Jarosław Hein

Attorney at Law, Tax adviser (Poland)
Associate Partner
Phone: +48 32 330 12 07

The Act of 14 April 2016 on suspension of sale of property from the Agricultural Property Stock of the State Treasury (APSST) and amendment to certain acts (Journal of Laws of 2016, item 585) came into force on 30 April 2016. The new legislation has substantially overhauled the trade in agricultural properties by introducing, among other things, restrictions on trade in agricultural land to the Agricultural System Act of 11 April 2003.  

The changes to the agricultural property trading affect also M&A deals involving entities that own such properties.

The changes are meant to strengthen the protection and development of family farms which the Polish constitution places at the foundation of the Polish agricultural system. Other goals include, without limitation, the need to ensure proper development of agricultural land and food security of the nation.

To this end, the act effective since 30 April has imposed the following restrictions on agricultural property trade: 

1) with certain exceptions provided for in the statute, only individual farmers can buy agricultural properties;
2) the area of the agricultural land to be purchased plus the agricultural land already occupied by the buyer's family farm must not exceed 300 ha of arable land; 3) any entity other than an individual farmer that wishes to buy an agricultural property must seek permission from the President of the Agricultural Property Agency issued in the form of an administrative decision;
4) once an agricultural property is acquired, the farm incorporating that property must be used for agricultural purposes for at least 10 years from the acquisition date;
5) the newly-acquired property must not be sold or given to any other entity. In exceptional fortuitous circumstances beyond the buyer's control the title to the property may be transferred before the 10-year period ends, subject to prior clearance.

Moreover, if an owner of an agricultural property on lease wants to sell the property, the lessee has the pre-emption right to buy it, provided that he meets certain specific requirements and subject to statutory exceptions. Where there is no lessee with the pre-emption right or the lessee does not exercise this right, the pre-emption right statutorily vests in the Agency. 

In addition to the restrictions on acquisition of agricultural properties the recent act has imposed significant limitations on saleability of shares in commercial companies and partnerships which own agricultural properties.

Above all, the Agency has the pre-emption right to buy shares and interest in businesses owning agricultural properties. The pre-emption right automatically vests the Agency with the power to first examine the owner's books and documents and request information about encumbrances and charges not disclosed in the books and documents. 

As regards partnerships owning agricultural properties, any personnel changes in the ownership structure (changes of partners, new partners) will entitle the Agency to buy those properties. The Agency may decide to buy an agricultural property of a partnership against a cash payment of the property market value.

With certain exceptions, the Agency has the right to buy agricultural properties also in the case of:

1) a contract other than a sales contract (e.g. an exchange agreement);
2) a unilateral legal transaction;
3) an order of court or a public administration authority or an order issued by a court or an enforcement authority pursuant to enforcement proceedings;
4) any other legal transaction of event, especially:
a) acquisitive prescription of an agricultural property or a specific bequest of an agricultural property or a farm;
b) demerger, transformation or merger of commercial companies.

In light of the above-described restrictions the key seems to rest in the classification of a property as an agricultural property. The new Agricultural System Act defines an "agricultural property" as an agricultural property in the meaning of the Civil Code (that is, a real property which is or may be used for rearing of livestock and production of crops, including gardening, orcharding and fishing), excluding land intended for non-agricultural purposes in local spatial development plans. 

Our experience tells us that provisions of local spatial development plans are not always clear enough to definitely rule out the agricultural use. Furthermore, often times real properties on technically non-agricultural lands are used for agricultural purposes and such use is disclosed in the land and building registers. This makes the property classification even more ambiguous. 

The restrictions on the real property trade and the resultant implications on company law, especially M&A deals, are so important because all legal transactions in contravention of the statutory regulations are void. Therefore, if you incorrectly classify your company's real properties as non-agricultural properties and sell the company shares ignoring the Agency's pre-emption right, the share purchase agreement will be void, which has profound consequences for all parties to the transaction. 

Please let us know if you are interested in more details about this subject. We will be happy to share our knowledge and experience in real property law.

Our attorneys-in-law also offer legal advice in Poland on other issues. They are at your disposal in Rödl & Partner offices in: Gdansk, Gliwice, Cracow, Poznan, Warsaw, Wroclaw.

2.08.2016 r.