Expanded Opportunities for EU Citizens to Acquire Agricultural Land
→ Tamás Balogh
Agricultural land and excellent soil are one of Hungary’s great national resources. Around 47% of the territory of Hungary is agricultural areas – one of the highest among EU countries. In the last years, the volume of agricultural production has increased, and market participants are reporting a rise in agricultural investments. The New Land Act increased the opportunities for land purchases and other agricultural investments for EU nationals, creating more favourable business conditions for potential investors.
Acquisition and use of agricultural land
Due to the liberalisation of the Hungarian market in agricultural land in 2014, EU nationals are subject to the same rules as Hungarian private individuals in terms of land acquisition.
The aim of the New Land Act is, in particular, to protect smallholder private individuals, to support the economic model of family farms and to avoid the adverse impacts of large-scale land acquisitions for investment purposes. Therefore, the new act continues to confer advantages to private individuals qualifying as farmers: legal entities are excluded from land purchases, while private individuals in general may only own one acre of agricultural land. On the other hand, Hungarian citizens and nationals of EU/EEA countries qualifying as farmers may acquire agricultural land up to 300 acres, while the total area of land used by a farmer (including the lands in his ownership) may not exceed 1200 acres.
Natural persons qualifying as farmers
Hungarian and EU resident natural persons may qualify as farmers if they have certain agricultural or forestry qualifications. Persons not having agricultural qualifications must certify that they have been continuously pursuing agricultural activities in their own name and at their own risk for at least three years in Hungary. Further qualification criteria are that farmers must certify that they have either generated income from agricultural activities within the above period or otherwise confirm that their agricultural investment has not generated any income thus far.
To support sustainable agriculture and to protect smallholding Hungarian farming traditions, the New Land Act creates pre-emption right for the Hungarian state. Following the state, pre-emption rights are granted to local farmers.
Pre-emption rights, however, cannot be exercised if (i) the transfer is between close relatives, (ii) the sale and purchase aims to terminate joint ownership over the land, (iii) the ownership of the land is transferred to a farmer as a condition of state aid or (iv) the land is to be acquired by the local municipality for public use.
Land transfers are conditional on certain use restrictions. For the first five years of ownership, the purchaser cannot assign the use of the land to any third party, must comply with its obligation to cultivate the land and must undertake not to use the land for non-agricultural purposes.
The above restrictions and undertakings of the land owners are continuously monitored by the competent agricultural authority. In case of non-compliance, the authority may impose penalties on the landowner.
Approval of the acquisition by the competent agricultural authority
Agricultural land acquisitions and agricultural land leases are subject to the preliminary permission of the competent agricultural authority, while land acquisitions are also subject to the permission of the local land committees. Should the agreement not comply with the provisions of the New Land Act, the authority declares the agreement as null and void. In case of land acquisitions, the local land committees shall evaluate the sale and purchase agreement and provide their opinion on the planned acquisition. If the land committee fails to support the acquisition by a certain purchaser, the relevant agreement will not become effective between the parties concerned.
Acquisition or use of arable land by legal entities?
As a rule, under the New Land Act, only natural persons are allowed to acquire agricultural land, while legal entities are excluded from agricultural land acquisitions. Although existing ownership titles of legal entities over agricultural lands are not affected by the new act, it is forbidden to acquire ownership of agricultural land by a legal entity through merger, de-merger or any other form of transformation.
But contrary to the above restrictions on acquisitions, certain legal entities operating and qualifying as agricultural cooperatives may lease land up to 1200 acres. The New Land Act defines several legal entities pursuing preferred business activities (operators of breeding farms, producers of field seeds, etc.) that are allowed to lease agricultural land up to 1,800 acres.