Proposed Changes Related to Ownership of Agricultural Lands by Foreigners

MG Law Office, through the contribution of partners Archil Giorgadze and Nicola Mariani, joined by senior associates Ana Kochiashvili, Tamar Jikia and associates Ana Chikovani, Vakhtan Giorgadze, and Mariam Kalandadze is partnering with Georgia Today on a regular section of the paper which will provide updated information regarding significant legal changes and developments in Georgia. In particular, we will highlight significant issues which may impact businesses operating in Georgia.

Over the course of recent years, the issue of ownership of agricultural lands by foreigners has sparked heated discussions. On 16 December 2018, the new Constitution of Georgia (the “Constitution”) entered into force, which determined that agricultural land, as a resource having significant nature, shall only be owned by the state, self-governing entity, citizen of Georgia or unity of Georgian citizens. The Constitution also states that the exclusions may be determined by the organic law, which shall be adopted by at least two-thirds of the members of the Parliament of Georgia (the “Parliament”). As set out in the Constitution of Georgia, the Committee on Agricultural Issues initiated a new draft of the Law of Georgia Agricultural Lands (the “Draft Law on Agricultural lands” or the “Draft Law”), which sets out specific exceptions to the constitutional ban. On 3 May 2019, the Parliament approved the Draft Law on Agricultural Lands at the first hearing and further hearings are pending. This article provides an overview of the Draft Law on Agricultural Lands.

OWNERSHIP OF AGRICULTURAL LANDS BY FOREIGN NATURAL PERSONS AND LEGAL ENTITIES

According to the Draft Law, agricultural land is a land parcel within a category of a pasture, a hayfield, arable land (including plot of land covered with perennial plants) and homestead lands, which are used (or may be used) for agricultural purposes, with or without buildings and constructions located on it. As set out in the Draft Law, in addition to the persons/entities entitled to own agricultural land as set out in the Constitution, the foreigners may be entitled to own agricultural land in exceptional circumstances.

The Draft Law sets out the notion of a “dominant partner”, which is a partner or group of partners of a legal entity of private law registered in Georgia, which owns more than 50% of shares/stocks and/or represents the majority of partners (General Partnership (GP) and Limited Partnership (LP)) or majority of founders/members (Non-entrepreneurial (Non-commercial) Legal Entity) and simultaneously has a practical opportunity to make a decisive impact on the decision of a legal entity. The legal entities of private law registered in Georgia and associations/partnership not registered as legal entities, are authorized to own agricultural land if a foreigner does not represent such dominant partners of an entity. In addition to the above listed entities, natural persons who obtain agricultural land in Georgia as an inheritance, may also own such land without any restriction. The Draft Law does not allow foreign-registered legal entities to own agricultural land in Georgia.

The Draft Law prohibits change of a partner of a legal entity, which holds the right to ownership of an agricultural land plot in a way that a foreigner, a legal entity registered abroad and/or a legal entity registered in Georgia (whose dominant partner is an alien/legal entity registered abroad) becomes a dominant partner. The Draft Law does not in any manner impede with the rights of the foreign owners who obtained ownership rights over the agricultural lands before its adoption.

OWNERSHIP OF AGRICULTURAL LAND BY INVESTOR

Legal entities of private law registered in Georgia which are owned by a foreign dominant partners or the dominant partnership of which may not be determined, may also own agricultural land on the basis of a decision of the Government of Georgia (the “GoG”) upon submission of a respective investment plan. An investment plan is a documentation reflecting the use of agricultural land, which considers relevant investments to make agricultural products, implement innovative activities, arrange touristic infrastructure, implement international projects and/or projects of state or local importance that promote the protection of national security and the creation of new jobs.

A legal entity which obtains agricultural land on the basis of an investment plan, shall be obliged to alienate such land within one year from the failure to comply with investment obligations. In case the foreigner is unable to sell the agricultural land, the State of Georgia shall acquire ownership.

OWNERSHIP OF AGRICULTURAL LANDS BY FINANCIAL INSTITUTIONS AND USAGE AS A COLLATERAL

Restrictions set out in the Draft Law do not apply to an international financial institution defined by the decree of the Government of Georgia or a financial institution defined by Georgian legislation, whose dominant partner is a foreign and/or a legal entity registered abroad, or whose dominant partner cannot be established if a right to ownership of an agricultural land plot originates as a result of activity permitted by Georgian law for international financial institutions and financial institutions, including in case of acquisition of collateral by a creditor.

The Draft Law also restricts the use of an agricultural land as a collateral in favor of a foreigner, a legal entity registered abroad and/or a legal entity registered in Georgia (whose dominant partner is a foreigner/legal entity registered abroad or whose dominant partner cannot be established) with a precondition of transfer of ownership rights. The Draft Law also prohibits transfer of a right or a claim in favor of a foreigner that ultimately considers origination of ownership rights on the agricultural land.

* * *

The state policy regarding ownership of agricultural lands in Georgia is still in a stage of development. However, adoption of the Draft Law, which allows ownership of agricultural lands by foreigners in exceptional circumstances, represents a positive step forward.

* * *

Note: this article does not constitute legal advice. You are responsible for consulting with your own professional legal advisors concerning specific circumstances for your business.

MG Law is the first full-service law firm in Georgia to be founded by international partners. The firm advises a diverse group of Georgian and foreign companies, financial institutions, investment funds, governments and public enterprises.

Among many other areas, the firm primarily focus on the following sectors: Banking & Finance, Capital Markets, Arbitration & Litigation, Labor & Employment, Infrastructure and Project Finance, Energy Law, Real Estate, Tax and Customs, Investment Law, Corporate Law, Real Estate, Infrastructure & Finance Projects, and Cryptocurrency & Blockchain.

For more information, please visit www.mglaw.ge or contact Archil Giorgadze at archil.giorgadze@mglaw.ge and Nicola Mariani at Nicola.mariani@mglaw.ge

Photo by Katie Ruth Davies