apply. For instance, foreign investors will not be able to purchase land located less than 50 km from the Ukrainian state border. Equally important is the fact that the company owners who are citizens of the country instigating an armed conflict in Ukraine will not be allowed to purchase agricultural lands in Ukraine.
What are the opportunities for foreign investors?
We note that despite rather strict regulations, the Ukrainian agricultural land market will not be completely closed to foreign investors. Foreign investors who are not designated as the ‘final beneficiary’ of the transaction are allowed to purchase agricultural land without the regulatory restrictions. The ‘final beneficiary’ is a person who owns more than 25% of the equity/voting rights in a firm and has a direct impact on the firm’s activities (through the chain of control/ownership).
How to buy land?
Agricultural land can only be acquired through a non-cash payment. Additionally, till 2030, the price of such land cannot be below its regulatory book value. This regulation aims to prevent illegal transactions and sales of land below its value.
Agricultural lands that are owned by a cooperative or Ukrainian government are sold through an electronic auction, the process for which is defined by the law. Once the winning bid is determined, the parties enter into a purchase-sale agreement.
Buyer’s background check
The Cabinet of Ministers of Ukraine outlined a clear process for background checks of the interested buyers, which can be found in the Article 130 of the Land Code. In addition, the Code defines a list of persons who have prevailing purchasing rights (particularly, persons who cultivated such land prior to its sale).
We note that the background checks of buyers and sellers differ. The buyers’ background is verified by a notary public (who compiles a report about the buyers’ compliance with the law), while the sellers’ background is verified against the State Registry (in case of significant violations, the state may confiscate this land). In both cases, such verification includes: identification of the seller/ buyer/ final beneficiary, verification of certain sanctions in accordance with the Law Of Sanctions, verification of any associations with terrorist activities as defined by the law, and confirmation of the land acreage.
Agricultural land as an investment
Ultimately, the question is whether the agricultural land is an attractive asset for investors. Generally speaking, in comparison with traditional real estate assets, agricultural land investments appear more attractive; entail lower capital requirements and maintenance versus development of commercial or residential property. Given that the agricultural land market has been a closed one, the value of such land is still relatively low, which is likely to appreciate over time, once the market fully opens up.
Alina Pryimak
Legal Advisor Kosylo&Partners