Changes to trade in agricultural property and their impact on M&A transactions: an amendment to the Act on agricultural land management by the State Treasury and some other acts
5 October 2023 was the date of entry into force of the Act adopted on 13 July 2023 amending the Act on agricultural land management by the State Treasury and some other acts. The amendment, which implemented a number of changes to the Act on Agricultural System Development (ASD Act) of 11 April 2003, will certainly affect the trade in agricultural lands and the sale of shares in companies which own such lands or their parent companies. The changes introduced by the amendment and their effects are presented below.
- So far, the National Agriculture Support Center had the pre-emptive right and the right to buy shares held for sale in companies that owned or used on perpetual basis agricultural land of minimum 5 hectares. Since the amendment took effect, the Center also has the pre-emptive right or the right to buy shares in parent companies holding shares in companies that are owners or perpetual users of agricultural property. Doubts are raised by the definition of a “parent company”. Not only is it very broad but it also does not define whether a parent company must be a capital company or it can be a partnership. The provision of the Commercial Companies Code which is referenced in Art. 3a(1)(2) of the ASD Act does not offer any answer to this question, merely indicating that a parent company is a “commercial company”. Consequently, each situation will have to be evaluated separately, which may protract the due diligence for M&A purposes. Additionally, a foreign company may also pose problems, as it is not clear whether a foreign company is included in the definition of “parent”. The extended competences of the Centre will considerably affect M&A transactions in Poland. The duty to notify of the possibility to exercise the pre-emptive right and the resultant need for preparation of numerous attachments, will prolong transactions. The Centre has two months to exercise the right. During this period, no effective transfer of shares can be made. Each agreement concluded in breach of the Centre’s pre-emptive right will be void.
- The change implemented by this year’s amendment (i.e. the changed definition of agricultural property excluded from the act) should be viewed as positive. Starting from 5 October, provisions of the Act on Agricultural System Development (ASD Act) do not apply to agricultural property “in which the area of UAA is smaller than 0.3 ha“. So far, the provisions of the ASD Act did not apply to agricultural lands below 0.3 ha. The change gets rid of the problem of applicability of the provisions of the Act to each real property larger than 0.3 ha where only a small part of it (even less than 0.3 ha) is intended for agricultural purposes. As a result of the amendment, the provisions of the ASD Act do not apply to agricultural property in which the UAA is smaller than 0.3 ha even if the area of the entire land exceeds 0.3 ha. This change should definitely be viewed as positive.
- Another change consists of adding some new exceptions to the rule set out in Art. 2b(1) and (2) of the ASD Act which requires that 5 years should lapse from the sale of agricultural property or from giving it for use, and the obligation of personally running the farm which the property became part of for the same period.Accordingly, newly purchased agricultural lands may be sold before the end of 5 years provided that:
- the property was owned by one of spouses or was part of their community property for minimum five years before its acquisition or it was purchased as a result of division of community property after dissolution of marriage.
- the real property was acquired by way of incumbency;
- after the property was purchased, a local spatial development plan was established for the real property, and according to this plan the property is intended for purposes other than agricultural purposes;
- the real property was sold under enforcement proceedings or bankruptcy proceedings;
- the real property was purchased from a close person in the period from 30 April 2016 to 25 June 2019.
Except as indicated in the law, a farm comprising the real property must be run for a period of 5 years, and the real property must not be sold or given for use throughout this period. The Director General of the Centre must give the consent to such a transaction (subject to some exceptions).
- The amendment establishes an additional requirement to be fulfilled for the Director General of the Centre to be able to give consent to a person other than an individual farmer to purchase agricultural property. The requirement is that the actual selling price of the agricultural property must not be lower than 95% of the price quoted in the notice of sale of the property addressed to individual farmers potentially interested in such purchase. This requirement is to prevent situations where an attempt at finding an individual farmer interested in purchasing the agricultural property is feigned. The legislator saw the need for such a solution because it frequently happened that sellers, already having a potential buyer for their agricultural property, wanted to ostensibly fulfill the requirement of failing to find a buyer among individual farmers and quoted a considerably higher price to discourage farmers, whereas they subsequently sold the agricultural property at a much lower price. Obviously, in addition to the new requirement, all the previous requirements indicated in the ASD Act still need to be satisfied.
- Additionally, a time limit was introduced for the validity of the Director General’s consent to purchase agricultural property by an entity other than an individual farmer and for sale of agricultural property or giving it for use to other entities before the end of 5 years from its purchase. So far the consent was not time-limited. After the change, the Director General’s consent will remain valid for a year from becoming final.
- Last but not least – an interesting change is the expansion of the group of “close persons” entitled to purchase agricultural property with no need to obtain the Centre’s consent even if they are not individual farmers. Before the change, a “close person” was defined as follows: “whenever the act refers to a close person – this term shall mean descendants, ascendants, siblings, siblings’ children, parents’ siblings, spouses, adopting and adopted persons and step children.” Now the list of such persons was extended to include spouse’s parents – parents-in-law and step parents of an individual farmer.