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A broken promise

Tenants who trusted lawmakers and the Agricultural Property Agency (ANR) and removed 30% of the farmland from their tenanted property in exchange for the right to acquire the remaining 70% of the farmland may find they are out of luck.

Under Art. 29(1)(3) of Poland’s Act on Administration of Agricultural Property of the State Treasury in force as of 2 December 2011, there was a right of pre-emption in acquisition of agricultural property from the Agricultural Property Agency Reserve vested in the tenant of the property being sold if the actual tenancy had lasted for a period of at least three years. The tenant could not demand sale of the property, but could only exercise a right of pre-emption if the agency designated the property for sale.

This state of the law changed effective 3 December 2011, upon entry into force of the Act of 16 September 2011 Amending the Act on Administration of Agricultural Property of the State Treasury and Certain Other Acts. Under Art. 4(1)–(7) of that act, if the tenancy agreement did not provide a right to exclude a portion of the tenanted property, the agency could submit a proposal to the tenant to amend the agreement by excluding from tenancy 30% of the surface of the farmland, in exchange for the right to purchase the remaining 70% of the area of the farmland, or with ANR’s consent a part thereof.

In other words, the tenant gave up 30% of the tenanted property (consequently reducing the tenant’s revenue and profit from farming), but in exchange received the right to purchase the remaining 70% of the tenanted property, in place of the right of pre-emption which existed before. It is obvious that the expression “right to purchase” used in the law meant on one hand that the tenant held a claim for purchase of the real estate from ANR, and on the other hand there was an obligation on the part of ANR to sell the real estate to the tenant.

Otherwise, in exchange for removal of part of the tenanted property (and thus reduction of the tenant’s revenue and profits), the tenant would not receive any more than it already had—i.e. the right of pre-emption under Art. 29(1)(3) of the act. The 2011 amendment described above would thus cease to have any purpose, because the proposal to remove part of the tenanted property in exchange for the right of pre-emption could also have been submitted without the amendment. The lawmakers’ intention was to guarantee the tenant that if the tenant voluntarily removed a portion of the tenanted property, in exchange the tenant would obtain a claim to acquire the remaining portion of the property, i.e. would obtain more rights than the tenant had before.

This is the conclusion reached through a linguistic and purposive interpretation of the 2011 amendment discussed above. The drafters intentionally used the wording “the tenant shall be entitled to a right to purchase the entirety … of the real estate which remained the subject of the tenancy….” The entitlement of one party, i.e. the scope of what the party is free to do as stated in the legal norm, corresponds to an obligation of the other party, which must behave in the manner specified in the legal norm (an affirmative requirement or a prohibition). The tenant is thus free to demand purchase of the real estate, and the Agricultural Property Agency must sell the real estate (is obligated to do so).

Here it should also be pointed out that a “right to purchase” is not the same as “a right of pre-emption in acquisition.” If the Parliament had wished to regulate the tenant’s entitlement as a right of pre-emption, it would have provided that the tenant “in exchange shall be entitled to a right of pre-emption in acquisition.” But that is not what it did. Besides, such a provision would serve no purpose, because, as pointed out, the right of pre-emption was already provided for in Art. 29(1)(3) of the act.

The correctness of this understanding is also supported by the justification for the 2011 amendment, which indicates “a guarantee of the possibility to acquire the remaining tenanted property.” It was also stated that the new provisions would be more favourable to tenants than the provisions in force before the change was introduced. And the justification referred to holding a right to purchase the property. Additionally, the indicated purpose of the act was to dispose of as large an area of property as possible by designating it for increasing the size of family farms, and enabling existing tenants to acquire the property they held as tenants.

This view is also reflected in the case law, e.g. the judgment of the Słupsk Regional Court of 10 December 2013 (Case I C 257/13), holding that “the plaintiff (tenant) holds a claim for conclusion of a contract for sale of the agricultural land tenanted pursuant to agreement no. … after removal of 30% of the surface of the farmland pursuant to annex no. … to the agreement.” In the court’s opinion, the period for exercise of this claim for both the plaintiff and the defendant ends at the specific time arising under the act. This interpretation of the term defined in Art. 4(8) of the 2011 amendment is dictated primarily by a purposive interpretation.

On the basis of the 2011 amendment to the act, in 2012 ANR submitted proposals to tenants to remove a portion of their tenanted property. Most of the tenants accepted the proposal, assuming that they would acquire the remaining portion of the property within the specified time. Consequently, the tenants performed their obligations under the accepted proposal by concluding annexes to their tenancy agreement excluding a portion of the property, which they subsequently returned to the state.

Since that time, tenants have been waiting for ANR to perform its obligation by transferring the remaining portion of the tenanted property to the tenants, which in a great number of instances has not occurred. Unfortunately, there is a risk that tenants will never acquire the land, as in a letter dated 17 November 2015 the Minister of Agriculture and Rural Development ordered the president of the Agricultural Property Agency to halt all sales of agricultural land, and the president of the agency in turn wrote on 19 November 2015 to the ANR field offices ordering them to halt all sales, unless ANR were threatened with liability.

If ANR does not recognise the nature of the claims held by tenants and the danger connected with failure by ANR to perform its statutory obligation to transfer the agricultural property to the tenant, tenants will be left with no choice but to pursue litigation to obtain specific performance (i.e. a court order taking the place of ANR’s statement of its intention to transfer the farmland to the tenant), or seek damages for their injury, including actual loss and lost benefit. Such claims should not and must be prejudiced by the planned amendment of the Act on Administration of Agricultural Property of the State Treasury, which would introduce numerous restrictions on trading in agricultural land.

Michał Gliński, Real Estate & Construction Practice, Wardyński & Partners