Amendments to the Act on Formation of the Agricultural System will affect properties and companies transactions

Today, on 5 October 2023, the amendment to the Act on the Formation of the Agricultural System (hereinafter the “AFAS”) enters into force. We present below a summary of those changes which, in our opinion, will most significantly affect the properties transactions (and not only!) in Poland.

Changes to the calculation of property area

The amendment introduces a change in the manner of counting the area of agricultural property in respect of which the provisions of the AFAS do not apply.

Previously, agricultural property with a total area not exceeding 0.2999 ha (2,999 m2) was excluded from application of the AFAS provisions (and thus also from restrictions on disposal of agricultural property). After amendments, the area of the entire agricultural property, except for certain provisions, will no longer be relevant for the assessment of the application or non-application of the AFAS provisions. What will be of significance is the area of agricultural land within the given property, which shall not exceed the aforementioned 0.2999 ha (2,999 m2).

Such a solution will significantly expand the list of properties to which it will not be necessary to apply the AFAS provisions, and, consequently, any limitations on disposal of agricultural properties resulting therefrom.

Extension of the pre-emption / purchase right of shares or stocks in commercial companies

The second amendment, this time unfavourable for transactional practice, is the extension of the pre-emptive and purchase rights vested in the State Treasury represented by the National Support Centre for Agriculture (NSCA) of shares / stocks in capital companies by including also companies having dominant position over companies with at least 5 ha of agricultural property, even if they do not have such properties themselves.

The ambiguity of the new provisions leads to doubts as to whether the above restrictions on disposal of shares / stocks of companies having a dominant position over companies with at least 5 ha of agricultural property will apply only to directly dominant companies (the so-called parent companies) or also to companies located at higher levels of the corporate structure. The answer to the above issue will be crucial for the construction of company structures and transactions regarding shares / stocks of holding companies.

Additional exceptions to the prohibition on disposing or giving possession of an agricultural property before the end of 5-year period following its acquisition

Another change is the extension of the exceptions in which it will not be necessary to apply limitations resulting from Article 2b(1) and/or (2) of the AFAS (obligation to personally run the agricultural farm including the acquired agricultural property for at least 5 years following its acquisition and the prohibition to dispose of the agricultural property or give it into possession during that period, unless with prior consent of the Director General of NSCA).

From now on, the previously mentioned 5-year period will also not apply to agricultural property acquired inter alia, in the course of enforcement or bankruptcy proceedings or by way of acquisitive prescription.

A very important change, and one that is particularly significant from a transactional point of view, is the addition to the exceptions of the confirmation that the above-mentioned limitations from Article 2b(1) and (2) of the AFAS will not apply with respect to agricultural property, for which a local zoning plan will be adopted after its acquisition, in accordance with which the acquired agricultural property is designated for purposes other than agricultural.

This will exempt its owner/perpetual usufructuary from the obligation to carry out agricultural activity on the property and the prohibition to dispose or give its possession (in particular lease or tenancy) before the lapse of 5-year period following its acquisition.

Division, restructuring and merger of companies

The changes also include, as had been postulated for a long time, a more precise specification of the catalogue of corporate processes in the course of which, sale of agricultural property may take place in accordance with the AFAS, and, thus, in the course of which limitations may apply to the disposal of agricultural property and shares / stocks of capital companies having such properties.

As part thereof, the legislator decided to regulate these issues in such a way that they will only apply to the transformation of an entrepreneur or a civil partnership into a commercial company under the provisions of the Commercial Companies Code. Therefore, they will no longer cover transformations of commercial companies into other commercial companies.

The family foundation

The legislator has also decided to revoke (introduced only on 22 May 2023) the facilitations for agricultural properties’ transactions between a family foundation and its founder or beneficiary.

The acquisition of agricultural property by a family foundation from its founder, as well as the acquisition of agricultural property by a beneficiary of a family foundation who is a relative of the founder of that family foundation from the family foundation, will require the prior consent of the Director General of the NSCA for the acquisition of agricultural property.

In addition, the disposal or giving possession of agricultural property by a family foundation to a beneficiary of a family foundation who is a close relative of the founder of that family foundation will require the prior consent of the Director General of the NSCA for this action.

Extension of the definition of close relative

In addition, as part of the amendments, the legislator has also decided to extend the existing definition of a close relative to include parents of the spouse, stepfather and stepmother. Thus, actions performed also with these entities will be covered by the exception provided by the provisions of the AFAS.

Period of validity of the NSCA consent

A time limit has also been introduced for the validity of consents granted by the Director General of the NSCA for the acquisition of agricultural property by an entity other than an individual farmer, to which no statutory exceptions apply, and for the disposal or giving possession of agricultural property before the end of the 5-year period following its acquisition. Now such consent will be valid only for one year from the date on which the decision became final.

Summary

In addition to discussed amendments, the legislator also decided to introduce many other minor clarifications, be it with regard to determining the value of agricultural property for the purposes of exercising rights by the State Treasury – NSCA, or with regard to the conditions concerning the procedure for obtaining the consent of the Director General of NSCA for the acquisition of property.

In practice, the changes will, on the one hand, facilitate the disposal of properties (assets) itself, in particular with a view to limiting the number of properties to which the amended provisions of the AFAS will apply. On the other hand, they will undoubtedly prolong and make it more difficult to carry out, previously unproblematic in this respect, transactions on shares / stocks of companies which are not themselves owners or usufructuaries of agricultural properties with an area exceeding 5 ha, but which belong to a capital group in which such companies exist. In this respect, it will be necessary to examine not only the assets held by the target company but also by its subsidiaries.

The alert you can download here.