It took the Verkhovna Rada almost a year and a half to pass a law that is fundamentally important for the full launch of the land market, writes DS.
A stale bill and land reform in Ukraine
On April 28, the Verkhovna Rada adopted Bill No. 2194, "On Amendments to the Land Code of Ukraine and Other Legislative Acts Regarding the Improvement of the Management System and Deregulation in the Sphere of Land Relations," in its second reading and as a whole. Supported by 284 members of parliament, the document is necessary for the full launch of the market and the completion of land reform.
Prior to this, the bill had been stalled for over a month: MPs from the Opposition Platform – For Life and Batkivshchyna submitted 3128 amendments for the second reading, which had to be considered. They themselves made no secret of their efforts to block the bill to prevent the formation of an open land market in Ukraine (which they consider evil).
The bill also became one of the longest-running. It was submitted to the Rada on October 1, 2019, and passed in its first reading on November 14 of that year. However, it stalled: voting on it was largely pointless until March 31, 2020, when the Verkhovna Rada launched land reform in Ukraine—it will begin on July 1, 2021.
Bill No. 2194 began its second reading in mid-March, but it immediately encountered fierce resistance from some deputies. For example, Opposition Platform – For Life MP Nestor Shufrych claimed that the bill "effectively eliminates state control over land management by authorized entities." Meanwhile, Batkivshchyna leader Yulia Tymoshenko asserted that the document continues the government's strategy of selling off land to foreigners and puts an end to Ukrainian farming.
DS analyzed what will actually change in the legislation, as well as the opportunities and risks the adopted document opens.
Land transactions will be simplified
According to the authors, the document should reduce the cost and time required for land management procedures. It is also expected to reduce corruption and increase the financial resources of local authorities. We will analyze this claim below. For now, a few words about the new provisions themselves.
The law restores local governments' authority to manage land outside of populated areas through land auctions. They will be able to change the designated use of individual parcels—at the owner's request—and approve detailed planning plans for areas outside of populated areas (currently, designation changes are processed through parliament).
Let us recall that until 2002, it was the communities that managed these lands, but subsequently these powers were transferred to the district state administrations, and in 2013 to the State Geocadastre.
"This is a very old story and concerns the management of state land—the document specifies who has the right to manage state land outside the administrative boundaries of a settlement. We have several million hectares of such land. Previously, this land was taken from local councils and managed by the state Geocadastre, which included other institutions that jointly made decisions," Oleksiy Mushak, a deputy of the 8th Verkhovna Rada and land market expert, told DS. "Essentially, decisions were made in Kyiv about who should distribute land and how. Now this land is being returned to the amalgamated territorial communities, which will decide locally who should distribute it, what to do with it, and many other things."
This concerns approximately 10 million hectares of Ukrainian land—both agricultural and non-agricultural (including water and forestry lands). The only exception will be land under state ownership. According to the new rules, local governments will be able to:
approve documentation on land management and urban development within the entire territory of the united territorial community (including outside populated areas);
independently change the intended purpose of privately owned land plots (at the owner’s request).
They will also have the right to:
- approve detailed planning plans for territories outside populated areas;
- to counteract the unauthorized occupation of land plots and the improper use of land outside of populated areas;
- full access to the State Land Cadastre, they have the opportunity to receive and provide any cadastral information.
"This is a correction of a mistake made ten or twelve years ago, when land was taken from local communities. That mistake has now been corrected: the land has been returned to the local communities," says Alexey Mushak. "And since there's so much land there, it's an asset worth several billion dollars. So, essentially, the state has transferred several billion dollars to local communities."
Decentralization of corruption
The State Geocadastre is finally losing its excessive powers over land management and oversight of its use. While it was previously the main land management body in Ukraine, it will now be relegated to the status of a mere agency servicing land transactions. This transformation is expected to eliminate numerous corruption schemes in the land sector.
Many of these schemes relied on unnecessary approvals for land registration. Now, many things are changing, including:
- Land management documentation will be checked only once, at the stage of entering information into the State Land Cadastre;
- Mandatory liability insurance for contractors to customers for errors made when preparing documentation is being introduced;
- the concept of agrochemical land certification, which had a significant corruption component, is being removed;
- the institution of state land management expertise, for which it was sometimes necessary to pay hundreds of thousands of hryvnias and wait a long time for the formation or assessment of a plot, is being abolished;
- unnecessary and duplicative procedures are eliminated: preliminary approval of materials regarding the location of an object on a land plot, special permits for the removal and transfer of soil cover on land plots;
- Adjacent communities will now be able to independently determine the common boundaries of their territories by mutual agreement;
- Certified land surveyors receive the right to act as state cadastral registrars;
- Land management documentation and technical documentation for land assessment will be developed exclusively in electronic form and certified by the developer’s electronic digital signature;
- It is no longer necessary to obtain consent to change the intended use of a land plot for particularly valuable land from a number of government agencies, including the Cabinet of Ministers and the Verkhovna Rada.
However, even if this entire list is implemented, there's no hope of eradicating land corruption. The powers of the State Geocadastre, as well as corruption risks, are being transferred to a lower level...
"This document has removed a significant element of corruption from land relations. But it's better to say that corruption will be decentralized. Previously, corruption was centralized at the level of the State Geocadastre—there were many investigations into how land was distributed," says Alexey Mushak. "Now this potential for corruption is being transferred to the local level. And it's logical, in principle, that if people live locally, they should be better able to decide what to do with their land. Decentralized corruption is easier to combat. Local people can stop it themselves, unlike centralized corruption."
Land is not only for farmers
Another aspect of the new law is that it opens the non-agricultural land market to foreigners. This means that the Land Code removes provisions restricting the ability of foreign individuals and legal entities to purchase vacant, non-agricultural land plots outside populated areas. A number of other issues are also being streamlined. For example, individuals with permanent use rights or lease rights to a plot of land (after formalizing permanent use) are now given the opportunity to purchase it at the standard monetary value (without an auction) with a five-year payment plan.
Regarding land management issues, the law provides for the introduction of full transparency and accessibility of land management documents, as well as public review of them. A land monitoring system is also being introduced: the State Geocadastre will be responsible for ensuring this is carried out quarterly.
Redistribution at the local level: plots may go to the wrong people
However, the land issue has always been one of the most corruption-prone in Ukraine. And shifting relevant powers from the center to the local level merely postpones the problem, rather than solving it. As we recall, some argue that decentralized corruption is easier to combat. However, not all analysts agree.
Growford Institute expert Vyacheslav Ilchenko believes that land legislation reform must be considered holistically. In his commentary to DS, he assesses both the recently adopted law on the management system and deregulation of land relations, as well as the government's recently published Bill No. 5385, which abolishes the right of permanent use of land plots and which we analyzed last week.
"The first and most obvious consequence of the law's adoption is the abuse of lands that, until recently, were in permanent use. Now, the category of 'permanent use' disappears, and the affected plots will become municipal property. To retain this land, the land user will have to either enter into a long-term lease for it or purchase it at open auction—without preemptive rights," said Vyacheslav Ilchenko. "Because only subsoil developers and existing lessees have preemptive rights, and the law no longer defines permanent land users."
According to the expert, there's another crucial point: the decision on which municipal lands to put up for sale will be made by the amalgamated territorial community (ATC)—meaning, in most cases, it will be the head of the community. And according to the government bill, the head is planned to be appointed from above, not elected. This opens up a truly enormous potential for redistribution. "This scheme alone is enough to trigger a large-scale land redistribution, especially of land owned by small farmers," Vyacheslav Ilchenko states.
He also cites the example of Ecuador. According to the expert, land reform in Ukraine will follow a similar path. In 1954, 64% of the land in Ecuador belonged to latifundists. The government implemented a reform that amounted to introducing similar buyouts for land in permanent use. However, only 15% of farmers were actually able to exercise this right of purchase. In certain regions of Ecuador alone, this share reached 40%. In other words, more than half of Ecuadorian farmers were left without land. And the latifundists, through buyouts, only increased their land holdings.
Among the criticisms leveled against the new law "On Improving the Management System and Deregulation in Land Relations" is the fact that now a landowner (including the community itself) can simply remove and sell the topsoil. Until recently, this was a conspiracy theory circulated by opponents of the land market, but now it's suddenly becoming almost a reality. It's economically unviable now, but who knows what the future holds?
However, what's far more dangerous is that local authorities will be able to change the designated use of land, including agricultural land, at their own discretion. The drafters of the already-adopted Law 2194 assumed that local communities would not make matters worse for themselves, meaning they would take care of the land they inherited. But whether this will actually happen in practice is a big question. This is especially true given that, as part of the decentralization reform, amalgamated territorial communities (ATCs) are competing for the opportunity to locate new businesses on their territory, attract investors (and retain the taxes generated by these businesses). There's a strong temptation to change the designated use of a plot of good, high-quality land for a specific project simply because they "really need the money," while local authorities lack a strategic vision (on a national scale).
As a result, the purchase of agricultural land by foreigners is potentially becoming possible. The scheme is as follows: in the interests of a certain manufacturing company, an amalgamated territorial community changes the land's designated use, removing its status as agricultural, and then this company is acquired by foreigners (or converted into a joint venture). As a result, they receive land that is not technically agricultural, but in reality could very well be used as such.
Be Your Own Controller: Environmental Risks
Another set of issues raised by the new law concerns ecology. Along with agricultural land, other lands not registered in the State Land Cadastre, and for which use rights had not been formalized or registered, were transferred free of charge to amalgamated territorial communities.
Unfortunately, the inventory of water and forest lands has not been completed, and large tracts of land remain unclaimed. These will become the communal property of territorial communities. It is assumed that local governments are more interested in environmental conservation than appointed officials. But whether this is actually the case is a big question. And many heads of local communities are already making plans to use such lands, a lawyer working in land matters informally shared information with DS.
The functions of land use and control over it are simultaneously assigned to local governments. This contradicts the concept of separation of powers. The body that manages the land cannot ensure land protection and exercise control during land management.
Furthermore, the law abolishes land management expertise, is inconsistent with strategic environmental assessment and environmental impact assessment procedures, and creates risks of uncontrolled development—and this is far from a complete list of its environmental risks.
However, all key amendments submitted by members of the Committee on Environmental Policy and Nature Management were rejected. In effect, the law grants consent for residential and other development on all land categories, thereby negating the very principle of land protection.
Environmentalists believe the law poses a significant risk of destroying Ukraine's remaining wildlife. As Oleksiy Vasylyuk, head of the Ukrainian Environmental Group, stated, under the land reform, local governments are receiving not only arable land but also meadows, steppes, and naturally replanted forests located within agricultural areas. However, the document does not provide for the restrictions necessary to protect such natural ecosystems. In its current form, he believes, it poses a direct threat to their destruction, particularly through plowing. Furthermore, he believes the law threatens the dismantling of Ukrainian forests on reserve lands and those for which forestry enterprises have not yet prepared documentation.
The adopted law significantly reduces the number of regulatory procedures related to land. And thus, according to its developers, it limits the opportunities for corruption. But in reality, it simultaneously unties the hands of local authorities. Centralized (but corrupt) control is replaced by the goodwill of community leaders. Some local authorities will, of course, be concerned about their native land. But others will fully exploit the emerging potential for corruption.
Denis Staji
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