On 08.02.2021, Detailed Rules on applying title I of Law no. 17/2014 on measures to regulate the sale of agricultural land located outside built-up areas (‘the Detailed Rules’ or ‘the Rules’)
were published in the Official Gazette. The Rules aim to remove the existing block in the mechanism for sale of agricultural land, and to explain how Law no. 17/2014, amended by Law no. 175/2020, applies.
First of all, we note that the Detailed Rules apply to transfer of ownership under a sale agreement authenticated by a notary public, as well as a court decision that substitutes a sale agreement, provided that the bilateral promise of sale is concluded in line with the Civil Code and relevant legislation. Transfer of ownership may cover either the entire lot, or a share of the rights over it. The Detailed Rules apply to applications registered after the date of entry into force of Law no. 175/2020, i.e. after 13 October 2020.
In that light, we emphasize the following points in the Detailed Rules:
1. In order to proceed, the seller applies to the mayor's office to display the sale of property offer letter at the mayoral headquarters. Templates for both the application and the offer letter can be found at no. 1A and no. 1B of the annexes to the Detailed Rules. The display application, together with the offer letter must be accompanied by the following supporting documents:
- a photocopy of the identity card of the individual seller or a copy of the passport of an individual seller domiciled abroad;
- a photocopy authorised by public officials from the mayor's office of the deed of ownership over the land subject to the offer letter (as the case may be: sale contract, donation contract, final civil decision, title deed, inheritance certificate, contract exchange, deed of liquidation of patrimony or other document provided by law attesting to acquisition of the property right);
- a land registry extract, issued no later than 30 days before the offer letter is displayed, accompanied by a cadastral map extract, provided that the land subject to sale is registered in the integrated land registry system;
- where the seller is a legal entity, a photocopy of the ascertaining certificate from the trade register or of the act on the basis of which it carries out its activity;
- in the case of representation, a photocopy authorised by officials from the mayor's office of the power of attorney, or delegation, the decision of the general meeting of the shareholders, the decision of the sole shareholder, the decision of the representative of the form of association, as the case may be, in original, as well as the identity card / passport of the seller being a natural person;
- the decision of the general meeting of shareholders, the decision of the sole shareholder, the decision of the representative of the associative form, as the case may be, in original, from which should be clearly understood the agreement regarding sale where the seller is a legal entity;
- a fiscal attestation certificate issued by the mayor's office;
- other justifying documents, as the case may be.
2. A major change is brought about by Law no. 175/2020 through its newly introduced article 42. This stipulates, in para. 1, that agricultural land located outside a built-up area may be disposed of by sale within 8 years from the date of purchase but only on payment of tax 80% of the amount representing the difference between the sale price and the purchase price, based on the special price scale of notaries public from the period. In addition, under para. 2, in the case of direct or indirect disposal within 8 years from the date of purchase of a controlling interest in companies that own agricultural land located outside a built-up area and which represents more than 25% of the value of their assets, the seller will be required to pay tax 80% of the amount representing the difference in value of the land in question calculated on the basis of the special price scale of notaries public between the time of acquisition of the land and the time of disposal of the control package.
3. As to this amendment, the Rules do mention the 80% tax under article 12 para. (1), which lists all the documents that the seller must produce in order to conclude a sale agreement before a notary public. To that end, letter d) of that article stresses the necessity of “documents regarding proof of calculation and payment of the 80% tax on the amount representing the difference between the sale price and the purchase price, based on the special price scale of notaries public for the respective period, as the case may be”, without which the sale cannot be concluded. However, the Rules are silent concerning the second situation in which payment of the 80% tax is required, namely where the purchase of a controlling interest in companies that own agricultural land located outside a built-up area and which represents more than 25% of the value of the assets. This situation is thus making it difficult to accomplish “share deal” transactions, because at the moment of payment of tax, the payment method and the justifying documents remained undefined within the Rules.
4. Under Law no. 17/2014, sale of agricultural land located outside a built-up area is carried out taking into account the established legal pre-emption right in favour of several categories of persons, grouped in 7 different ranks of pre-emptors, the last rank being held by the Romanian state through the State’s Domains Agency. These ranks are detailed in article 2 of the Rules, different from those initially listed by Law 17/2014.
5. It is also important to note that sale of land on which a right of pre-emption has been legally established cannot take place without obtaining specific approval from the Ministry of Agriculture and Rural Development certifying compliance with the procedure set by law for exercise of the right of pre-emption or, if the holders of the right of pre-emption do not express their intention to buy the land, specific approval attesting fulfilment of the conditions established in article 41 of the law (for potential buyers, individuals or legal entities).
6. As an exception from those set out at point 5 above, article 7 (1) of the Rules specifies that, if the seller had not applied for display of the sale of property offer letter under point 1, and the status of buyer is held by any of the persons listed under art. 20 (2) 1 of the law (co-owners, spouses and relatives up to the third degree), the sale of land may be concluded without the need for specific approval from the Ministry of Agriculture and Rural Development. But approval will be required if the seller did apply for display, as indicated by the same article 7, at para. 2.
7. It is useful to recall that Law no. 17/2014 establishes, in addition to the specific approval mentioned above, two other types of necessary approvals, each of them having a special nature, but which are mandatory if any of the conditions from article 3 of the law is applicable. Thus, on the one hand, the matter concerns specific approval of the Ministry of National Defence, in the case of agricultural land located outside a town to a depth of 30 km from the state border or inland from the Black Sea coast as well as agricultural land outside a town at a distance up to 2400 m from special locations. This type of specific approval, according to para. 2 of article 3, is not required in the case of pre-emptors. On the other hand, it concerns specific approval of the Ministry of Culture in the case of agricultural land located outside a built-up area where there are archaeological sites.
8. Within 45 working days from display of the offer letter at the mayor’s office, under penalty of forfeiture, any of the holders of the pre-emption right who wish to exercise their right must register at the mayor’s office their communication of acceptance of the sale of property offer letter, according to the templates provided in annex no. 1E of the Rules.
9. The Rules also include the list of documents required for each of the pre-emptor ranks.
10. In the same matter, it is relevant to mention that a legislative error sneaked into article 6, at para. 12, regarding the documents that must be submitted by pre-emptors in rank VI - natural persons with domicile / residence located in the administrative-territorial units where the land is located or in neighbouring administrative-territorial units. That is, para. 12 lists a series of documents such as ‘a photocopy (...) of the deed of ownership over neighbouring land with the land that is the subject of the offer letter’ or ‘a photocopy of the land registry extract (...) approved by the National Agency for Cadastre and Real Estate Advertising, highlighting the length of all the borders of the neighbouring land adjoining the land for sale’. In this sense, we consider that the Rules should have included this series of required documents within rank III of pre-emptors – owners and / or lessees of agricultural lands adjacent to the land subject to sale – but not at all within rank VI, having no reason for which the submission of such documents by individuals domiciled in the administrative-territorial unit in which the land / neighbouring administrative-territorial unit is located would be relevant in the procedure for concluding the sale. On the other side, unfortunately, a photocopy of the land registry extract in which the length of all the borders of the neighbouring land adjoining the land for sale are highlighted is not required for rank III of pre-emptors, within which we consider that it should have been listed.
11. If none of the pre-emptors expresses an intention to purchase, the mayor's office will display a report concerning conclusion of the procedural stage on exercise of the right of pre-emption, stating that applications can be submitted by potential buyers, in compliance with legal provisions.
12. The Rules also include some special conditions that some categories of persons must fulfil (for example, pre-emptors of rank IV - young farmers - must meet the conditions laid down in European Regulation no. 1305/2013 in order to be eligible to purchase).
13. Potential buyers must meet the following cumulative conditions:
- Individuals must:
- a) present proof of domicile / residence located in national territory established for 5 years prior to registration of the offer letter for agricultural land located outside a built-up area;
- b) present proof of carrying out an agricultural activity in national territory for 5 years prior to registration of the offer letter for agricultural land located outside a built-up area;
- c) present proof of registration with the Romanian fiscal authorities for at least 5 years prior to registration of the offer letter for agricultural land located outside a built-up area.
- Legal entities must:
- a) present proof that their registered office or secondary site is located in national territory and that it has been established for 5 years prior to registration of the offer letter for agricultural land located outside a built-up area;
- b) present proof of carrying out an agricultural activity in national territory for 5 years prior to registration of an offer letter for agricultural land located outside a built-up area;
- c) present justifying documents that indicate that at least 75% of their total income over the last 5 fiscal years represents income from agricultural activities;
- d) prove that an associate / shareholder who holds control of the company has domicile located in national territory for at least 5 years prior to registration of the offer letter for agricultural land located outside a built-up area;
- e) prove that associates / shareholders of another legal entity that holds control of a company that their domicile is located in national territory for at least 5 years prior to registration of the offer letter for agricultural land located outside a built-up area.
15. The Rules contain important aspects regarding which of the pre-emptors are given priority in the purchase of land in the event that several of them wish to do so, either within the same rank or within different ranks of pre-emptors (for example, article 6 of the Rules specifies the priority of purchase by owners with private investments in tree crops, vines, hops and irrigation, compared to lessees or the possibility for the seller to choose between pre-emptors within the same rank, as well as among potential buyers - article 9 of the Rules).
16. Following review by the seller of the correctness of procedures for exercising the pre-emption right, pre-emptors and / or potential buyers, the central or territorial administrative authority issues approvals. These approvals are valid for 6 months from the date of their communication to the seller. They may also be valid beyond the expiration of this period if the parties had previously concluded a bilateral promise of sale or an option agreement concerning agricultural land located outside a built-up area for which they were issued, but not more than the period stipulated in these acts.
17. Documents can also be submitted electronically, with an electronic signature based on a qualified digital certificate.
18. Disposal by sale of agricultural land located outside a built-up area without respecting the right of pre-emption or without obtaining the necessary approvals is prohibited, otherwise becoming ineffective.
In conclusion, although real estate practitioners were long expecting adoption of the Detailed Rules regarding title I of Law no. 17/2014 in order to shed light on application of the new rules on sale of agricultural land located outside a built-up area (especially as regards the additional tax due in the case of “share deal” transactions), sadly this did not happen and for that very reason we tend to consider that this will cause stagnation of transactions involving this type of land or, even worse, a blockage of “share deal” acquisitions.