OUTSMARTING LAND MORATORIUM
To describe the picture of Ukrainian agriculture lands in their entirety, it would be best to start with simple numbers. There are nearly 42.7 million ha of agricultural lands in Ukraine that constitute 71% of the country’s territory. Out of that number, almost 96% of agricultural lands (41 million ha) fall under prohibition of alienation and change of purpose designation (“Land moratorium”). Due to this fact, 69% of agricultural lands are used on the basis of lease.
The Land moratorium described above bears a significant legal problem. It violates the rights of landowners, which are protected under the Ukrainian Constitution, as well as the essential rights that are guaranteed under the Protocol No. 1 to the European Convention of Human Rights. Moreover, on 22 May 2018, the European Court of Human Rights ( Decision in the case
of Zelenchuk and Tsytsyura v. Ukraine, applications Nos. 846/16 and 1075/16) held that the Land moratorium is illegal and that the Ukrainian Government should take legislative measures to ensure the required fair balance between the general interests of the community and the rights of the owners of agricultural land property. However, the local agricultural producers have very mixed feelings regarding the cancellation of the Land moratorium. If the Ukrainian Parliament or the Constitutional Court of Ukraine decides to cancel it, this may lead to the alienation of land plots by the landowners prior to or after the expiration of lease rights. On the one hand, the cancellation of the Land moratorium opens up a possibility for the local agricultural producers to purchase the leased land plot. If, however, the local agricultural producers have no available funds to purchase the land bank which they use under the lease agreements, their priority right to purchase the land will not be of a massive assistance to them, and the land may be acquired by the third parties. Such third party as a new owner of the land will be under no obligation to prolong the lease with the lessee, especially if they plan to use such land plot by themselves. Therefore, if the (1) Land moratorium is cancelled and (2) the land plot is alienated to the third party, the lessee has rather small chances to continue using the land plot after his lease agreement expires. This might consequently lead to very little or no agricultural land at all for local producers that currently lease the land that they use.
The solution to the existing problems of the Land moratorium is not an easy one. Those agricultural lands that fall under the Land moratorium, cannot be alienated and their purpose designation cannot be changed, except for exchange in specific situations, buy-out for public needs, or cases of inheritance. Therefore, any agreements in violation of the above (including powers of attorney and preliminary agreements) are null and void. Considering the above legal mechanism of acquisition of rights to use a land plot, the most feasible option apart from lease, is emphyteusis. Emphyteusis is a right to use a land plot of a third party for agricultural purposes. The main advantages of using the emphyteusis rights are described below: • parties may agree any term of use of a private land plot, while the term of use of a state or municipal land plot should not exceed 50 years; • the user (emphyteuta) of a private land plot may alienate the emphyteusis right in any way, including passing it into inheritance; • legislation does not contain any specific requirements regarding the amount of payments for the use of a land plot under emphyteusis agreement; and • the emphyteuta of a private land plot may use emphyteusis right as a collateral. The above conditions may be set only once, when entering into the emphyteusis agreement.
Emphyteusis agreement may provide a unique solution for the existing problems with the Land moratorium, as they are capable of the following: • ensuring long-term use of the land plot by emphyteuta, while releasing them from the majority of the restrictions for the land use under the lease agreement, and setting ground for future acquisition of the land plot; and • substituting sale and purchase agreements of land plots with almost identical benefits for the emphyteuta, as for the purchaser of a land plot. Therefore, in a way, they enable to outsmart the prohibition. 38 Volodymyrska St., 4 floor, Kyiv 01030, Ukraine; firstname.lastname@example.org, www.avellum.com +38 044 591 3355
MYKOLA STETSENKO managing partner AVELLUM
MAKSYM MAKSYMENKO counsel AVELLUM