Land Bank: ways of forming

The land issue has always remained the key for doing business in the agricultural sector. For effective agribusiness in Ukraine, it is necessary to search for and attract agricultural land. Under conditions of a temporary (but long-term) moratorium on the sale of agricultural land, the formation of a land bank excludes buying land ownership by enterprises. Therefore, other available mechanisms, including land leases and emphyteusis, is efficient.

Land Bank – this is essentially the number of lands (or rather – real rights to land), which are in processing at the company, regardless of its scale: a farm or agricultural holding.

We can divide the activity of agribusiness with the land bank into three stages: formation, preservation and expansion.

Formation. Finding land that is not in use requires a lot of effort.

It is necessary separately consider lease of lands of state or communal property and private lands. Thus, renting (or purchasing the right to lease) land of state or communal property is possible only on a competitive basis by participating in an auction (land tenders).

The procedure for such auctions, regulated by the Land Code, includes several stages:

  • Determination of the land plot;
  • The choice of the bidder;
  • Adoption of a decision by the state government or local government on conducting auctions;
  • Publication of the announcement;
  • Registration of applications;
  • Payment by participants of registration and guarantee fees;
  • Bidding;
  • Setting up the results and defining the winner;
  • Disclosure of results;
  • Conclusion of a contract with the winner and his notarial certificate.

The procedure for leasing or emphyteusis of private property land is simpler. However, there may be problems with owners of land, especially in the case of several potential tenants per one land plot.

Among the ways of forming a land bank from private lands, leasing and emphyteusis are the main ones.

Although the rent is more customary and understandable, the emphyteusis have a number of advantages.

Land lease contract, procedure of its conclusion, as well as essential conditions, are too clearly regulated by the legislation. There is even a separate law on the lease of land, as well as a typical lease agreement. Clarification of state bodies – how to understand one or another provision, the limitation of the maximum term of the lease – can sometimes restricts of the tenant. Of course, detailed regulation can hardly be called a disadvantage, but it is virtually impossible to move freely in such conditions. The tenant often plans a long-term land lease and is not happy about such a limit of the maximum lease term in 50 years.

Emphyteusis is in fact the right to use a land of someone else for agricultural purposes. It is based on an agreement concluded between the owner and the user.

As an alternative to leasing, it has two main advantages: the absence of a maximum period set by law and detailed regulation.

Therefore, you have an opportunity to conclude an agreement for 100 or even 200 years. The main thing is to comply with the terms of the contract and not violate the rights of the owner.

Another advantage of emphyteusis is the possibility to establish a fixed one-time payment in the contract, which actually brings the agreement of emphyteusis to the sale. In the conditions of the moratorium, this possibility is extraordinary attractive.

At the same time, emphyteusis has some disadvantages for the owner of the land. Thus, in case of its transfer for use based on emphyteusis, the owner remains the payer of the land tax from a land that is in the long-term use of another person.

Preservation. Do not relax having a land bank formed. Under the termination of the lease contract, land plots may be lost. The reasons for the loss are proposals for more favorable conditions from other tenants, and the owners can choose other companies to conclude an agreement. The methods of land treatment, the technology used by the tenant, as well as the wishes of the landowner, are also important.

In essence, the procedure for preserving the land bank is to combat the outflow of owners. Problems can arise both from internal causes and from external competitors (honest and unscrupulous).

Therefore, in case of land lease, it is necessary to work with the owners, to take into account their wishes at the conclusion of the contract, as well as in carrying out the activity, to support the local community and to find out the reasons for dissatisfaction.

In addition, you have to monitor the situation on the market – the proposals of competitors, the conditions on which they conclude contracts with landowners, and provide additional benefits in lease agreement.

Otherwise, in the best case, you cannot rely on re-placing contracts with some owners, in the worst case – you lose most of your lands. You can also find yourself in a situation where all your plots are divided and their cultivation requires unnecessary resources.

Expansion. Growth in agribusiness requires expansion of the land bank with new lands. This process is linked with the preservation of the land bank, and therefore it is always necessary to consider them in a complex. It is important to prove yourself best with the owners of the land already in use. In this case, your reputation as well as feedback about the results of previous cooperation will work for you.

In any case, it is necessary to conduct an audit of work with the Land Bank and identify the weaknesses. Such an analysis will allow you to direct resources for solving problem issues, avoid future outflows of owners, and attract new ones.