Ban on land acquisition for foreigners: breach of constitution and its adverse impact on investment

23 July, 2013

Today, on July 19, President signed and approved the amendments to the Law on Ownership of Agricultural Land adopted by Parliament on June 28, pursuant to which:

  • Agricultural land cannot be acquired (including a title by inheritance) by a foreigner, a legal entity registered abroad or a legal entity incorporated by a foreigner in Georgia. This right has been stripped from these persons until 31 December 2014.
  • The Government of Georgia was assigned to develop a uniform state policy on the ownership of agricultural land and organize an integrated system of the land cadastre and agronomics until 31 December 2013.

Transparency International Georgia (TI Georgia) acknowledges the need to resolve the issues concerning land resources management, but believes that the newly introduced restrictions breach the constitutional rights to own property and can seriously undermine the country’s economic development.

It is striking that this legislative amendment was preceded by the opinions of several public groups, which propagated that Georgian land should not be transferred to foreigners. Furthermore, there were reports of regions where the local population did not allow the citizens of foreign states to cultivate land.

Notwithstanding the fact that the development of a uniform state policy on agricultural land and the organization of the land cadastre is a clearly positive initiative, we consider that prohibiting foreigners and legal entities registered abroad acquiring land until 31 December 2014 is unjustified due to several circumstances.

Constitutional Rights to Own Property

A most significant problem of the adopted legislative amendments is their noncompliance with the Constitution of Georgia. In particular:

  • The Constitutional Court found a similar norm in the past as unconstitutional. With its 26 June 2012 decision N3/1/512, the Court established that the restriction, by which foreigners were banned from acquiring the land and were forced to sell inherited land, contradicted the requirements of the Constitution and “broke the reasonable balance between private and public interests, and that the restriction introduced by a disputed norm is disproportionate”.
  • This legislative amendment places foreigners in a different legal regime and a discriminatory state, thus contradicting Article 21 of the Constitution of Georgia. Pursuant to this Article, the annulment of the universal right to property, of the right to acquire, inherit, or be transferred property, shall be impermissible. This norm applies to citizens of both Georgia and foreign states. It can be restricted only in special circumstances. In particular, eminent domain is permissible in the circumstances as expressly determined by law, under a court decision or in the case of the urgent necessity determined by the organic law and only with appropriate compensation. The Constitutional Court ruled further that the right to property must not transform into the right dependant mostly on legislative regulation. Following such interpretation of the norm by the Constitutional Court, a reintroduction of a similar restriction, even temporarily, is impermissible. This endangers the constitutional rights, as well as the legal stability and the feeling that the unconstitutional norm adopted by Parliament will be revoked and no longer be in effect. This decision implies that Parliament can ignore any decision of the Court.
  • Circumstances are vague concerning the maintenance of the titular registration of land for foreigners and legal entities registered abroad. This will be a hindering factor for the state during the development of a uniform state policy on agricultural land. Furthermore, according to the explanatory note of the draft Law, local rural residents may suffer significant damages.  The authors of the draft Law, however, did not specify the circumstances in which their rights may be affected.
  • Furthermore, pursuant to Article 25.4 of the Organic Law of Georgia on the “Constitutional Court”, the adoption of a legal act including norms similar to those which were previously found unconstitutional, is impermissible.  Paragraph 41 of the same Article goes on to state that if the Court finds that a disputed act includes similar norms to those already found unconstitutional by the Court, it renders a ruling and invalidates the disputed act without consideration on merits. Accordingly the decision adopted by the Parliament both breaches the Organic Law, as well as being an act which the Constitutional Court can invalidate without consideration on merits. Hence, should the relevant subjects (whose rights were violated by the adoption of this Law) address the Court, there is a high probability that the norm will be invalidated as the act has similar content to one already annulled.

Impact of Restrictions on Country’s Economic Development

In addition to the fact that the adopted amendments contradict the Constitution of Georgia, these processes may have an adverse impact on the country’s economic development. Namely:

  • Explanatory note of the draft Law states that there is a tangible threat of irrational land appropriation, which may have a negative impact on the state’s economic safety, as well as endangering the environment and the country’s security. Yet, the authors of the draft Law did not specify how this norm has endangered Georgia’s economy and security until now. Economic losses are of special interest.
  • Depriving foreigners and legal entities registered abroad of the right to register title to land will clearly have an adverse effect on the investment environment. The reason behind suspension of this right is the development of a uniform state policy; it is thus possible that the imposed restriction on land registration for foreigners is once again revised in the future, causing confusion among foreign investors. Furthermore, investors who have already made certain investments in the country’s economy, and who would like to expand their activities, will also experience problems. From the adoption of the Constitutional Court decision until the enactment of this norm, foreigners may well have purchased land plots. The appropriation of their property will additionally displease the investors.

Other State Practices

Remarkably, this restriction imposed on foreigners wishing to acquire agricultural land is found in several other states. Yet, it is noteworthy that their absolute majority applies this during a transitional period (for instance, when affiliating in the EU), in order to protect the socio-economic and agronomic structure from the shock that accompanies affiliation in the union of states. One such “shock” could be a difference between land prices of new and old member states, creating a non-competitive environment on the market. There is definitely no such transitional stage in Georgia, and therefore the introduction of such restrictions is totally unfounded.

The EU has authorized the Czech Republic, Hungary, Estonia, Lithuania, Latvia, Poland and Slovakia to keep limitations on the transfer of agricultural land and forests during the transitional period. Such limitations were in effect for 7 years (12 years for Poland) due to affiliation with the EU, but various states applied different types of restrictions. For instance:

  • In Poland, foreigners are entitled to purchase land if they are married to a Polish citizens, have lived in Poland for 2 years, and allow their spouses an equal entitlement to the property once the land had been acquired. The same is true for a foreigner who has lived in Poland for at least 5 years and has a permanent residential status. In addition, the Ministries of Interior and Agriculture are entitled to grant a foreigner the right to acquire land upon their discretion. Restrictions apply to foreign individuals and companies, as well as to Polish companies managed by non-Polish individuals.
  • In the Czech Republic, a foreigner can purchase land if s/he has a Czech spouse, lives in the Czech Republic or has carried out agricultural activities for at least 3 years. A company incorporated in the Czech Republic, which is not managed by foreigners, can acquire land without limitations. Title emerged from inheritance or co-ownership rests with foreigners and they are not obligated to transfer land.
  • Restrictions in Estonia depend on the area of land. A land plot of up to 10 hectares can be acquired without limitations, however purchasing a land plot over 10 hectares is allowed only if a foreigner is married to an Estonian, or has carried out agricultural activities for at least 3 years. There are no restrictions for legal entities. Acquisition of land in the above exceptions is still possible if a local governor issues a relevant permit.
  • A foreigner may purchase land in Hungary if s/he has a Hungarian spouse, lives in Hungary, or has carried out agricultural activities for at least 3 years. Yet, despite registration, legal entities are generally forbidden from acquiring agricultural land apart from lands designated for farming premises and not for cultivation.
  • In Slovakia, Lithuania and Latvia, a foreigner will buy land if s/he has a spouse who is a national of this state, lives in this country or carries out agricultural activities for at least 3 years. Legal entities are limited in acquiring land only if their majority stakes are owned by foreigners. There are no limitations for legal entities in Slovakia at all. Remarkably, in Lithuania, a foreigner married to a Lithuanian only enjoys a co-ownership.

As demonstrated, despite similar restrictions are practiced in other states, they are less strict and include exceptions. Georgia, however, is introducing an extremely rigid and comprehensive limitation without any convincing justification.

Based on these reasons, we believe that the adoption of these amendments to the Law was unjustified. As already noted, we welcome the development of a uniform state policy on the ownership of agricultural land and the organization of an integrated system of the land cadastre and agronomics. However, this process should not damage the country’s economic interests. Attracting investors must be of top priority for the government in the growing economic conditions. That aside, a vast portion Georgian land is still uncultivated, and thus introducing imitations for investors in such conditions is unreasonable.

Our organization has previously addressed  Parliament requesting to revise these norms, but our initiative was left unanswered. It is unfortunate that this bill was adopted without general public discussions and the scrutiny of interested persons and business associations.

In the near future TI Georgia intends to file a constitutional claim requesting the invalidation of these restrictions.

Author: TI Georgia