Land market in the EU: how it works and what Ukraine should pay attention to

Ukraine is one step closer to starting EU accession negotiations. We are entering the process of transformation of all spheres of the economy, legislation, markets, and relations, as it is impossible to expect to become a part of the great community of countries and continue to live by your own rules, bypassing the established norms of the EU.

Land reform and land markets will have to be aligned with generally accepted European norms. In particular, Ukraine needs changes in the agrarian sector for economic recovery and subsequent sustainability. Despite some unprofessional speculation, this does not mean uncontrolled and total land sales. Each EU member state sets its own filters, rules and restrictions for individual land relations.

In all EU states, the Court of Justice of the European Union (CJEU) acts as the guarantor of respecting the boundaries and preventing excessively rigid regulation.Let’s try to analyse what models of the land market exist in different EU countries. What is the current state of the land market in Ukraine today? And what opportunities will the completion of the land reform open up for the state, farmers and landowners?

Restrictions on the purchase and lease of land

As part of the project the Agriculture Resilience Initiative (AGRI) – Ukraine initiated by the USAID for the analytical support of aligning Ukrainian legislation in the agricultural sector to European law, we, together with colleagues from Civitta and EasyBusiness, have analysed the experience of 12 EU member countries in regulating land relations.

We have selected countries from Western (the Netherlands, Belgium, Ireland, Spain, France) and Central-Eastern Europe (Lithuania, Poland, Romania, Slovakia, Hungary, Croatia, Czechia) based on the relevance of their experience for Ukraine.

All these countries have an open market for agricultural land (there are no bans/moratoriums on the alienation of such land), but the degree of liberalisation of regulation varies significantly, especially when comparing Western and Eastern European countries.

The most liberal in regulating land relations are the Netherlands and Belgium.

Also, among the countries of Central-Eastern Europe, the land markets in Czechia and Slovakia are liberalised. In France, on the contrary, there is one of the most regulated land markets in the EU. However, the new EU members tend to have a tightly regulated land market.

Hungary has the most restrictions.

In several of the analysed countries, special requirements are imposed on buyers of agricultural land.

For example, only registered farmers can buy more than 1 hectare of agricultural land in Hungary. A farmer is defined as a citizen of Hungary or an EU country who has qualifications in agriculture or forestry, has been engaged in agricultural and forestry activities in Hungary for at least three years during a continuous five-year period, or owns at least 25% of a registered agricultural enterprise.

Significant restrictions also exist in Poland, where preference is generally given to farmers who work on the land they own. Also, only persons with a farmer status can buy plots of more than 1 hectare.

Such persons are obliged to carry out agricultural activity for at least five years, during which time the acquired plots of land cannot be sold or transferred to other persons.

The purchase of agricultural land by a person who is not an individual farmer, including legal entities, is allowed only with the consent of the National Support Centre for Agriculture (KOWR).

The law in France does not establish any restrictions on the acquisition of land, but to carry out farming activities (and winemaking), it is necessary to obtain a special permit, one of the conditions for which is the presence of special education and experience in the field of agricultural activity.

Restrictions on the ownership of agricultural land by legal entities are not standard. Only Hungary has a complete ban for legal entities both established under Hungarian law and in other countries to buy land.

In Poland, legal entities must obtain the consent of the National Support Centre for Agriculture if they purchase more than 1 hectare of land.

Protection of landowners’ and land lessees’ rights

In most Western European countries, such as the Netherlands, Belgium, France, and Spain, as well as in Slovakia, tenant rights are maximally protected. Mechanisms for protecting tenants include setting minimum lease terms for agricultural land (varying from 5 to 27 years in different countries), but not only.

In France and the Netherlands, a maximum rent under the contract is also established, which the governments of these countries determine annually.

In Belgium, the maximum price is reviewed every three years in the regions with the participation of representatives of landowner and farmer organizations.

In Slovakia, the tenants even have the right to demand a rent reduction if the expected income is not achieved due to a significant change in economic conditions or a twofold drop in product prices.

Automatic lease extension serves as yet another mechanism for guaranteeing tenant rights.

Such an instrument is in effect in Spain, two regions of Belgium (Brussels and Flanders), and the Netherlands.

The tenant’s pre-emptive right to purchase the leased land in case of its sale is provided for in Spain, Hungary, Romania, and Belgium (Brussels and Flanders), the Netherlands. In France and Poland, such a right exists with conditions – if the lease has been in effect for at least three years. In France, the tenant who intends to buy the land must cultivate it for the next nine years. In the Czech Republic, such a right applies only in the case of leasing state-owned land.

In countries where the above-mentioned mechanisms for protecting tenant rights are absent, additional guarantees may be introduced: a maximum lease term and a minimum rent.

At the same time, in Ireland and all Central and Eastern European countries, except Slovakia, landlords are better protected.

Land consolidation

In most European countries considered, voluntary land consolidation is envisaged upon the initiative of the owners, the government, or municipalities.

Participants in the consolidation procedure must receive land equivalent in value to that which they had, or compensation for losses.

France has implemented a special land management system AFAFE to replace the consolidation procedure. The system is implemented and financed by municipalities, which develop consolidation projects and can initiate the compulsory expropriation of land. Landowners can challenge such decisions in court.

In Croatia, consolidation is carried out on the basis of the Agricultural Land Consolidation Programme, which is developed by the Ministry of Agriculture and approved by the government. After land consolidation, the division of the consolidated plot is prohibited for 99 years from the date of the decision on land consolidation.

In Lithuania, the area of the consolidation project must be no less than 100 ha, have an approved master plan for the territory, and have a minimum of five participants. Spain had special land reclamation consolidation procedures in place. To carry them out, the government must, by decree, recognize that consolidation is in the national interest.

At the same time, there are countries where the consolidation procedure is not provided for at all – these are Romania and Hungary.

Sale of land to citizens (legal entities) of other countries

In EU countries, due to the principles of free movement of capital and non-discrimination, there are generally no restrictions on the ability of citizens or legal entities from other EU countries to acquire land.

At the same time, the situation is different for individuals – residents of countries outside the EU.

Hungary has the strictest national regime: only the citizens of EU member countries can buy agricultural land in the country.

In Lithuania, in addition to EU residents, individuals registered in NATO and EFTA member countries can also purchase land. In Ireland and Poland, individuals who are residents of countries outside the EU are required to obtain the permission of the authorities in order to buy land. Croatia has a more liberal regime, with certain types of agricultural land available for purchase by foreigners starting from July 1, 2023. At the same time, the ban on the purchase of forests and pastures is still in place.

In Slovakia, there are generally no restrictions on residency or citizenship.

However, there is a reciprocity principle for residents of non-EU countries: agricultural land cannot be purchased by foreign citizens or companies from countries of origin that do not allow the purchase of such land by Slovak citizens or companies (for example, Ukraine is currently such a country).

In Spain, a separate permit is required for the purchase of agricultural land in some regions, such as the islands, Spanish territories in North Africa, and the Strait of Gibraltar.

Court of Justice of the European Union

EU member states have the authority to independently regulate land transactions at the national legislative level. At the same time, all the gears of regulation in the EU revolve around the principles of free movement of goods, services, capital, and workers.

The circulation of agricultural land falls under the principle of free movement of capital. Participants in the land circulation market cannot be subjected to any restrictions on the movement of capital between EU member states.

The Court of Justice of the European Union (CJEU) oversees compliance with this principle when implementing internal national rules regulating land circulation by EU member states.

Over its many years of activity, the CJEU has established many case laws on the regulation of land relations:

• Price regulation. The CJEU confirms the possibility of state regulation of agricultural land prices if: such measures are based on objective, non-discriminatory, and precise criteria, and price regulation is aimed at preventing excessive land speculation. It is also specified that such measures are a last resort, implemented only when alternative, less restrictive instruments are unavailable.
• Combating aggressive expansion. When selling agricultural land plots, a distinction should be made by the state between the “market value” of the plot and the “highest bid” in a public tender. The state may not approve the sale of the plot at the highest bid price if the bid is disproportionate to the plot’s actual value.
• Requirement for independent farming activity. This requirement is inadmissible as it contradicts the principle of free movement of capital. The state cannot impose a national requirement for mandatory independent farming activity on entities seeking to acquire agricultural land. However, a requirement for “preserving land for agricultural use” is considered legitimate.
• Requirement for buyer’s residence near the land plot. Such a requirement is also viewed as a disproportionate restriction on the free movement of capital and is therefore inadmissible.
• Establishment of land acquisition limits. The case law of CJEU has not established any guidelines for setting limits on the area of land ownership. Imposing upper limits on the size of land that can be purchased or held is considered a restriction on the principle of free movement of capital.
• Administrative permit for land alienation due to military risks. Establishing an administrative permit for the alienation of the land located on the territories near land borders, for the purpose of protecting the state’s military interests may be possible under certain conditions: availability of real and proper reasoning for the existence of a serious military risk; non-discrimination among participants in such legal relationships; and the impossibility of establishing an alternative, more lenient restriction.

Essentially, the rulings of the CJEU serve as a filter, defining the permissible boundaries of regulations and restrictions that EU member states can implement at the national level in the area of land relations regulation.

Conclusions for Ukraine

From 1 January 2024, as part of the so-called second stage of the land reform, legal entities established by citizens of Ukraine were given the right to purchase agricultural land. The area that can be held in one hand (legal or natural person) has been increased from 100 to 10,000 hectares. For legal entities that want to receive passive income from renting, a market with income better than deposits is opening up.

The market is currently in its early stages, with only 1% of all agricultural land in Ukraine sold in three years.

According to public registers, before Russia’s full-scale invasion of Ukraine in February 2022, an average of 10,000 hectares of land were sold per week in the country. As of December 2023, sales have fallen fourfold to 2,500 hectares per week. In the first month of 2024, only 73 sales agreements were concluded, covering a total area of 233 hectares.

According to some estimates, approximately 10% of agricultural land is currently potentially mined, and another 22% is under occupation. Therefore, the demand for agricultural land is highest in the central and western regions.

Experts predict that the market will become more active over the year, and land prices will rise.

For the state, a functioning land market means revenue to the budget from both sales contracts and personal income tax and military tax, as well as from subsequent rental income. Demand and supply are constantly growing, and consequently, the value of land is increasing.

Already now it is necessary to do the “homework” and take into account EU norms, and CJEU case law, so that Ukrainian business is competitive in the European market, Ukraine is attractive to investors and in the future, to avoid lawsuits against Ukraine in the EU Court.

Ukraine must align its land legislation with the generally accepted EU norms before it becomes a full-fledged EU member. Completion of the land reform is a legal procedure that automatically catalyses economic processes, new opportunities for the country, farmers, as well as a new level of protection of landowners’ and land users’ rights.

For this reason, after the victory, the third stage of land reform in Ukraine should take place, when foreign investors will also be allowed to purchase agricultural land.

However, this issue is subject to a decision by the Ukrainian people in a nationwide referendum.

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