Real Estate

Romania: Foreigners Buying Agricultural Land: More freedom or More Restrictions?

Rules for buying Romanian agricultural land will change as a new draft law is prepared. Will the new rules boost acquisition by foreigners or impede the process?

Agriculture is a hot topic these days and investors still see great potential in the field.

Land market liberalisation

In the Treaty of Accession to the EU, Romania undertook to gradually eliminate the restrictions that prevented foreign individuals and legal persons from acquiring lands in Romania.

One restriction in the national legislation (Law no. 312/2005) contemplates the prohibition of citizens of member states, as well as legal persons established according to the legislation of a member state, to acquire agricultural lands, forests, or forest lands in Romania for seven years from the accession date (1 January 2007).

Since starting with 1 January 2014 the prohibition period expires, the fear is that more foreigners will acquire agricultural land and that Romanian individuals and companies will be disadvantaged due to a lack of financial power. Is this true?

We believe that liberalisation of the land market, even if it happens as envisaged below, will not have a strong influence because foreign individuals and companies could and still can acquire agricultural lands by establishing Romanian companies, which is fairly simple and inexpensive.

Sale-purchase of agricultural land

To protect local farmers, Romanian authorities have prepared a new framework to insure competitiveness between locals and foreigners. The first law draft was published the beginning of September 2013 on the Ministry of Agriculture and Sustainable Development’s website, with two further drafts (the latest on 23 September 2013) being circulated for public debate.

The draft law presents several ambiguities and excessively limits the transfer of agricultural lands located outside city limits (extravilan) by sale-purchase to individuals, including to Romanian citizens.

Purchase of agricultural lands located outside city limits by individuals, Romanian or foreign 

The law regulates the acquisition of ownership to agricultural lands in Romania located outside the city limits through sale-purchase by individuals. In this framework, two remarks are necessary.

First, purchase by legal persons is not envisaged, meaning that sale–purchase to/from legal persons will continue unaltered, that is, without special rules for companies headquartered in Romania. So the question is what legal framework applies for a sale by a company to an individual or from an individual to a company.

Second, the same rules apply to Romanian citizens; citizens from member states; citizens from states of the European Economic Area Agreement (EEAA: EU states plus Iceland, Lichtenstein and Norway); and stateless persons domiciled in Romania, a member state, or the EEAA. Furthermore, the same regime applies to citizens from other countries or stateless persons domiciled in such other countries, under the conditions regulated in international treaties, based on the principle of reciprocity. So transactions between Romanian individuals would become more difficult.

Ministerial pre-approvals

Certain conditions on the sale of land are imposed, such as obtaining a pre-approval from the Ministry of Culture or the Ministry of National Defence, if the lands are of archaeological importance or located at the country’s borders.

Conditions for purchaser

To buy agricultural land the individual must prove at least one of the following: (i) knowledge in the agricultural field, (ii) performance of agricultural activities for at least five years, or (iii) performance of agricultural activities on the lands located outside city limits held on the date the law came into force.

Maximum 100 hectares of agricultural land located outside city limits

According to the draft, an individual may acquire agricultural land located outside city limits up to a threshold of 100 hectares.

Pre-emption right

Something new relates to the pre-emption right of certain categories of individuals (co-owners, neighbours, tenants, persons up to 40 performing agricultural activities in the administrative unit where the land is located) and of the Romanian state, at equal price and terms. This means that the sale can take place only after expiry of the relevant timeline and that potentially numerous persons could intervene in the sale process.

Land usage

Purchased lands must be used according to the usage category registered in the integrated cadastre and real estate publicity system, except where the relevant category is changed into another category of agricultural use.

Drastic sanctions

Failure to observe the pre-emption right or its procedure is drastic: absolute nullity of the sale. Failure to observe other legal obligations may trigger administrative fines (up to RON 100,000/hectare or even up to RON 500,000/hectare; ca. EUR 23,000 and EUR 115,000 respectively).

Management authority

A special management authority will be established to monitor the effective implementation of the draft.

Conclusion

The draft law seems quite drastic and will impose additional formalities in the acquisition process of agricultural land. At first glance, it could be seen as limiting the acquisition of land by foreigners. However, due to its limited applicability (only to individuals), the draft does not appear to have any impact on the acquisition of lands by vehicle companies established by foreigners in Romania, thus bringing no changes to the current mechanism used by foreigners acquiring agricultural land in Romania.

Something new relates to the pre-emption right of certain categories of individuals and of the Romanian state, at equal price and terms. This means that the sale may take place only after expiry of the relevant timeline and that potentially numerous persons could intervene in the sale process.