On 31 March 2020, the Parliament of Ukraine finally adopted the heatedly debated Law on Amendments to Certain Legislative Acts of Ukraine on Turnover of Farmland ("Farmland Law").

The Farmland Law will come into force once it is signed into law by the President of Ukraine and officially published. In the meantime, on 31 March 2020, a group of parliamentarians moved with the initiative to rescind the results of the vote on the Farmland Law, thereby blocking the completion of the legislative procedure. Only after said initiative is formally denied by voting can the Farmland Law be unblocked for the signing by the President of Ukraine and official publication.

The Farmland Law aims at opening the farmland market in Ukraine ("Market"), starting from 1 July 2021, by lifting the long-standing 18-year moratorium on the sale and alienation of farmland. Allowing the turnover of farmland land in Ukraine, the Farmland Law, however, imposes a range of certain restrictions on the freedom of the future Market.

Please note that no final draft of the Farmland Law is available thus far. This Legal Alert is based on the draft text of the Farmland Law prepared for the second reading. Accordingly, we may not rule out certain discrepancies between the second reading draft and the final text of the Farmland Law passed by the Parliament on 31 March 2020.

Who has the right to acquire farmland?

• Ukrainian nationals;

• ​Ukrainian legal entities (banks not included)¹ — starting from 1 January 2024;
   
• local communities and the state;
   
• banks — only through farmland mortgage foreclosure subject to selling such farmland in an auction within two years from the foreclosure.

Will foreigners² have the right to acquire farmland?

Foreigners will not have the right to acquire ownership title to farmland either directly or through acquiring shares in Ukrainian legal entities (save for banks) that own farmland.

This prohibition may be lifted by a national referendum. If so, foreigners will still be prohibited from acquiring state owned, municipally owned farmland, as well as farmland allocated in-kind to owners of land shares, and farmland located less than 50 km from the state border of Ukraine (sea border is not taken into account).

Who will not be allowed to acquire farmland under any circumstance?

• legal entities, shareholders or beneficial owners who are the nationals of a state recognized by Ukraine as an aggressor or occupant;
   
• members (active or former) of terrorist organizations;
   
• legal entities, shareholders or beneficial owners who are foreign states;
   
• legal entities, beneficial owner (controller) who cannot be identified;
   
• legal entities, beneficial owners (controllers) who are registered in offshore zones, covered by the list of offshore zones adopted by the Cabinet of Ministers of Ukraine;
   
• individuals or legal entities who are subject to sanctions in the form of prohibition to conclude land acquisition transactions;
   
• legal entities incorporated under the laws of Ukraine who are controlled by individuals and legal entities registered in the countries included by the Financial Action Task Force on Money Laundering (FATF) into the high-risk jurisdictions or jurisdictions under increased monitoring.

Which categories of farmland cannot be alienated under any circumstance?

• state or municipally owned farmland;
   
• farmland located within the temporarily occupied territories of Donetsk and Lugansk regions, the Autonomous Republic of Crimea and the city of Sevastopol.

Are there any limitations on farmland concentration?

• For individuals:

• From 1 July 2021 to 1 January 2024 — not more than 100 ha³, but this covers the land owned by such individual and land, controlled by such individual indirectly, i.e., through holding shares in legal entities that own farmland;
   
• From 1 January 2024 — not more than 10,000 ha, but this covers the land owned by such individual and land, controlled by such individual indirectly, i.e., through holding shares in legal entities that own farmland.

• For legal entities (save for banks):

• Not more than 10,000 ha, but this covers farmland owned by such legal entity itself and by its shareholders.

Other important novelties

• Until 1 January 2030, farmland purchase price must not be less than its normative value.
   
• Acquisition of farmland in excess of established concentration limitations may serve as a ground for the invalidation of relevant transactions and the confiscation of farmland.
   
• Farmland acquired by a person or entity that by virtue of law does not have the right to own such land must be alienated within a year from its acquisition. Failure to comply may result in confiscation of such farmland.

 Legal entities, incorporated and existing under the laws of Ukraine, shareholders of which are Ukrainian nationals;

Foreign nationals, stateless persons and foreign legal entities, as well as Ukrainian legal entities ultimate beneficial owner of which is a foreigner;

This restriction does not apply to farmland acquired before 1 July 2021.

Additional notes

This LEGAL ALERT is issued to inform Baker McKenzie clients and other interested parties of legal developments that may affect or otherwise be of interest to them. The comments above do not constitute legal or other advice and should not be regarded as a substitute for specific advice in individual cases.