Sale-purchase of agricultural land in Romania - Recent amendments and obligations

On 14 August 2020, Law no. 175/2020 on the amending and supplementing of Law no. 17/2014 regarding measures for the regulation of the sale-purchase of agricultural land located outside city limits and for the amendment of Law no. 268/2001 regarding the privatization of the commercial companies that hold in administration lands of public and private property of the state with agricultural destination and the establishment of the Agency of State Domains (the “Law”) was adopted. The new provisions shall enter into force on 13 October 2020.

It is important to note that the changes brought by the Law are part of a larger European context, whereas similar provisions have been introduced in a significant number of countries across the EU. While the official purpose of the national governments has been the protection of local farmers and development of national agricultural activity, similar regulations in other countries have generally been considered by the European Court of Justice, the European Commission and the European Court for Human Rights as breaching several fundamental rights established by EU treaties and regulations.

The Law establishes a new preemption order and new conditions for the purchase of properties for all buyers, including by imposing conditions to persons (both individual and companies) which do not benefit of a preemption right. The main changes aim to introduce a restriction on the sale of this type of land for a period of 8 years as of its purchase, namely, if the transfer occurs within such period, either as asset or a share deal, an 80% tax calculated on the amount representing the difference between the sale price and the purchase price is imposed on the seller.

There are a few key points to be considered:

1. Introduction of new categories of preemptors, as well as their rank

The alienation by sale of agricultural land located outside the urban property area must respect the right of preemption, at the same price and under the same conditions. Under the new Law, the old preemptors maintain their previous order, together with other persons:

• co-owners are preemptors of rank I, together with first-degree relatives, spouses, relatives and relatives up to and including the third degree;
• lessees are preemptors of rank II, together with the owners of agricultural investments for the cultivation of trees, vines, hops, exclusively private irrigations;
• the owners of the agricultural lands adjacent to the land subject to sale are preemptors of rank III, together with the lessees of these land; and
• the Romanian state, through the State Domains Agency becomes preemptor of rank VII.

Also, new categories are added:

• rank IV preemptors: young farmers;
• rank V preemptors: the Academy of Agricultural and Forestry Sciences «Gheorghe Ionescu-Şişeşti» and the research-development units in the fields of agriculture, forestry and food industry, as well as agricultural educational institutions, for the purpose of purchasing agricultural lands located outside the urban property area with the destination strictly necessary for agricultural research;
• rank VI preemptors: natural persons with domicile / residence located in the administrative-territorial units where the land is located or in the neighboring administrative-territorial units.

The new regulations also set forth specific conditions for the preemptors, subject to which such persons are entitled to make use of their legal preemption right, as detailed in the sections below.

2. New conditions for the lessee’s preemption rights as rank II preemptors

For rank II preemptors, which includes legal person lessees or their associations, the conditions are: (i) to hold this capacity under a valid lease contract concluded and registered in accordance with legal provisions, for at least one year before the date of the offer to sell and (ii) to prove the domicile / residence located on the national territory, for a period of 5 years prior to the registration of the land sale offer located outside city limits.

3. Conditions for the young farmers’ pre-emption right, as rank IV preemptors

The young farmer is defined by the EU law as “a person up to 40 years old at the time of submission of the application, who has the appropriate professional skills and qualifications and who is established for the first time on an agricultural holding as the head of that holding”.

The conditions for young farmers are: (i) to carry out activities in zootechnics and (ii) to have the domicile / residence established on national territory for a period of at least 1 year prior to registration of the offer for sale of agricultural land located outside city limits.

4. Conditions for the acquisition by natural / legal persons, if the right is not exercised by preemptors

Individuals must meet the following conditions: (i) have their domicile / residence located on national territory, (ii) to have carried out agricultural activities on national territory and (iii) be registered with the Romanian tax authorities, all of this for a period of at least 5 years prior to the year of publication of the sale offer.

Legal persons must meet the following conditions: (i) have their registered office and / or secondary office located on the national territory and (ii) carry out agricultural activities on the national territory for a period of at least 5 years, prior to the registration of the sale offer; (iii) the partner / shareholder in control of the company to prove their domicile on the national territory for a period of at least 5 years, prior to registration of the offer to sell agricultural land located outside urban property area and (iv) to present the documents showing that from the total income of the last 5 fiscal years, at least 75% represents income from agricultural activities as provided by Law no. 227/2015 on the Fiscal Code, with subsequent amendments and completions, classified according to the activity code (Romanian: cod CAEN) by order of the Minister of Agriculture and Rural Development.

Ultimately, in case (i) the preemptors do not exercise their preemption rights within the provided 45 days deadline and (ii) the potential buyers do not provide proof that they fulfill the above conditions within the 30 days period provided by the law, the agricultural land is freely transferable to any individual or legal entity, subject to the provisions of the Law.

5. New conditions of transfer

Agricultural lands can be transferred, by sale, before the 8th anniversary of the purchase, with the obligation to pay 80% tax on the amount representing the difference between the sale price and the purchase price, based on the public notaries’ valuation grids for that period.

In case of direct or indirect transfer, before the 8th anniversary of the purchase, of the control package of the companies that own agricultural lands located outside city limits and which represent more than 25% of their assets, the seller will have the obligation to pay a tax of 80% of the difference in value of the respective lands between the moment of acquiring the lands and the moment of alienation of the control package;

The provisions do not apply to the reorganization or reallocation of assets within the same group of companies.

It is expected that such provision will impact on the payment allocation of this tax in the sale purchase agreements between the seller and the buyer, including by artificially increasing the price of sale in order to cover the loss of profit.

6. New restrictions on use

According to the new law, landowners have the obligation to use them exclusively for agricultural activities from the date of purchase, and if there are agricultural investments on agricultural land for tree crops, vines, hops and exclusively private irrigation, the agricultural destination will be kept.

Until further methodological regulations or guidelines are published, it is unclear whether the provision will only be applicable for acquisitions that will occur after the Law enters into force or if it will also affect prior acquisitions, thus effectively restricting the usage of agricultural land located outside city limits.

Nonetheless, such provision is expected to impact on related business activities in the energy sector, such as construction of wind turbines and solar panels, as well as petrol exploitation, while the respective professional associations have signaled that the new regulations could lead to breaches of their agreements with the public authorities.

7. Notification of the sale offer to the holders of the preemption right

Prior to the amendment, the City Hall was only required to display the sale offer at its headquarters and on its website for 30 days;

Pursuant to the new regulations, the City Hall has to display it for 45 days and notify the holders of the preemption right, at their domicile, residence or at their headquarters, regarding the registration of the sale offer. Only if they cannot be contacted, the publicity is assured by posting at the City Hall`s headquarters or on the City Hall’s website.

8. Elimination of the seller's option between the preemptor offers

Prior to the amendment, if during the preemption period, several preemptors of different ranks expressed their intention to purchase in writing, at the same price and under the same conditions or several preemptors of the same rank expressed their intention to purchase in writing and no other preemptor of higher rank had accepted the offer, at the same price and under the same conditions, the seller had the right to choose the buyer;

Under the new Law, the buyer must respect the rank of preemptors and the additional order established by Law and detailed in Section 1 above.

9. Introduction of additional contraventions and increase of the amount of fines

According to the new regulations, the breach of the following obligations is considered an administrative offence: (i) to respect the right of preemption and the rank of preemptors; (ii) to respect the conditions that must be met by preemptors and (iii) to transfer the land, either through an asset or share deal (please see Section 5 above), before the 8th anniversary of the purchase, with the obligation to pay 80% tax on the amount representing the difference between the sale price and the purchase price.

The amount of fines increases from RON 50.000 – 100.000 to RON 100.000 – 200.000 (from approximately EUR 10,300 – 20,600 to EUR 20,600 – 41,300).

10. Introduction of the sanction of absolute nullity

The new regulations provide the sanction of absolute nullity (Romanian: nulitate absoluta) for the transfer by sale of the agricultural lands located outside urban property area if, amongst others, the following provisions of the Law are not observed: (i) the preemptors preference order (please see Section 1 above); (ii) the conditions imposed on the preemptors; (iii) the conditions for transfer to other persons which do not benefit of a preemption right (please see Section 4 above); (iv) the additional taxation on the transfer of land within the 8 year period as of its purchase (please see Section 5 above); and (v) the restrictions on the usage of agricultural land (please see Section 6 above).

In this respect, it is important to note that the new sanction can be invoked at any time and by any interested person and is not subject to any time limitation, compared with the previous sanction which was time-barred, meaning that the transfer could have been legitimized after a certain period of time.