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Dear clients and cooperation partners,
On 18 May 2017, the Parliament amended the law “On Land Privatisation in Rural Areas” (the Law) to facilitate purchase of agricultural land by local farmers and to introduce the following material changes:
Professional education replaced by knowledge of the Latvian language
The Law introduces a requirement that in order to acquire agricultural land a sole shareholder of a legal entity or shareholders who together represent more than half of a legal entity’s share capital with voting rights and all persons who are authorised to represent the legal entity must satisfy two criteria, ie they must obtain:
- an EU citizen’s registration certificate in Latvia if they are citizens of other EU Member States, the European Economic Area or the Swiss Confederation;
- a document certifying their knowledge of the state language (Latvian) at a minimum B2 level.
The same requirements apply to individuals who intend to acquire agricultural land.
Meanwhile, the following requirements have been removed, namely proof of (a) professional education for purchase of agricultural land and (b) having received single area payments or that income from agricultural production corresponds to one third at least of total income.
Restrictions on related parties
A new restriction on land acquisition has been imposed on related parties: they can acquire a maximum of 4,000 ha of land.
Title registration must be speeded up
Starting from 1 January 2018, a land purchase deed concluded before 31 October 2014 and not registered in the Land Register by 30 June 2017 or with the municipal commission by 31 December 2017 can be registered at the Land Register only after obtaining consent from the municipal commission for purchase of agricultural land.
Change of shareholders: council consent required to keep property
The law requires that the respective regional council be informed within 10 business days of any change to the composition of company shareholders. If the council establishes that the company has failed to comply with the law, the company must obtain council consent to keep the land. Failure to comply leads to the property having to be disposed of within two years.
Municipal control mechanism introduced
The municipal commission will have power to inspect performance of written confirmation of land usage for agriculture.
The municipal commission is also empowered, where necessary, to invite those who acquire agricultural land to make a presentation on projected use of the land for agriculture. This applies to individuals or the sole shareholder of a legal entity or shareholders of a legal entity together representing more than half of a legal entity’s share capital with voting rights, if the shareholders are individuals, or beneficial owners.
The law stresses the authority of municipalities to supervise compliance with the law. Although the law requires companies to inform the regional council about changes to the composition of company shareholders, the supervision mechanism is clearly not entirely full-fledged because of situations where the respective company fails to inform the regional council about changes and the council has no mechanism for supervising changes in the commercial register. Additionally, such changes are not available publicly in relation to public limited companies.
Changes to regulations on the right of first refusal to agricultural land
The law resolves situations when a lease agreement for agricultural land has been registered at the Land Register instead of with the municipality. That is, if a landowner sells agricultural land, the lessee and the manager of the Latvian Land Fund have the right of first refusal, on the following basis:
- the right of first refusal can be enforced by persons who comply with statutory requirements for those acquiring agricultural land, and who registered a land lease agreement with the municipality at least one year before the transaction or those who lease the land to be sold and the right of first refusal is registered at the Land Register;
- if the land is leased to several persons who satisfy the above conditions, they agree on a procedure for exercising the right of first refusal. If no agreement is reached, the right of first refusal vests in the person with the right under contract and registered at the Land Register;
- if there is no suitable agricultural land lessee, or if the lessees cannot reach agreement, or if a lessee whose right of first refusal is registered at the Land Register does not enforce the right, then the right of first refusal is transferred to the manager of the Latvian Land Fund;
- if the agricultural land to be sold is a joint property, then the right of first refusal is enjoyed by the joint owners; if a joint owner waives purchase of the property, the above conditions are applied to exercise of the right of first refusal.
Supplements to exceptions to transactions with agricultural land
In addition to existing exceptions, restrictions do not apply to land transactions in an area whose functional zone in municipal territorial planning or local planning is envisaged for construction. The above restrictions on purchase of agricultural land and rights of first refusal will not apply to those acquiring agricultural land who own or legally possess agricultural land of more than 10 ha (individuals) and 5 ha (legal entities), supplemented by a note that this condition applies only if the land area is exceeded by less than the minimum area of a land unit as set by the municipality.
Municipality can transfer agricultural land for lease with redemption rights
As of 1 January 2018, municipal agricultural land without buildings on it can be transferred for lease with redemption rights for a term of up to 12 years with an annual land rent at the rate of 4.5 of the land’s cadastral value. If the lessee enforces redemption rights, the rent is included in the redemption payment. The redemption price must be fixed on the day of entering into the land lease contract with redemption rights, while redemption rights can be exercised in the fourth year at the earliest. Only individuals are entitled to redemption rights; in addition, they must not have owned agricultural land previously and must confirm that within a year after entering into their lease contract they will start using the land for agricultural operations. The Cabinet of Ministers will set the documents to be submitted, lease contract conditions, and the procedure for conclusion and termination.
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