Wild Field: Guarding Against Black Marketeers After July 1, 2021
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The draft law liberalizing the agricultural land market in Ukraine adopted in the second reading on March 31, 2020, has raised many concerns and sown fears among land users.
Commodity agricultural production in Ukraine is 80% covered by legal entities deprived of the right to buy land. At least 30% of them will not be able to acquire leased land even from 2024 since they have a share of non-resident capital. Without getting into too much detail, the law's key provisions are dwelt upon here.
Agricultural producers are primarily afraid of the opportunities the law opens up for black marketeers surely willing to profit from the core national wealth.
Certainly, nowadays a rather small part of owners, I would put it at no more than 3-5%, will be ready to sell their land plots. Owners, individuals will be able to sell their land shares only to natural persons. Herewith, according to the current legislation, land lease agreements will not lose their validity after the change of the owner, unless otherwise provided by the document itself. However, such cases are not often occurring in practice. Naturally, this is how dangerous the black marketeers who will buy land for resale are. Resale of land is always more effective if the plot is not encumbered with rent. Consequently, the new owner-profiteer will do everything to ensure that a bona fide user loses the right to lease, or simply does not extend the contract after its expiration.
It is to guarantee the rights of the user that the law establishes his preferential right to buy out the leased asset. In my opinion, today this is the only possible instrument of protection, even if the lessee is included in the circle of subjects who cannot buy agricultural land.
The point is that the owner of a leased out land plot, in order to comply with norms on the priority right, has an obligation to inform the lessee of the cost for which he intends to sell the land plot, the time and place of the transaction. Without compliance with this procedure, the transaction cannot be notarized.
As provided by the bill, the lessee has the right to transfer his preferential right to another person. Thus, here is a word of advice to land users: pick buyers of land plots loyal to them and agree with the latter on good rental relations after entering into sale and purchase agreements for the land shares they lease. For example, amend the agreement to change the parties and increase the lease term.
Obviously, it would not go amiss if the legislator thought about specific measures to prevent profiteering in farmland.
- Firstly, it is worthwhile to regulate the rules of priority law in more detail and precise manner.
- Secondly, progressive individual income tax rates for resale of land plots must be established.
Learn more: Ukraine's Land Market Bill Adopted: Key Provisions
Today, the land plots sold and owned by the seller for more than three years have a PIT (Personal income tax) rate of 0%, up to three years 5%. These rates should be revised upwards. I think, as a preventive measure against speculations, the tax rate for resale in the first year should be not less than 40%, in subsequent years 18% of the asset value specified in the contract of sale, but not less than an expert assessment.
Indeed, the land market opening is a remarkable and right step. However, the rush to adopt the relevant draft law (including the IMF pressure among other factors) led to the imperfection of its norms. Nevertheless, fairly simple steps can fix the situation. I hope there are those among lawmakers who realize this.
Vladimir Nagorny, Head of the Land Policy and Property Relations Department at MHP
