By Andrea Butasova (butasova@peterkapartners.sk) and Martina Simkova (simkova@peterkapartners.sk)
Overview
Before the accession of the Slovak Republic to the European Union, the acquisition of real estate in Slovakia by all foreigners was, in general, restricted by Slovak national legislation, namely by the Foreign Exchange Act.
Upon the accession of the Slovak Republic to the European Union on May 1, 2004, the restrictions were slightly eased and applied only to agricultural land situated outside municipal built-up areas. As an exception to the general principle of the free movement of capital, the European Commission allowed Slovakia to place these restrictions also on EU citizens for a transitory period that expired on April 30, 2014.
On May 16, 2014, with the aim of cancelling the restriction on EU citizens on one hand, but, at the same time, to prevent any possible buy-outs of agricultural land on a larger scale by foreigners on the other hand, the National Council of the Slovak Republic adopted a new Act on the Acquisition of Agricultural Land ("Act"). With effect from June 1, 2014, the Act sets out new rules for acquisition of agricultural land in Slovakia that govern not only acquisition by foreigners, but also acquisition by Slovak residents.
1. Types of Agricultural Land to which the Act Applies
The Act does not apply to all types of agricultural land in Slovakia, but only to those specified as arable land, hop gardens, vineyards, orchards and permanent green area in the Land Registry and land on which buildings intended for agricultural purposes were erected before June 24, 1991.
The Act does not apply to (i) gardens, (ii) municipal built-up areas and (iii) land located outside municipal built-up areas that is intended for other than agricultural purposes or that is smaller than 2,000 square metres or whose use is restricted by law or that is adjacent to buildings forming functional units with them. The owner of such agricultural land does not need to follow the new rules for acquisition of agricultural land set out by the Act (see point 4 and following).
2. New General Restriction for Foreigners except EU citizens
The Act sets out new general restrictions regarding acquisition of agricultural land by foreigners based on the principle of reciprocity. States, citizens of a state, natural persons residing or legal entities registered in a state where Slovak residents are not allowed to acquire agricultural land, are not allowed to acquire agricultural land in Slovakia. Acquisition by inheritance is exempted from this restriction.
3. Exception allowed for EU citizens and other persons
As indicated earlier, EU citizens are now allowed to acquire agricultural land in Slovakia. Moreover, this applies also to the persons from the EEA, Switzerland and other states based on international treaties.
These persons are now entitled to acquire agricultural land in Slovakia under the same conditions as Slovak residents.
4. New Rules for Transfers
Besides a new definition of the restrictions of acquisition of agricultural land by foreigners, the Act also establishes new rules for transfers of the agricultural land if transferred under a purchase agreement, by donation, for the purpose of enforcing security or as a security of obligation (transfer of title as a security of obligation). These new rules apply irrespective of the fact whether the transferor or the transferee is a Slovak resident or not. A most important change is that these rules contain a newly established Offer/Bid procedure that has to be followed prior to conclusion of the contract and a limitation of persons to whom the owner may transfer agricultural land.
5. Publishing Offers
A transferor wishing to transfer agricultural land has to follow a special Offer/Bid procedure. At first, the transferor is obliged to publish the offer to transfer the agricultural land on the online Register of Publication of Offers for the Transfer of Agricultural Land maintained by the Ministry of Agriculture of the Slovak Republic and, at the same time, on the notice board of the municipality where the agricultural land is situated. The offer must be posted for a minimum of 15 days and it must specify, among other information defined by the Act, the price per square metre (if not transferred free of charge) and the deadline and address for submitting the bids.
6. Filing Bids and Eligible Bidders
The offer is responded to through the online Register of Publication of Offers for the Transfer of Agricultural Land and, at the same time, in writing, directly to the transferor. If the response in writing is not sent within 5 days from the day when the publication period expired, the bid is deemed as not having been filed.
The Act expressly specifies who is entitled to respond to the offer. Only persons engaged in agricultural business (Farmers) residing or having a registered office in Slovakia for a minimum of 10 years and doing business (i) in the same municipality where the land is situated or (ii) a neighbouring municipality or (iii) any other municipality for a minimum of 3 years are considered as eligible Bidders.
7. Limitations in Choosing the Transferee
The transferor is free to choose the transferee from the Bidders but he/she has to follow a descending order of priority from the Bidder under (i) to the Bidder under (iii).
If no interest in the acquisition of the land is shown, the owner may transfer the land to persons who are not Farmers but reside or have had their registered office in Slovakia for a minimum of 10 years. The transfer should take place within 6 months after the publication of the Offer.
It should be stressed that when no interest is shown, the Act does not allow the transferor to transfer its land to any other person chosen by him/her. Such person must be a resident or have had his/her registered office in Slovakia for at least 10 years.
8. Confirmation on Having Followed the Offer/Bid Procedure Required
Before the transactional documentation is signed, the transferor is obliged to ask the district authority where the land is situated for a confirmation that the Offer/Bid procedure was respected. In such a case, the district authority will issue the confirmation within 30 or, in particularly complicated cases, within 60 days. The confirmation has to be attached to the transactional documentation.
9. Exception from the Offer/Bid Procedure
The Act establishes an exception from the Offer/Bid Procedure which does not need to be followed if the agricultural land is transferred to any of the following persons:
a) a Farmer doing business in a municipality where the agricultural land is located for a minimum of three years;
b) another co-owner of the agricultural land; and
c) the owner' s relative, such as a parent, child, sibling or spouse if the owner is an individual.
However, even though the Offer/Bid Procedure does not need to be followed in this case, it should be noted that the Act requires that a confirmation of satisfaction of the conditions specified in a) and registration as a tax payer issued by the municipality are annexed to the transactional documentation. Furthermore, should the land be transferred to the owner's relatives, a copy of the document proving so, or an affidavit of the transferor, has to be annexed to the transactional documentation.
10. Conformity with the Slovak Constitution questioned
Last but not least, it should be noted that, as under the Act agricultural land may only be transferred to persons expressly specified in the Act (see points 6, 7 and 9), the Act is being widely discussed and has recently been challenged before the Slovak Constitutional Court as unconstitutional on the ground of the unjustified restriction of ownership rights. Therefore, it might be expected that the Act will be subject to further changes in the upcoming months.
Conclusion
As of June 1, 2014, the restrictions on acquisition of Slovak agricultural land outside municipal areas were considerably eased and no longer apply to citizens from the EU, EEA and Switzerland, and other countries, due to international treaties. However, at the same time, transfers themselves, whether to a Slovak or foreign transferee, became subject to new conditions, especially the new Offer/Bid procedure that must be observed by the transferors. As some of the provisions of the Act are not clear, it is expected that their interpretation will be further developed by case law. Moreover, the Act has recently been challenged before the Constitutional Court as unconstitutional due to the unjustified restriction of ownership rights.
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This article is for information purposes only. Under no account can it be considered as either a legal opinion or advice on how to proceed in particular cases or on how to assess them. If you need any further information on the issues covered by this article, please contact PETERKA & PARTNERS, Tel. +421 2 544 18 700; E-mail: office@peterkapartners.sk; www.peterkapartners.com
