Taking Counsel: Will the extension of the transitional period really make any difference to the land market?

Recently, the Lithuanian Parliament (hereafter – the Seimas) assented to the draft law whose purpose is to extend the transitional period for foreigners to acquire agricultural and forest land. Presently, the draft law is being discussed in various committees of the Seimas. It is worth mentioning that constitutional law, which regulates the legal relationships concerning ownership of land plots, stipulates for the possibility to acquire into ownership land, internal waters and forests only to those foreign subjects who meet the criteria of European and transatlantic integration.

This provision is fulfilled if foreign legal persons as well as other foreign organizations are set up in:

i) the EU member states or states party to the Europe (Association) Agreement concluded with the EC and their member states;

ii) Member states of the OECD, NATO and states party to the EEA Agreement. Natural persons have to be nationals of the states specified above or permanent residents of the said foreign states in order to qualify for the acquisition of land plots. It should be pointed out that the current regulations do not allow foreign subjects to acquire agricultural land and forestry land before the end of the 7-year transitional period, which ends May 1, 2011, with the exception of those who have been permanently living and engaged in agricultural activities in Lithuania for at least 3 years, and foreign legal persons and other foreign organizations which have set up representative offices or branches.

The draft law suggests to strengthen the prohibition by prolonging the period until May 1, 2018, as well as to raise the residential qualification for natural persons from 3 to 5 years. As it is described in the explanatory note of the draft law, the 7-year term has proved to be inadequate to equalize land prices between Lithuania and the rest of Europe. Furthermore, the financial potential of indigenous farmers is far from Western rivals, so it has been concluded that national subjects would have fewer possibilities to compete in the sector of agriculture and legal means have to be taken to assist them. Though intentions of the draft law are noble, practical implementation poses certain legal problems.

Firstly, the issue of such a law’s consistency with the Treaty of Accession of the Republic of Lithuania to the EU emerges. According to the Treaty, if there is sufficient evidence that, upon expiry of the transitional period, there will be serious disturbances or a threat of serious disturbances on the agricultural land market of Lithuania, the Commission, at the request of Lithuania, shall decide upon the extension of the transitional period for up to a maximum of three years. Consequently, the Commission is the subject who has the exclusive competence to decide the prolongation of the 7-year period. If parliament enacts such a law, it definitely will be met with a negative attitude at the EU level.

Secondly, the said constitutional law makes the prohibition for foreign subjects to acquire agricultural land and forest land more declarative than in really influencing the behavior of the ones who practically wish to purchase land, whereas the legal entity, established in Lithuania, is considered to be a national subject despite of the origin of an incorporator or a member.
Lastly, this proposal to amend the current law has come from the opposition. In order to pass the draft law a 3/5 majority vote of all the members of the Seimas will be needed, because it is the amendment of a constitutional law. So far there have not been any positive signals concerning this issue.

To sum up, it ought to be concluded that the extension of the transitional period would not make a noticeable transformation of the land market and, especially, of prices of land plots, which mainly depend on the general economic situation. Also, two aspects should be taken into consideration when debating about the possibility for foreign subjects to purchase agricultural land and forest land: i) the restoration of ownership rights and land reform have not been completed yet; ii) land prices in Lithuania are significantly lower than in the EU.

Laurynas Kasiulynas is a lawyer at Jurevicius, Bartkus & Partners, a member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms including Glikman & Partnerid in Estonia and Kronbergs & Cukste in Latvia, dedicated to providing a quality ‘one-stop shop’ approach to clients’ needs in the Baltics.