Off limits

Changes to the law regulating agricultural land threaten to hinder the sale of development land for the warehouse industry, but things are not as bad as they seem By Alex Haynes In 2004, Poland acceded to the EU. At that time many countries, including Germany, demanded transitional measures to block swathes of Polish workers emigrating in search of employment. However, it was not just the countries of the so-called “Old Europe” that were being skittish about the prospect of free trade with what is now the sixth largest EU country by population. Poland, for its part, demanded controls on the sale of farmland to foreigners, which it feared was going to be sold off en masse due to its relatively low price. Until May this year, purchases of farmland by EU nationals who are not Poles will still require the permission of the government. [caption id="attachment_98325" align="alignleft" width="300"] Image: Shutterstock[/caption] No-go zone And after May this year, well who knows? The Polish government is trying to renege on its promise to free up land sale. In essence, the law that is about to come into force states that only those who are already registered as farmers within a given region may buy farmland there. Moreover, if someone wishes to sell such land, it must firstly be offered to its tenants, then those with adjacent plots and the previous owners, all of whom have the right to hold up the sale. With such restrictive conditions, it is difficult to imagine any farmland being sold to anyone once the Act comes into force in May. Still, there is no way of knowing for certain how the final law will be drafted, and in one sense the proposed amendments are less restrictive than the law as it currently stands. A matter of definitions The issue at stake is how the law will define what farmland is. “If the land is subject to the local zoning plan, the master plan, it’s no longer agricultural land, but only 30-40 percent of plots in Poland have a local zoning plan in force,” stated Tomasz Olszewski, regional director for JLL. This means that most of the land that would in the past have been suitable for industrial and warehouse development should, under the new law, be classified as agricultural land, which may only be bought by individual farmers living in the district in question who have been farming for a period of five years. Currently, developers can apply for an individual planning permit (the so-called “W-Z” in Polish). The law that is scheduled to come into force on May 1 of this year will block this procedure, which means the majority of development land will be unavailable. Except for the fact that it will likely never come into force in this form, as the government is already working on amending it. “The latest draft of this new law brings us back to where we are today in terms of industrial acquisitions,” Olszewski summarized. For the warehouse industry, nothing will change. Nothing to worry about Indeed, developers remain unconcerned. “The changes of the Act do not affect our business because, pursuant to existing legislation, companies with foreign capital may only purchase land covered by local zoning plans,” explained Paweł Sapek, the senior vice president and country manager of Prologis Poland. Besides, Prologis has no immediate need to find additional land for its projects: “Our existing land portfolio fully secures Prologis’ development plans for the next three years,” explained Sapek. He also pointed out that regulating the sale of agricultural land is nothing new in the EU. In France, almost all rural land transactions have to be referred to SAFER, a government agency which has the right of first refusal on most purchases. Nonetheless, foreigners and companies can still buy rural land in France, and because SAFER has to buy each property in its entirety, it is frequently unable to prevent large land transactions going through for simple budgetary reasons. In Poland, the new law will limit one person’s holdings to 300 hectares. Is it really legal? The question of the legality of such an Act remains unanswered. Just as Olszewski emphasized, “As you know, in the EU we have the freedom of capital movement, so theoretically everybody can purchase real estate of any type.” But, according to Józef Forystek, a partner in the Forystek & Partnerzy law firm, you don’t have to look as far abroad as Brussels to question the legality of the legislation, just a quick look at the Polish constitution will do. The regulations will ban the resale of agricultural land for a period of ten years, which contravenes Article 64. He also wor ries that the state will have a mechanism to nationalize farmland, in which the newly formed government body, the Agricultural Property Agency (ANR), will be able to dictate the price of land and exercise the right of first refusal. “For a legal Act to cease to apply, the Constitutional Tribunal must declare its unconstitutionality and its loss of legal effect. With the current political situation in Poland it is difficult to foresee anything like this in this field,” he explained. Hope for the best [caption id="attachment_98323" align="alignright" width="300"] Image: shutterstock[/caption] All that warehouse developers can do now is cross their fingers, and hope that the new draft law being prepared by the government will not be changed so much as to once again prevent the purchase of development land. There is certainly still huge demand for  new warehouse space. In 2015, “the total supply of modern space stood at nearly 10 million sqm. Demand levels last year were some of the best ever recorded. Developers delivered over 100,000 sqm more than in the previous year,” explained Magdalena Szulc, the business unit director for Central Europe at Segro. Room for more There is also still a lot more room for further growth, with Poland still lagging behind the space offered by Western European markets. “It is said that a mature market offers approximately 1-1.5 sqm per inhabitant. In Poland, with over 38 million inhabitants, so far there’s around 10 million sqm of warehouse space,” stated Szulc. By comparison, Germany, a country of around 80 million people, has some 80 million sqm of warehouse space. According to Segro, the fastest developing area of Poland is around Poznań where the largest amount of new space was delivered, and yet the vacancy rate remained one of the lowest in the country. Despite the fact that the new proposed law makes it almost impossible for anyone to buy farmland, warehouse developers can be grateful to the government, firstly for delaying the implementation of the previous government’s legal changes, and secondly for reinstating the law in regard to the purchase of development land. But, as Olszewski pointed out, “We are living in a very uncertain environment,” and there is no way of being certain that the draft law, which is currently being discussed, will remain the same in principle when it is rushed into action before its May deadline.