Recently, there has been a noticeable increase in investor interest in agricultural production in Russia and, consequently, in agricultural land plots. This interest is demonstrated by both large agroholdings and participants in smaller, "niche" projects, such as the production of organic/eco-friendly products, the development of family farms, or agritourism. It is noteworthy that the country possesses a significant volume of unused, derelict agricultural land plots, many of which are under state or municipal ownership, free from third-party encumbrances, and can be acquired by investors on highly attractive, preferential terms.
To begin, let us define what agricultural land plots entail and what types of activities are permissible thereon. Agricultural land plots are territories located outside the boundaries of settlements and specifically designated for agricultural purposes (Russian Land Code, hereinafter "RF Land Code"). It is crucial to understand that these lands are not homogenous. They can be conditionally divided into two primary categories.
The first category comprises agricultural lands proper (сельскохозяйственные угодья): particularly valuable lands, including arable land, hayfields, pastures, and perennial plantings. They hold the highest priority in use and are subject to special protection (Federal Law No. 101-FZ of July 16, 1998, "On State Regulation of Ensuring the Fertility of Agricultural Lands"). A key feature of such lands is the strict prohibition on the construction of capital facilities, even those related to agriculture. Only activities directly related to crop cultivation, livestock grazing, inter alia, are permitted.
The second category comprises other agricultural land plots. On these plots, legislation permits approximately 20 main types of permitted use (Rosreestr Order No. P/0592 of December 26, 2018, "On the Approval of the Classifier of Permitted Uses of Land Plots"). In addition to traditional crop farming and animal husbandry, it is permissible to locate buildings and structures used for the storage and processing of agricultural products, as well as to lay necessary roads and irrigation/drainage canals.
As a general rule, state and municipal land plots are granted for lease through a tendering procedure, specifically an auction (Art. 39.6 of the RF Land Code). However, legislation provides for several significant exceptions, allowing for the lease of agricultural land plots without competitive bidding (Art. 39.6 of the RF Land Code, paras. 2, 3).
One such exception is the granting of a plot for lease to an Agricultural Organization. This is possible provided that the organization receives state support in the field of agricultural development (Art. 39.6 of the RF Land Code, para. 2; Federal Law No. 264-FZ of December 29, 2006, "On the Development of Agriculture"). In this context, an "agricultural organization" refers to an entity whose share of income from the sale of its own agricultural products constitutes not less than 70% for a calendar year (Art. 3 of Federal Law No. 264-FZ). Notably, "state support" lacks a strict definition and may encompass any subsidy within the agro-industrial complex (AIC) sector. The term of such a lease is up to 5 years, and the lease payment is typically preferential and contingent upon the region and the form of ownership of the plot. The granting procedure is carried out in accordance with the provisions of Article 39.18 of the RF Land Code. Upon submission of an application, the authorized body publishes a notice, and should other claimants (Peasant (Farm) Holdings or other agricultural organizations entitled to such a grant) emerge within 30 days, an auction shall be conducted (Art. 39.18 of the RF Land Code). Thus, a minor risk of competitive bidding exists, although in practice, according to the article, such instances are rare.
Another method to acquire a plot without competitive bidding is its provision for lease to a Peasant (Farm) Holding (KFH) (Art. 39.6 of the RF Land Code, para. 2). Similar to agricultural organizations, the lease term for KFHs is up to 5 years, and the lease payment is frequently preferential, contingent upon the region. A significant distinction lies in the procedure: the provision to KFHs follows the general procedure for granting without competitive bidding (Arts. 39.14-39.17 of the RF Land Code). This implies that, unlike the scenario with agricultural organizations under Article 39.18 of the RF Land Code, there is no risk of an auction being held due to the emergence of other applicants when a KFH submits its application. It should be noted that this opportunity for KFHs emerged relatively recently – as of January 1, 2023 (Federal Law No. 509-FZ of December 5, 2022), and judicial practice regarding it is still developing. For KFHs, each region establishes maximum and minimum plot sizes that may be granted. For instance, in the Moscow Region, these sizes range from 2 to 1300 hectares (Art. 4 of Law of the Moscow Region No. 75/2004-OZ of June 12, 2004, "On the Circulation of Agricultural Lands within the Territory of the Moscow Region"). Legislation does not impose stringent requirements on the KFH itself, other than its organizational and legal form. Even a newly established KFH without significant income may submit an application. However, for the specific purpose of obtaining a preferential lease payment, regional regulatory acts may establish additional conditions; for example, in the Moscow Region, for a preferential lease, a KFH must have been in existence for at least one year and derive at least 50% of its revenue from its own produce (Decree of the Government of the Moscow Region No. 843/41 of November 14, 2016).
Finally, there exists the possibility of acquiring rights to a plot within the framework of a Large-Scale Investment Project (MIP) (Art. 39.6 of the RF Land Code, para. 2). The plot is granted for the implementation of a project recognized as large-scale in accordance with the legislation of the respective constituent entity of the Russian Federation. The lease term in this instance is established for the duration of the MIP's implementation (Art. 39.6 of the RF Land Code, para. 3); exact terms are not fixed by law and are determined individually. The criteria for a project's large-scale status are independently set by each constituent entity. As an illustration, the criteria for the Moscow Region include the creation of at least 30 new jobs, an increase in annual tax revenues (without a fixed precise amount), a total investment volume of not less than 50 million rubles, and the project's alignment with regional priorities, such as the development of agriculture, the AIC, or sales infrastructure. In practice, authorized bodies are typically interested in larger projects; therefore, this method of land acquisition necessitates substantial investments and plans for job creation.
Beyond leasing, a state or municipal agricultural land plot may be purchased outright without competitive bidding in cases stipulated by law (Art. 39.3 of the RF Land Code). The primary condition for the purchase of a plot designated for agricultural production (Art. 39.3 of the RF Land Code) is as follows: the plot must have been under your lease for a period of not less than three years from the date of conclusion of the lease agreement (Art. 39.3 of the RF Land Code, para. 2). It is immaterial how the plot was obtained for lease – whether through competitive bidding or otherwise. Furthermore, the absence of identified and unrectified violations of Russian legislation during the use of the plot, as confirmed by state land supervision data, is crucial (Art. 39.3 of the RF Land Code, para. 2). An application for purchase must be submitted prior to the expiration of the lease agreement's term (Art. 39.3 of the RF Land Code, para. 2). Judicial practice also affirms a significant point: it is necessary to provide evidence of the actual use of the plot for its designated purpose during the lease period. The absence of such evidence may constitute grounds for refusal of the purchase (Art. 39.3 of the RF Land Code, para. 2).
The purchase price of the plot is typically established at the level of the constituent entity of the Russian Federation or the municipal formation. It frequently depends on the presence of capital construction objects (CCOs) on the plot, the rights to which are duly registered. For example, in the Moscow Region: in the presence of a registered CCO, the purchase price amounts to 3% of the cadastral value of the land plot; in the absence of registered CCOs, the purchase price is equivalent to its cadastral value.
As is evident, current legislation indeed provides special mechanisms enabling the acquisition of agricultural land plots for lease without competitive bidding, and subsequently, even their purchase into ownership. This renders the development of agribusiness in Russia more appealing to investors.
To begin, let us define what agricultural land plots entail and what types of activities are permissible thereon. Agricultural land plots are territories located outside the boundaries of settlements and specifically designated for agricultural purposes (Russian Land Code, hereinafter "RF Land Code"). It is crucial to understand that these lands are not homogenous. They can be conditionally divided into two primary categories.
The first category comprises agricultural lands proper (сельскохозяйственные угодья): particularly valuable lands, including arable land, hayfields, pastures, and perennial plantings. They hold the highest priority in use and are subject to special protection (Federal Law No. 101-FZ of July 16, 1998, "On State Regulation of Ensuring the Fertility of Agricultural Lands"). A key feature of such lands is the strict prohibition on the construction of capital facilities, even those related to agriculture. Only activities directly related to crop cultivation, livestock grazing, inter alia, are permitted.
The second category comprises other agricultural land plots. On these plots, legislation permits approximately 20 main types of permitted use (Rosreestr Order No. P/0592 of December 26, 2018, "On the Approval of the Classifier of Permitted Uses of Land Plots"). In addition to traditional crop farming and animal husbandry, it is permissible to locate buildings and structures used for the storage and processing of agricultural products, as well as to lay necessary roads and irrigation/drainage canals.
As a general rule, state and municipal land plots are granted for lease through a tendering procedure, specifically an auction (Art. 39.6 of the RF Land Code). However, legislation provides for several significant exceptions, allowing for the lease of agricultural land plots without competitive bidding (Art. 39.6 of the RF Land Code, paras. 2, 3).
One such exception is the granting of a plot for lease to an Agricultural Organization. This is possible provided that the organization receives state support in the field of agricultural development (Art. 39.6 of the RF Land Code, para. 2; Federal Law No. 264-FZ of December 29, 2006, "On the Development of Agriculture"). In this context, an "agricultural organization" refers to an entity whose share of income from the sale of its own agricultural products constitutes not less than 70% for a calendar year (Art. 3 of Federal Law No. 264-FZ). Notably, "state support" lacks a strict definition and may encompass any subsidy within the agro-industrial complex (AIC) sector. The term of such a lease is up to 5 years, and the lease payment is typically preferential and contingent upon the region and the form of ownership of the plot. The granting procedure is carried out in accordance with the provisions of Article 39.18 of the RF Land Code. Upon submission of an application, the authorized body publishes a notice, and should other claimants (Peasant (Farm) Holdings or other agricultural organizations entitled to such a grant) emerge within 30 days, an auction shall be conducted (Art. 39.18 of the RF Land Code). Thus, a minor risk of competitive bidding exists, although in practice, according to the article, such instances are rare.
Another method to acquire a plot without competitive bidding is its provision for lease to a Peasant (Farm) Holding (KFH) (Art. 39.6 of the RF Land Code, para. 2). Similar to agricultural organizations, the lease term for KFHs is up to 5 years, and the lease payment is frequently preferential, contingent upon the region. A significant distinction lies in the procedure: the provision to KFHs follows the general procedure for granting without competitive bidding (Arts. 39.14-39.17 of the RF Land Code). This implies that, unlike the scenario with agricultural organizations under Article 39.18 of the RF Land Code, there is no risk of an auction being held due to the emergence of other applicants when a KFH submits its application. It should be noted that this opportunity for KFHs emerged relatively recently – as of January 1, 2023 (Federal Law No. 509-FZ of December 5, 2022), and judicial practice regarding it is still developing. For KFHs, each region establishes maximum and minimum plot sizes that may be granted. For instance, in the Moscow Region, these sizes range from 2 to 1300 hectares (Art. 4 of Law of the Moscow Region No. 75/2004-OZ of June 12, 2004, "On the Circulation of Agricultural Lands within the Territory of the Moscow Region"). Legislation does not impose stringent requirements on the KFH itself, other than its organizational and legal form. Even a newly established KFH without significant income may submit an application. However, for the specific purpose of obtaining a preferential lease payment, regional regulatory acts may establish additional conditions; for example, in the Moscow Region, for a preferential lease, a KFH must have been in existence for at least one year and derive at least 50% of its revenue from its own produce (Decree of the Government of the Moscow Region No. 843/41 of November 14, 2016).
Finally, there exists the possibility of acquiring rights to a plot within the framework of a Large-Scale Investment Project (MIP) (Art. 39.6 of the RF Land Code, para. 2). The plot is granted for the implementation of a project recognized as large-scale in accordance with the legislation of the respective constituent entity of the Russian Federation. The lease term in this instance is established for the duration of the MIP's implementation (Art. 39.6 of the RF Land Code, para. 3); exact terms are not fixed by law and are determined individually. The criteria for a project's large-scale status are independently set by each constituent entity. As an illustration, the criteria for the Moscow Region include the creation of at least 30 new jobs, an increase in annual tax revenues (without a fixed precise amount), a total investment volume of not less than 50 million rubles, and the project's alignment with regional priorities, such as the development of agriculture, the AIC, or sales infrastructure. In practice, authorized bodies are typically interested in larger projects; therefore, this method of land acquisition necessitates substantial investments and plans for job creation.
Beyond leasing, a state or municipal agricultural land plot may be purchased outright without competitive bidding in cases stipulated by law (Art. 39.3 of the RF Land Code). The primary condition for the purchase of a plot designated for agricultural production (Art. 39.3 of the RF Land Code) is as follows: the plot must have been under your lease for a period of not less than three years from the date of conclusion of the lease agreement (Art. 39.3 of the RF Land Code, para. 2). It is immaterial how the plot was obtained for lease – whether through competitive bidding or otherwise. Furthermore, the absence of identified and unrectified violations of Russian legislation during the use of the plot, as confirmed by state land supervision data, is crucial (Art. 39.3 of the RF Land Code, para. 2). An application for purchase must be submitted prior to the expiration of the lease agreement's term (Art. 39.3 of the RF Land Code, para. 2). Judicial practice also affirms a significant point: it is necessary to provide evidence of the actual use of the plot for its designated purpose during the lease period. The absence of such evidence may constitute grounds for refusal of the purchase (Art. 39.3 of the RF Land Code, para. 2).
The purchase price of the plot is typically established at the level of the constituent entity of the Russian Federation or the municipal formation. It frequently depends on the presence of capital construction objects (CCOs) on the plot, the rights to which are duly registered. For example, in the Moscow Region: in the presence of a registered CCO, the purchase price amounts to 3% of the cadastral value of the land plot; in the absence of registered CCOs, the purchase price is equivalent to its cadastral value.
As is evident, current legislation indeed provides special mechanisms enabling the acquisition of agricultural land plots for lease without competitive bidding, and subsequently, even their purchase into ownership. This renders the development of agribusiness in Russia more appealing to investors.