Hungary’s law on the purchase and sale of arable land could be limiting the free movement of capital and the freedom to choose where you live, the European Union’s governing Commission has found. A member country has the right to introduce certain obstacles to land sales, particularly when the goal is to prevent speculation in the buying and selling of arable land, but the obstacles must in proportion with the risk and they cannot discriminate.

According to Brussels, the Hungarian law fails to meet these criteria since it essentially discriminates against potential land purchasers from other countries, since the regulations require the buyer to live on the land and to have expertise in farming before being permitted to make the purchase.

Brussels also has reservations about the restriction on transferring land use rights to a legal entity and about the need for a so-called land committee permit before being allowed to draw up a contract to buy or sell land. The Commission has raised similar objections against Bulgarian, Lithuanian, and Slovak land laws. The countries in question have two months to put up sound arguments in defense of their laws.

The two-month deadline has apparently deeply embedded itself in the brains of the Hungarian bureaucrats since one set of proceedings for violating obligations in connection with land regulation was initiated against Hungary last October, while the government is currently in the middle of the two-month “counter-argument” period regarding the taxation of home-brewed spirits, namely pálinka.

The Commission initiated its land-related proceedings at Austria’s request after Hungary retroactively terminated the right to receive the benefits (usufruct) of plots of Hungarian arable land lawfully registered by Austrian farmers. The Hungarian government argued that the usufruct arrangements were really a cover-up for illegal and unregistered sales contracts. The Hungarian government responded to this latest proceeding by saying that it would use every weapon in its legal arsenal to defend the law on the buying and selling of arable land.

“Instead of going to war against the European Union, we should be sitting down with them and re-shaping our laws, said politician Zoltán Gőgös (Hungarian Socialist Party) on hearing the news. At the time the law was adopted he had already gone on record with the prediction that the European Union would object because it blocked access to the land market for many people while failing to protect the market from speculation.

Gőgös argued that other types of tools were needed, such as exempting young farmers from real estate purchase taxes when buying land while setting high taxes for everyone else. “Speculation can be stopped by not making the purchase worthwhile financially,” he argued.

The European Commission also objected to the stipulation of who was entitled to buy land under Hungarian law. Gőgös had seen this as a problem because it was too restrictive. It excluded most people with graduate degrees in farming as well as people interested in forming any sort of partnership.

Government politicians and professionals firmly believe that the Hungarian law’s definition of who can be a farmer meshes with the European Union’s definition. For instance, agricultural lawyer István Olajos, associate professor at Miskolc University, says that the definition is one of the most relaxed in Europe and taking a short basic course in any aspect of farming is sufficient to meet its requirements.

The European Union also objected to the fact that the contracts had to be approved in advance by a land committee, currently operating within the Chamber of Agriculture (Agrárkamara). Brussels says this creates legal uncertainties. To that Gőgös added that the local committees have been very subjective.

For instance, he said, in the area around Zirc and Győr, the committee prevented the sale of half a hectare of land (1.2 acres) on the grounds that the purpose was “land accumulation” while near Komárom it sank a deal going for one million forints (about USD 3,600) per hectare on the grounds that the price was too high. Meanwhile, in Hajdú-Bihar county arable land is selling for as much as three million forints per hectare.

The European Commission also took exception to restrictions on land use by legal entities, which the Hungarian Socialist Party also objected to, in particular as regards setting the maximum size of plots at 1,200 and 1,800 hectares (3,000 and 4,400 acres). The law, however, could be circumvented through leases. According to Gőgös, the objection to clarifying the rules governing local residence and to introducing high purchase/sales taxes is simply that it would make life on the land market tougher for government cronies.

Researchers have shifted land regulation from the domestic arena to European Union-level. “It is unacceptable that the Commission limits its investigations to the new members, in particular to the smaller ones, and essentially ignores the long-standing members. And it is by no means certain that the land regulation of the old timers meshes with the European Union’s legal principles,” said Ágoston Korom, a teacher at the National Public Service University’s Public Organization and Professional Management Institute.

Korom says his research has demonstrated that Brussels would have quite a bit to investigate among the European Union-15, but that it was unlikely to get into any arguments with the farmers of the long-standing member countries for political reasons. So, if it became clear that it would have reason to initiate proceedings it would abandon the investigation, he said.

Another factor contributing to the uncertainties surrounding ownership policy is that the European Court has not taken very many decisions of the sort that would allow conclusions to be drawn on legal advances over recent years, Korom said. In addition, following the economic downturn there have been significant changes in the legal practices of the European Court.

It has been investigating the free movement of capital as well as other factors, such as the freedom of businesses and of services. Looking through this optic, there is no single rule governing land law in the various member countries that might qualify as satisfactory and proportionate in all respects, said Korom. There is no evidence that less restrictive tools would be sufficient to reinforce the ownership policy objectives of local communities, he added.

In Romania, for instance, non-Romanian European Union citizens are banned from obtaining land near the country’s borders, said Olajos, adding that this does not appear to bother Brussels. If Hungary were to have a law like that, a good many Austrian farmers would be booted off their farms, he added. His students, attending school in the Netherlands, simply had no access to English language materials on the Dutch land-lease system since it has never been translated from Dutch, which in itself he called discriminative.

Both Olajos and Korom say there are arguments in defense of the issues the European Union is objecting to although Korom admits that the European Union objections are not completely groundless, irrespectively of the dubious rules governing other European Union countries. Olajos sees the requirement for prior approval of contracts as cause for concern, not because of the requirement itself but because the lengthy administrative procedure could make use of the land impossible.

However, evidence supporting or negating this argument requires researching the practices of Hungary’s land committees, he said.

Source: HVG

Translated by Budapest Telegraph