Land market launch: checklist for the farmer

Sourse: Liga BUSINESS

On July 1, 2021, the official launch of the land market will take place. This launch is a long-awaited event that Ukrainian landowners and land users have expected for more than 20 years. Under new land market functioning realities, the farm enterprises can achieve a significant impetus to development, or such new realities can rather destroy them.

It is difficult for farms to compete with agricultural holdings due to a lack of financial capacity. Therefore, we prepared a kind of checklist for farmers, namely: what to pay attention to since the launch of the land market.

  1. To record information on the existing land bank into the State Land Cadaster and State Register of Proprietary Rights to Immovable Property database

If you own or use land plots unregistered in the State Land Cadaster (hereinafter referred to as the SLC), we recommend you immediately prepare technical documentation on land management on the restoration (draw) of the land plots boundaries in kind (on the ground) and register such land plots in the SLC database.

The next step is to register your title rights to land plots in the database of the State Register of Proprietary Rights to Immovable Property and Their Encumbrances (hereinafter referred to as the SRR), that will protect you from raider encroachments from potential competitors in the struggle to build up the land bank.

Recommendation: if you own or use a land plot that is not formed in the SLC base, or the title right to which is not registered in the SRR database, we recommend urgently eliminating such shortcomings in order to prevent the onset of negative consequences associated with potential litigation and possible loss of control over a land asset.

  1. To audit existing land lease agreements and amendments to them

Keeping your finger on the pulse of your business is not the owner’s right, but his obligations. First of all, it is necessary highlight the conscientious use of land plots and farm’s compliance with the terms of existing contracts for the payment of rent in full (or the fulfillment of the terms for payment in kind), the use of land plots for their designated purpose, crop rotation, compliance with the procedure for renewing contracts for a new period or procedures for amending the terms of such agreements, etc.

In practice, there are often cases when most lease agreements terms for farming land plots have planted „time bombs”, where the land lease agreements provisions is its primarily concern namely: complicated procedure for renewing contracts for a new term, an expanded and specified list of grounds for expiration or termination of land lease agreements (reorganization, termination or change of the tenant is the basis for termination of such agreements) , deterioration of land properties (at the time of transfer of land plots for lease, agrochemical certification of land plots was carried out with fixing their indicators), conditions for double indexation of land payments (indexation of rent taking into account the inflation index), etc..

Recommendation: if the terms of your lease agreements are the area of concern and/or the lease agreements expire in 1-3 years and/or some important terms are missing, then we advise immediately rise this issue with your counterparties on amending land lease agreements. If you reach an agreement with the owner, this will allow to: change the terms of such agreements; change the procedure for renewing land lease agreements by stipulating the mechanism of “automatic renewal”; exclude or amend (specify) concerned terms of agreements, etc.

  1. To build a land bank

Building up the land bank is possible both at the expense of private land (which are transferred for use and/or management to a competitor and/or are in such use uncertificated) and at the cost of state or communal lands.

If, in the struggle for land assets used by competitors, impact models are more or less clear, namely: economic pressure on a competitor by increasing the land plots rent, PR and increasing the recognition of the farm on the ground, identifying the opponent’s weaknesses and the prospects for extrajudicial or judicial impact on him, etc., then the lease rights for new land plots of state or communal property can be acquired exclusively on the electronic platform for land auctions.

Now the website of SLC is actively publishing information about lots – land plots (rights to them), which are subject to sale at land auctions. You can learn more about the list of such lots by following the link: http://www.torgy.dazru.gov.ua/auction.

Recommendation: try to actively “fight for” new land assets, which in the long perspective will not only increase the market value of your farm but also allow you to scale your business in the future.

  1. To use the preemptive right granted to the farms on the land purchase

Although the launch of the first stage of the agricultural land market (until January 1, 2024) concerns only individuals, the legislator introduced the possibility for legal entities-tenants to exercise their preemptive right to purchase an agricultural land plot by preemptive rights to individuals participating in the market.

In particular, we are discussing the possibility for a legal entity of the second stage to transfer their preemptive right to a “friendly” individual to purchase a land plot. Such agreement is concluded between the parties in writing with the subsequent registration by a notary (state registrar) in the SRR.

After completing the registration actions, the person transferring the preemptive right must notify the land plot owner on this within 3 (three) working days from the date of registration in the SRR.

It should be noted that such a preemptive right can be transferred by its subject to another person only once, and further transfer to third parties of the previously transferred preemptive right is prohibited.

Recommendation: it is crucial to control the information on the leased land plots in the SRR, and when establishing the owner’s will to sell a land plot that is conceptually important for you, we recommend actively using the preemptive right of the farm and transfer this right to “friendly” individuals.

  1. To consolidate land and use it rationally

Farms are still living in the realities of the areas (fields) of the so-called “chess” land cultivation. In practice, land users solve this matter by concluding “conceptual” (“gentleman’s”) agreements, which, nonetheless, have no legal consequences for the parties. This situation arises due to the lack of a banal desire of land users to make some efforts and act in a lawful manner.

The legislator exchange instrument between land users of the lease (sublease) right to land plots through the conclusion of appropriate agreements is intended to legally formalize agreements between all land users of the area (field). This formalization will allow the parties to legally consolidate land, optimize costs and effectively use land.

Some farm enterprises should also consider introducing new technologies into their economic activities, which in the long perspective will lead to rational use of appropriate land resources, control land economic indicators, introduce land reclamation measures, quickly militate against afforestation, and carry out periodic crop rotation.

Recommendation: after legal arrangement of relations between land users of the area (field), the parties will acquire official rights and obligations of the lessee (sublessee) under contracts, which will prevent violations of land owners’ rights from unfair use of leased (subleased) land plots and avoid negative consequences from such use.

  1. To attract investment for the farms

First of all, the farm enterprises should draw attention to the existing programs of the Ministry of Agrarian Policy on supporting the agro-industrial complex for 2021. Some programs can be helpful and relevant for agribusiness. More information on the agenda for the agro-industrial complex can be found under the link: https://agro.me.gov.ua/ua/pidtrimka.

With the land market launch, farms can consider another additional mechanism to attract investment for their business development. We are now discussing bank loan instruments for the farms by the pledge of the ownership rights (lease, emphyteusis, or superficies). In addition to that, farms can use the accumulated credit funds to improve land, create (expand) production, improve infrastructure, etc.

Recommendation: farms should pay attention to the existing state support programs for the agro-industrial complex and, if necessary, participate in them. An additional tool for attracting more funds will be the pledge of their proper lease rights, emphyteusis, and superficies. Such economic measures can potentially help farms stay afloat and give the business a new impetus in development.