News

Mortgage on Agricultural Real Estate

Regulatory Confusion Clarified

Legal Alert (21/2016)

The recent years have seen vigorous regulatory actions related to the principles of mortgaging agricultural real estate in Poland. The amendments revolutionizing the area were in force for four months only when the Polish lawmaker approved a law cancelling the principles of mortgaging agricultural law implemented on 30 April 2016.

The underlying reason was the endorsement of the Act on suspending the sale of real estate included in the Agricultural Property Stock of the State Treasury and on amendments to certain other acts on 30 April 2016 (“Act on suspending the sale”) [1], which had introduced Article 68.2(a) to the Act on land and mortgage registers and on mortgage (“Act on land and mortgage registers”) [2].The new provision prohibited mortgaging agricultural real estate where the mortgage value exceeded the market value of the real estate determined as at the date of establishing the mortgage and required attaching an appraisal for the mortgaged real estate to the application to make an entry in the land and mortgage register. 

Deloitte Legal, Pasternak, Korba, Moskwa, Jarmul i Wspólnicy Kancelaria Prawnicza sp.k. was one of the first law firms to inform of the need to change the security policies of financing entities.

Instead of protecting owners of agricultural real estate against excessive debts, the provisions of the Act on suspending the sale impeded fund acquisition. To solve these problems, Act amending the Act on structuring the agricultural system and the Act on land and mortgage registers and on mortgage of 6 July 2016[3] („Amendment”), came into force on 16 August 2016 and repealed Article 68.2(a) of the Act on land and mortgage registers which had introduced the controversial provisions. Additionally, under Article 3 of the Amendment the new provisions apply to proceedings related to the purchase of agricultural real estate and the entry to the land and mortgage register which had been instigated on or after 30 April 2016 r. (i.e. under the provisions amended by the Act on suspending the sale) and had not been closed by the date the Amendment entered into force. Consequently, the controversial provisions of the Act on suspending the sale do not apply to proceedings concerning the entry to the land and mortgage register instigated on or after 30 April 2016 and still pending on 16 August 2016.

Apart from the Amendment in question, the regulatory confusion was maximized by two new bills discussed by the Polish Sejm which provided different principles of mortgaging agricultural real estate. [4] These bills, however, although still formally discussed by the Sejm, have been rejected by the Agriculture and Rural Development Commission. Hopefully, the principles of establishing mortgages on agricultural real estate introduced by the Amendment will not be further modified in near future.

To sum up, repealing rigorous principles of establishing mortgages on agricultural real estate which were introduced to the Act on land and mortgage registers by force of the Act on suspending the sale should be considered as an advantageous change. Significantly, the prohibition to establish a mortgage on agricultural real estate with the value exceeding the market value of the estate has raised doubts as to its interpretation since the implementation. If the Sejm rejects two additional bills determining the principles of establishing mortgages on agricultural real estate, which is highly probable, the legal confusion concerning the maximum value of the mortgage on agricultural real estate will finally be clarified. Consequently, financial institutions will be free to grant financing mortgaged with agricultural real estate.

* * *

[1] Act on suspending the sale of real estate included in the Agricultural Property Stock of the State Treasury and on amendments to certain other acts of 14 April 2016 (Journal of Laws of 2016, item 585).

[2]  Act on land and mortgage registers and on mortgage of 6 July 1982 (Journal of Laws of 2016, item 790 as amended).

[3] Act amending the act on structuring the agricultural system and the act on land and mortgage registers and on mortgage of 6 July 2016  (Journal of Laws of 2016, item 1159).

[4] The bills are: Private members’ bill on amending the act on suspending the sale of real estate included in the Agricultural Property Stock of the State Treasury and the act on land and mortgage registers and on the mortgage and the act on structuring the agricultural system, Sejm paper No. 672, http://www.sejm.gov.pl/Sejm8.nsf/PrzebiegProc.xsp?id=7759B33318060FB4C1257FE3003BB857 and Private members’ bill on amending the act on land and mortgage register and on mortgage, the act on structuring the agricultural system and the act on suspending the sale of real estate included in the Agricultural Property Stock of the State Treasury, Sejm paper No. 660, http://www.sejm.gov.pl/Sejm8.nsf/PrzebiegProc.xsp?id=E180DC75F28F8E6BC1257FDB002E44B7.

Did you find this useful?