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Liberalization of Agricultural Land Transfer in Serbia by September 2017

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Key issues foreign investors will have to tackle when buying agricultural land in Serbia.

In accordance with the Stabilization and Association Agreement, the Republic of Serbia undertook the obligation towards the EU to allow the transfer of agricultural land to foreign legal and natural persons by September 1, 2017. Although agricultural land transfer will be liberalized in the near future, many legal issues related to this process are still unresolved and contentious due to the lack of an adequate regulatory framework.

In general, agricultural land is subject to a special regime of restrictions when it comes to its transfer. The most important restriction regarding the transfer of agricultural land is the right of first refusal. This principle imposes an obligation on the seller of an agricultural land plot to offer it to all owners of neighboring agricultural land plots (excluding owners of neighboring forest and construction land) before selling it to another buyer. If not adhered to, breaching this principle may have serious negative implications – the least desirable one is the annulment of the agreement on sale of the agricultural land since every owner of a neighboring land plot is authorized to file a lawsuit if he was prevented from exercising his right of first refusal.

With regard to the procedure of adhering to the right of first refusal, the offer to the owners of neighboring agricultural land plots has to be sent via registered mail. In practice, this rule raises certain concerns with regard to protection of personal data. On the one hand, the seller (or a potential buyer) has to obtain information relating to the personal data of owners of the neighboring land plots (name, surname and residence) in order to comply with the right of first refusal and send the offer via registered mail. On the other hand, in accordance with the Protection of Personal Data Act, the real estate cadaster is prohibited from providing any personal data (including residence) to third parties, without the permission of the person whose personal data is requested. Although the law prevents dissemination of personal information to third parties, the general practice of real estate cadaster is to nonetheless provide this information to third parties since otherwise it would be virtually impossible to obtain the relevant personal data within a short timeframe.

After obtaining the personal data of the neighboring agricultural land plots owners, the seller has to inform the said persons regarding the price and other important terms of the sale via registered mail. However, this procedure may also cause significant difficulties in practice. Specifically, the Real Estate Transfer Act does not regulate the situation when the owner of a neighboring agricultural land plot (intentionally or unintentionally) fails to receive the mail. Moreover, there is no legal way to force the owners of neighboring land plots to receive the mail, which in return means that they can, in theory, obstruct the transfer forever. In these situations, the seller would be left with two choices: either to spend considerable time and resources to find the owner of a neighboring land plot or to enter into an agreement on sale of real estate without notifying the said owners and risk the annulment of the sale agreement.

As a result of the legal discrepancies in the Real Estate Transfer Act, alternative solutions have emerged in practice. For example, after the failed delivery of the initial offer via mail, the sellers usually post an offer on the bulletin board of the court and after the expiration of a 15 day period (in most cases), it is presumed that all the owners of the neighboring plots have been informed regarding the terms of sale. Although practice has created both this and other alternative solutions for resolving the problem of informing the owners of the neighboring land plots, the fact that the seller had complied with the pre-emption principle would still have to be proven in court. Therefore, more detailed regulations on this issue should be adopted, especially in order to improve the business environment and to provide for an adequate level of legal certainty for future foreign investors in agriculture. In comparison, procedural rules of civil, criminal and administrative law have specific and clear-cut rules for these cases.

In conclusion, although Serbia plans to liberalize transfer of agricultural land in September 2017, there are a number of unresolved issues that foreign investors will have to face when buying agricultural land. Therefore, it remains to be seen whether the competent authorities will adopt new bylaws to deal with these issues, in order to ensure legal certainty in agricultural land transfer.

By Radovan Grbovic, Partner, and Igor Radovanovic, Associate, SOG / Samardzic, Oreski & Grbovic