The concept of agricultural real estate under the Agricultural System Act | In Principle

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The concept of agricultural real estate under the Agricultural System Act

The broad limitations on trading in agricultural land introduced by amendment of the Agricultural System Act require extreme caution in any transaction potentially involving this type of property, as the definition of agricultural land assumes huge importance.

When the 12-year protective period following Poland’s accession to the EU concerning acquisition of agricultural or forest land expired on 1 May 2016, the Polish parliament responded by introducing legislative attempts to maintain those restrictions. This was done by adoption of the Act of 14 April 2016 Halting the Sale of Real Estate of the State Treasury Agricultural Property Reserve and Amending Certain Other Acts, which entered into force on 30 April 2016—the eve of expiration of the protective period negotiated in the accession treaty for Poland. This act introduced numerous restrictions on trading in agricultural property in Poland, e.g. general subjective and objective limitations on acquisition of farmland, a requirement for the purchaser to operate a farm, and extensive rights of pre-emption and buyout by the state.

The restrictions enacted in Poland are nothing new in the EU. Similar regulations are applied for example by Denmark, France, Germany, Italy and Spain, and have been adopted more recently also by Bulgaria and Hungary. Other EU member states also exercise extensive oversight of trading in agricultural land. It may be prohibited to break up agricultural parcels into plots smaller than the statutory minimum, or purchasers may be required to hold relevant agricultural qualifications.

The definition of agricultural land is obviously vital under these regulations, as they apply only to this type of land. Unfortunately, it can be incredibly difficult in practice to determine whether land is legally regarded as agricultural or not.

Under Art. 2(1) of the Agricultural System Act, agricultural property is defined as “agricultural property within the meaning of the Civil Code, except for real estate located in areas designated in zoning plans for purposes other than agricultural.” Thus the act does not use its own definition, but makes a cross-reference to the definition in the Civil Code and carves out situations where land cannot be treated as agricultural (even though it is defined as agricultural under the Civil Code).

Art. 461 of the Civil Code, in turn, defines agricultural real estate (agricultural land) as land “that is or can be used to conduct productive activity in agriculture involving vegetable or animal production, not excluding garden, orchard or fish production.” This definition means that the agricultural nature of a given plot of land is not decided by its physical agronomic characteristics, but by legal considerations—specifically, whether productive agricultural activity (but not processing of agricultural products) is currently conducted on the land, or potentially could be in the future. The physical, chemical properties of the soil undoubtedly underlie this technical classification, but they are not decisive on the agricultural nature of the land.

It follows from the Civil Code definition that even if property is not currently used for agricultural purposes, but could be used for this purpose (e.g. fallow land), then it will still be treated as agricultural real estate. This was confirmed for example by the Supreme Administrative Court in its judgment of 23 November 2006 (Case I OSK 132/06): “The isolating criterion (distinguishing characteristic) of agricultural real estate is thus the possible method of its use. Actual conduct of productive agricultural activity, involving vegetable, animal, garden, orchard or fish production, is not necessary.” Thus land cannot be stripped of its agricultural character by actions alone (particularly unlawful actions). As the Province Administrative Court in Poznań stated in its judgment of 8 December 2011 (Case IV SA/PO 558/11): “When for a long period real estate was used in a different manner, for commercial, service or manufacturing purposes unrelated to agricultural production involving animal or vegetable production, the agricultural nature of the real estate cannot be denied.”

The holdings in these judgments are immensely important. In market practice situations often arise where the parties to a transaction mistakenly regard property as non-agricultural, guided by the current development or use of the site, or how it is classified in the register of plots and buildings, even though from the perspective of the Agricultural System Act it is still agricultural land and transactions involving it are restricted—which is bound to impact the validity of the transaction.

A comparison of the two definitions of agricultural real estate—in Art. 2(1) of the Agricultural System Act and in Art. 461 of the Civil Code—leads to the conclusion that the scope of the former is narrower than the latter, as it excludes land designated for non-agricultural uses (e.g. industrial, recreational or residential) in the local zoning plan, even if it is currently being used for agricultural purposes. This position was confirmed for example in the Supreme Court order of 15 May 2009 (Case II CSK 9/09): “Real estate which is agricultural within the meaning adopting in Art. 461 of the Civil Code but is designated for uses other than agricultural in the zoning plan is not agricultural real estate pursuant to Art. 2(1) of the Agricultural System Act.”

A situation where the parties hold an excerpt from the local zoning plan showing that the given property lies within a zone designated for purposes other than agricultural is indeed the only the instance where we can be certain that the property is not agricultural, and thus trading in the land will not be subject to the limitations provided in the Agricultural System Act. Any other case requires careful analysis and typically generates numerous difficulties of interpretation.

Thus the question arises how to determine the status of real estate when it is not covered by a local zoning plan. It should be pointed out that the Agricultural System Act does not provide any presumption that when there is no zoning plan, or the zoning plan has expired, the land is assumed to be agricultural or non-agricultural (position of National Notarial Council of 1 June 2016 on application of the Agricultural System Act in notarial practice, K. Not. 2016 item 4). In that situation, can the parties be guided by other sources, such as the decision on construction conditions or siting of a public project, the decision excluding land from agricultural production, or the classification in the register of plots and buildings?

There is a practice noticeable in market transactions (also consistent with guidelines published by the Ministry of the Interior and Administration in the context of acquisition of real estate by foreigners) to refer to these sources when the property is not covered by a local zoning plan. For example, if according to the decision on construction decisions or the decision on siting of a public project the real estate is not agricultural in nature, then it is assumed that transactions in the property are not subject to the Agricultural System Act and the limitations set forth there.

But great caution is recommended with this practice, particularly if the property for which one of these decisions has been issued is being used, or could be used, for agricultural purposes. In defining agricultural real estate, Art. 2(1) of the Agricultural System Act does not refer to the use of the property determined pursuant the Planning and Zoning Act, but refers to the designation in a discrete planning instrument—the local zoning plan—and a decision on construction conditions or on siting of a public project should not be treated as a substitute for the local zoning plan. Although such decisions are used to determine the method of development of land in the absence of a local zoning plan, they are of a different nature, serve a different role and are issued under a different procedure. A similar position was taken by the Supreme Administrative Court in its order of 18 July 2005 (Case II OPS 3/05).

Similar doubts (but arising under other grounds) apply to the classification contained in the register of plots and buildings. It often happens that the status of property as disclosed in that register is inconsistent with the actual state of facts, for example due to tax issues, which can also create an erroneous belief that the property is not agricultural.

In the absence of a local zoning plan, the agricultural status of the property should be decided primarily by the general conditions indicated in the Civil Code definition (Art. 461). A decision on construction conditions (or a decision on siting of a public project), as well as the data from the plot register, can then serve only an auxiliary role. Guided by this approach, it should be assumed in the absence of a zoning plan that the property is not agricultural when due to its character it is not and cannot be used for agricultural purposes—more specifically, when the property comprises residential or commercial units, internal roads, land developed with residential buildings or other structures or fixtures not intended for agricultural production, parks or gardens listed in the landmarks register, and so on. Nonetheless, every case where there is no local zoning plan in force requires a careful analysis.

Ambiguity also arises in a situation where only a portion of the property is of an agricultural nature. The predominant view (adopted for example by the National Notarial Council and the president of the Agricultural Property Agency) is that then the act and its restrictions still apply. But the claim that even if only a portion of the land is or could be used agriculturally, then the entire property should be classified as agricultural for purposes of the Agricultural System Act, should be rejected. It appears that the decisive factor in that situation should be the dominant function (intended use) of the property.

Dr Przemysław Szymczyk, Real Estate & Construction practice, Wardyński & Partners