LFMI examined the newly revised Law on the Acquisition of Agricultural Land in the Republic of Lithuania (known as the land “safeguards” law) that took effect on May 1, 2014. In its position paper LFMI notes that the law limits the right to freely operate in the agricultural market by restricting purchasing of agricultural land and land sale transactions. The law contains provisions that may contradict the Lithuanian Constitution and infringe on the EU principle of the free movement of capital as well as Lithuania’s agreements on foreign investment protection.
- Regarding the purchase of over 10 ha of agricultural land or(and) a legal entity or(and) over 25 percent of shares in a legal entity owning the said amount of agricultural land
1.1. The law may not be in line with the EU principle of the free movement of capital
The Treaty on the Functioning of the European Union provides that all restrictions on the free movement of capital between Member States and third countries shall be prohibited. However, the land “safeguards” law restricts the freedom of persons to purchase shares and real estate and to carry out other investment procedures in other EU countries.
It should be noted that the European Commission opposes strict agricultural market regulation since it may not be in line with the free movement of capital principle.
1.2. The law may not be in line with Lithuania’s agreements on foreign investment protection
The restrictions on agricultural land purchases may not be in line with 50 Lithuania’s bilateral agreements on investment promotion and protection that protect investors from expropriation of property, restrictions and obligations that would significantly reduce their investment value.
This unilateral decision to enshrine restrictions on investors’ abilities of freely manage their investment infringes the principles laid down in the investment protection agreements.
1.3. Discriminatory requirements for new farmers may infringe on the principle of equality
The law applies to the future farmers only and those who have purchased land before adopting the restrictions will be able to continue their market operations. It distorts the market and may infringe the principle of equality.
To add, the restrictions will not have any influence on the current situation, because after closing the market, large landowners will continue to dispose their market power without competition.
1.4. The law may not be in line with the agricultural freedom and initiative
The law stipulates restrictions on entering and leaving the market by purchasing agricultural land which may be regarded unconstitutional.
- The requirements for land buyers may infringe on the constitutional principle stating that Lithuania’s economy shall be based on private ownership rights and freedom of individual economic activity and initiative.
The requirements for natural persons purchasing agricultural land may not be in line with private property rights and the freedom of economic activity and initiative.
Drafters of the law argue that the restrictions prevent speculation and concentration of land ownership in the hands of a number of natural or legal persons and ensure that the land shall be purchased only by a person who is actually prepared to farm. It restricts the owner’s right to dispose of assets at his discretion.
2.1. Occupational skill and competence requirements for natural persons
The requirement for a person to have a diploma in agriculture in order to buy agricultural land is unjustified and may not achieve the objective of rationalizing land use. To add, the obligation to carry on agricultural activities in the purchased land infringes the right of self-determination.
2.1.1. The obligation on natural and legal persons to carry on agricultural activities for at least 3 years and to have utilized agricultural area and crops declared
There is no evidence for the selection of a three year criteria, therefore it should be regarded as subjective and unjustified. Also, the obligation to have utilized agricultural area and crops declared deprives the opportunity to purchase land from those who meet other requirements, but have no crops declared on their own behalf and infringes legitimate expectations of the persons.
2.1.2. The obligation on natural persons to register the farm or to have a diploma in agriculture
The law imposes an obligation on the purchasers of agricultural land to have occupational skills and agricultural competences which may infringe the fundamental rights and freedoms, the right to private property and may be unconstitutional.
There are around 132,000 farmers in the country, but the data regarding their education is not stored separately. Only one third of the farmers are estimated to have a formal agricultural education thus the obligation restricts farming opportunities of the others.
2.1.2. The obligation on legal persons to obtain more than 50 percent of income from agricultural activities
The following example illustrates a lack of justification for the obligation to obtain more than 50 percent of income from agricultural activities: a concern which is engaged in a large-scale production of agricultural machinery (which is very close to agriculture) and obtains 2/3 of its profit from it, will not be regarded as being engaged in agricultural activities, therefore it will not be able to purchase agricultural land.
2.1.3. The obligation on legal persons to meet financial viability requirements
The law imposes an obligation on legal persons to prove their financial viability according to the procedure laid down by the Ministry of Agriculture. This obligation constitutes unjustified restrictions on the constitutional freedom of individual economic activity and the constitutional right to freely choose business.
2.2. The obligation on natural and legal persons to obtain authorization
The law stipulates that agricultural land shall only be purchased and sold after obtaining authorization from the National Land Service under the Ministry of Agriculture. This procedure is a significant administrative burden which delays the transaction. Furthermore, it is not free of charge.
2.2.1. The law is contrary to the case-law of the CJEU and may infringe the principle of the free movement of capital
By joining EU Lithuania has agreed to implement the free movement of capital principle. It should be noted that the obligation to obtain authorization is contrary to the case-law of the CJEU and may be regarded as an infringement of the principle.
2.2.2. The law may not be in line with the case-law of the Constitutional Court
The Constitutional Court ruled that no artificial barriers shall be created for individuals to freely dispose of their assets.
The law stipulates that both spouses shall obtain authorization before purchasing agricultural land. Such an obligation may infringe the freedom of individual economic activity by imposing unjustified obligations – on the farmer’s wife who has to obtain authorization, for example.
- A restriction on related persons to acquire more than 300 ha of land from the State and more than 500 ha from private individuals
Such a restriction may infringe the right of private ownership and the principle of equality. It is fundamentally flawed and unjustified to determine how much land may be legally acquired in the civil market. The restriction distorts the market, because it applies to agricultural activities only and excludes animal farming. To add, abuses of the dominant position and the possession of excessive market power are regulated under the Law on Competition thus the restriction on acquiring more than 500 ha is not necessary.
3.1. On the disproportion of the sanctions provided
A disproportional punishment which is land seizure and transfer into state ownership is provided for exceeding the purchasing limits. It should be noted that a seizure of the excess would apply as a fine, but not as an act of protecting public interests. Offenders shall be punished, but it is inadequate to nationalize assets.
- An obligation to ensure agricultural activities for 5 years
The law stipulates that the purchased agricultural land shall be used for agricultural activities for at least 5 years according to the minimum annual production rate per hectare determined by the Ministry of Agriculture. Such an obligation may be contrary to the freedom of individual economic activity and initiative.
4.1. On the disproportion of the sanctions provided
There are cases in which agricultural land may be used for forestry or other activities, therefore the sanctions may have a negative impact on forestry, electricity production, rural tourism and other activities.
- A right of first purchase granted to land tenant or neighbour
The law stipulates the right of first purchase of agricultural land to joint owners, users, or to those who have their parcel bordering with the parcel for sale and, meet the requirements.
It is a direct restriction of individuals’ freedom to choose how to deal with their property. To add, the prohibition to sell your parcel to a close relative who lives elsewhere may not be in line with the constitutional freedom of individual economic activity.
The full article in Lithuanian can be found at http://www.llri.lt/naujienos/ekonomine-politika/nuosavybes-apsauga/ekspertize-zemes-saugikliu-istatymas-galimai-priestarauja-konstitucijai-ir-yra-zalingas-lietuvai/lrinka