Maksym Maksymenko

Land consolidation

In a strict sense, one may define land consolidation as a process of combining small land plots into bigger ones and/or of land plots with incorrect configuration with other land plots. The aim of such land consolidation is to remove parceling, curved boundaries and to form land plots with the correct configuration.

In a broader sense, land consolidation should also include territory contour reclamation measures and facilitate the most efficient land use.

However, sometimes one may understand land consolidation as a process or result of concentration of land plots in someone’s ownership.

Land consolidation in Ukraine is not currently being conducted in any of the senses noted above.

Land moratorium versus agricultural land consolidation

Since 2001 Ukraine has kept the ban in place to alienate agricultural lands as well as to change their designated use (the Land Moratorium). The Ukrainian Parliament has so far prolonged the Land Moratorium for 18 years and now the Land Moratorium is effective until the (potential adoption) of the Law of Ukraine on the turnover of agricultural land, but no earlier than 1 January 2020¹.

The bulk of the land plots, which fall under the Land Moratorium, were formed in the process of (i) division of the territories of the agricultural companies of the ex-Soviet Union and (ii) transfer of relatively equal parcels of the above territories into the ownership of the members of such companies.

Due to the Land Moratorium, the majority of agricultural land is used on the basis of land lease agreements.

Without the possibility to buy or sell land plots agricultural producers are unable to cure defects of their configuration. Moreover, they are unable to solve more complicated issues, which they could have solved in the process of land consolidation. Thus, the agricultural land market cannot play any role in land consolidation while the Land Moratorium blocks it.

Request for agricultural land consolidation in Ukraine

Since independence gained in 1991, Ukrainian laws have almost not provided for effective legal instruments preventing the parcelling of land plots, which duly resulted in excessive fragmentation of agricultural lands.

At the same time, the parcelling of agricultural lands leads to wasteful, ineffective, and irrational land use through the reduction of added value of cultivated production and reduction in land yields.

The current level of fragmentation of agricultural lands imposes additional expenses on agricultural producers to formalise and manage their lands. Moreover, it enables situations when the map of a field looks like check patterns due to the interposition of land plots leased by various tenants.

Consequently, the need for consolidation of the agricultural land in Ukraine is quite urgent.

Mechanisms of consolidation of agricultural land came into force in 2019

On 1 January 2019, amendments to Ukrainian legislation came into force² providing for the possibility of land consolidation with respect to the majority of agricultural land.

However, in light of the Land Moratorium in place, the above land consolidation is not typical, being merely a consolidation of land lease/sublease rights³.

As will be analysed in a greater detail below, consolidation of agricultural land may be voluntary and compulsory. Consolidation relates to agricultural land plots for conducting farming (both individual and commercial). Literally, the following lands cannot be subject to newly-established instruments of land consolidation:

lands for horticulture;

lands for gardening;

land for hay-making and grazing; and

all non-agricultural lands.

Consolidation instruments may work only with respect to land plots that are located on a single agricultural landmass. The agricultural landmass is a number of agricultural land plots, which have common boundaries and are separated from the other territories by natural and/or artificial landscape elements⁴ (the “Single Landmass”).

Voluntary land consolidation

Prior to 2019, the borrower in an undertaking could not be changed without the consent of the creditor. Since a landlord and tenant are simultaneously creditors and debtors in land lease relations, a change in either of them was subject to the consent of the other⁵.

New rules came into effect from 2019, stating that the owners and users of land plots for a land lease term may exchange their rights to use such land plots by executing mutual lease or sublease agreements (the “Rights Of Use Exchange”).

In the event of the Rights Of Use Exchange, execution of the sublease is not dependent on the consent of landlords — the tenants will only have to notify the landlords about the exchange within five days from the date of state registration of the subleasing rights.

The tenant, who executes the sublease within the Rights Of Use Exchange procedure, remains responsible to the landlord for performance of the respective lease.

Termination of one of the agreements executed within the Rights Of Use Exchange procedure automatically terminates the other one.

Compulsory land consolidation

Except for the rules on voluntary land consolidation, which also apply to the procedure for compulsory land consolidation, the law entitles the user of a substantial part (75% or more) of the Single Landmass (the “Substantial Land User”) to lease/sublease other parts of the Single Landmass (the “Other Land Plots”).

The Substantial Land User may exercise their rights to lease/sublease the Other Land Plots in the event their inefficient use caused by the splitting of land plots. In order to lease/sublease the Other Land Plots the Substantial Land User should transfer their land plots into the possession of the Other Land Plots’ users as an exchange.

If the Substantial Land User approaches the users of the Other Land Plots, such users should sign the respective lease/sublease within one month. In case users of the Other Land Plots do not accept the Substantial Land User’s offer, generally, the lease/sublease of the Other Land Plots can be concluded through a court.

The Substantial Land User does not have a pre-emptive right to lease the Other Land Plots on the same conditions if their tenants exercise a pre-emptive right for the prolongation of leases to Other Land Plots. However, after the above prolongation the Substantial Land Owner is entitled to sublease such Other Land Plots.

Implementation of land consolidation mechanisms

As mentioned earlier, implementation of agricultural land consolidation instruments is achievable only within the Single Landmass. However, in order to determine the Single Landmass, the relevant authorities should include information about it into the system of the State Land Cadastre (the “Cadastre”) based on the results of checking the Single Landmass inventory.

The Ukrainian Government only adopted the regulatory framework for the Single Landmass inventory checking and registration of the Single Landmass in the Cadastre at the beginning of June 2019⁶. While the software of the Cadastre has not been updated to enable the Single Landmass registration in the Cadastre.

Therefore, no land consolidation measures prescribed by new legislation have been implemented yet.

Conclusions

Despite the fact that land consolidation in its current form may simplify the conduct of agricultural business, it will not have a fully-fledged outcome. In particular, instruments for land consolidation will not remove parceling, curved boundaries and form land plots with correct configuration. Moreover, legislation is silent on territory contour reclamation measures.

Anyone who consolidates lease/sublease rights to land plots will still not be interested in investing in the irrigation and drainage infrastructure or protective forest strips on land plots, which are not in their ownership.

In order to achieve the necessary economic, social and ecological effect, feasible land consolidation instruments should be introduced. Such instruments should apply to all lands in Ukraine, and provide for the possibility of ownership rights to land plots consolidation (including compulsory consolidation). The Land Moratorium should finally be cancelled as a precondition of land consolidation.

Maksym Maksymenko
is a counsel at AVELLUM

¹ Paragraph 15 of section X of the Land Code of Ukraine No. 2768-III, dated 25 October 2001 (the “Land Code”)

² The Law of Ukraine On Amending Certain Legislative Acts of Ukraine regarding the Issue of Land Collective Ownership, Improving the Land Use Rules in Agricultural Land Areas, Preventing Raiding and Stimulating Irrigation in Ukraine No. 2498-VIII, of 10 July 2018.

³ Article 8-2 of the Law of Ukraine On Land Lease No. 161-XIV, of 6 October 1998; Article 37-1 of the Land Code.

⁴ Paragraph 8 of Article 1 of the Law of Ukraine On Land Management No. 858-VI, of 22 May 2003.

⁵ Articles 509, 510, and 520 of the Civil Code of Ukraine No. 435-IV, of 16 January 2003.

⁶ Regulation of the Cabinet of Ministers of Ukraine On Adopting the Order on the Lands Inventory Checking and Invalidation of Certain Resolutions of the Cabinet of Ministers of Ukraine, No. 476, of 5 June 2019; Regulation of the Ukrainian Government On Amending of Certain Resolutions of the Cabinet of Ministers of Ukraine, No. 477, of 5 June 2019.