A lack of reasoned argumentation when legislating is not uncommon practice of the Bulgarian Parliament. According to our expert assessments, at least 70% of all submitted for consideration drafts of normative acts are with no justification and assessment of expected costs and benefits. This leads to wrong policies, costly policy mistakes, burdened businesses, unpredictable business environment and opportunities for lobbyist to act in favour of specific groups.
This is exactly the case with the regulation of land ownership by foreigners. It was done without prior analysis of the current state and its effects, no prognosis on the consequences of proposed changes and no assessment of the effects on owners and businesses. The very fact that the initial proposal was declared as unconstitutional and had to be changed confirms that the populist grounds on which it was based prevail and are actually the only motive.
Article 22 of the current Bulgarian Constitution stipulates that:
(1) (in force from 1 January 2007) Foreigners and foreign legal entities may acquire property over land under the conditions ensuing from Bulgaria’s accession to the European Union, or by virtue of an international treaty that has been ratified, promulgated and entered into force for the Republic of Bulgaria, as well as through inheritance by operation of the law.
(2) The law ratifying the international treaty referred to in Article 1 shall be adopted by a majority of two thirds of all members of the Parliament.
(3) The land regime shall be established by law.
This means that acquisition of land by foreigners in Bulgaria is not free, unless the purchaser is EU citizen, a company registered in the EU or falls within the scope of a provision in an international treaty that has been ratified and allows such purchase.
Overview of Developments Since Joining the EU in 2007
When joining the EU in 2007 Bulgaria “succeeded” to negotiate a moratorium on land purchase by foreign citizens. The major proponents of this moratorium were the socialist party and smaller populist parties that wanted to win electoral support among low educated and poorly informed land owners in rural areas.
The fact that this moratorium is merely populism is confirmed by the reality, because the ban on foreigners on agricultural land purchases could have been easily bypassed by any foreign citizen who wanted to settle in Bulgaria and was registered as self-employed. The other option was to acquire a Bulgarian company or register a new one and thus have the right to acquire agricultural land. The winners of this moratorium were the following three groups:
politicians that claimed that they “have managed to protect the Bulgarian land from foreign speculations” thus winning some approval from marginalized groups;
the consultants who helped foreigners to register local companies and guided them through all legal procedures;
some investment funds that managed to acquire land on low prices due to restricted acquisition.
The losers were all the rest:
all land owners living in Bulgaria, because of the decrease in the demand as a result of the moratorium;
Bulgarians abroad who may be banned from purchasing land in their country of residence, because countries usually apply such moratoriums reciprocally.
Attempt to Extend Ban
The moratorium was set to be removed on January 1st, 2014, but a public discussion was once again initiated by the same socialists and populists several months prior this deadline and a draft law, proposing to extend the moratorium until 2020, emerged.
As a result, on October 22nd, 2013 the Bulgarian Parliament voted a decision to extend the moratorium until 2020 with the following requirements:
The right to acquire agricultural land is granted to all foreigners, both natural and legal persons, who are residents or have been established in Bulgaria for more than five years.
Legal entities registered under Bulgarian legislation for less than five years may acquire ownership of agricultural land if the partners/founders of the company meet the requirement of five years of residence in Bulgaria.
The President’s veto was based on the following arguments:
The requirement of five years of residence in Bulgaria is unconstitutional, because it changes the constitutional criterion “citizenship” with “residence” thus banning over 2 million Bulgarian citizens living abroad from acquiring property in their homeland. “Instead of creating conditions for Bulgarian citizens to do business and develop the economy through investment into agriculture, the legislature introduced this ban”.
The transitional moratorium introduced in 2007 when Bulgaria joined the EU was planned to prepare the Bulgarian legislation for the EU legislation and to reflect the integration process principles. Thus, Bulgaria should not unilaterally impose further restrictions with current legislation.
The requirement of five years of residence in Bulgaria applicable to all foreigners (natural and legal persons) is in fact an expansion of the current legislation which will grant the right to all foreigners, as well as those from the third countries, who meet the requirement to acquire land in Bulgaria.
As it can be seen, the President’s veto is controversial. On the one hand, free market principles are quoted (private property protection, predictable legislative process, freeing land market, etc.) On the other hand, the President criticizes the opening of the land market under specific requirements for all foreigners (EU and third countries) that is pure demagogy, contrary to the first set of arguments.
It is not surprising that the President’s veto was overruled and outvoted by the Parliament. This way, the requirement of five years of residence in Bulgaria was enacted and went into force in 2014.
Extension of Ban Declared Unconstitutional
A group of MPs and think tanks as well as the Government have immediately asked the Constitutional court to evaluate the legislation. As a result, in January 2014 the court ruled that the extension of the ban until 2020 and the expansion of its scope to include all foreigners are unconstitutional due to the following reasons:
the Bulgarian Parliament cannot unilaterally change the Accession Treaty – in imposing a ban until 2020 the Bulgarian Parliament actually changed the Accession Treaty but not according to the procedure provided in the treaty itself (Art. 4 of the Treaty requires that the Bulgarian government should start a negotiation procedure for changing it, obtain written approval by all EU Member States and gain a ratification of the change by all Member States according to their constitutional procedures).
the proposed ban until 2020 is more comprehensive since it includes all foreigners and foreign legal entities (not only from the EU), as well as all land irrespectively of its quality and purpose (urban and agricultural; for production or investment).
the extension of the ban until 2020 is not consistent with the fact that the acquisition of land by EU citizens and legal entities is de facto treated as a real estate investment and thus is treated as free movement of capital which is one of the major freedoms in the EU. After the expiration of the initial moratorium in January 2014, Bulgaria should not impose unilateral restrictive measures on free movement of capital.
Bypassing the unconstitutionality of the ban extension
The reaction of the Bulgarian Parliament was quick and in April 2014 the Government passed an amendment to the Law on the Ownership and Use of Agricultural Land that stipulates the following restrictions:
Law on Ownership and Use of Agricultural Land
Art. 3c. (State Gazette № 38 from 2014)
(1) Ownership of agricultural land can be acquired by natural or legal persons who are resident or established in the Republic of Bulgaria for more than five years.
(2) Legal entities registered under Bulgarian legislation for less than five years can acquire ownership of agricultural land, if the partners in the company, association members or founders of a joint stock company meet the requirements of Art. 1.
(3) Upon conclusion of the transaction for the acquisition of agricultural land the buyers – individuals present to the notary declaration of origin of the funds and legal persons – proof of the origin of the funds.
(4) Article 1 shall not apply to the acquisition of ownership of agricultural land by inheritance.
Namely, the new restrictions closely follow the initial overruled moratorium – the criterion of five years of residence and a ban on agricultural land acquisition on foreigners and foreign companies from non-EU countries (unless there is a bilateral agreement). Moreover, the initially discussed but overruled as unconstitutional moratorium until 2020 was time limited as opposed to the above quoted change in the Law that is permanent until it is changed by the Parliament.
EU Starts Infringement Procedure
As a result of these developments, in March 2015 the European Commission decided to formally request Bulgaria to submit observations on its law on the acquisition of agricultural land. This law, according to the EC, contains several provisions which, under EU law, may be considered to restrict the free movement of capital and freedom of establishment. Any restriction of these fundamental freedoms must be justified and comply with the principles of non-discrimination and proportionality. According to the EC, while Member States are permitted to set their own rules to promote rural development, to keep land in agricultural use and avoid speculative pressure on land prices, this must be done within the limits of EU law. In the Commission’s view, the provisions in question also contain certain restrictions that may leave room for discriminatory treatment of investors from other Member States. These provisions are the residence requirement in the given country and the restrictions on persons without a local residence.
The Commission’s request took the form of a letter of formal notice. Under Article 258 of the Treaty on the Functioning of the European Union, Bulgaria has two months to respond to the first stage of the infringement procedures. So far, there is no official information on Bulgaria’s reaction.
The aforementioned facts, the debate and the development of the present issue in Bulgaria lead to the following conclusions:
the Bulgarian Parliament is still pursuing populist ideas in legislation that contradict the Accession Treaty and the common sense in general;
despite the government’s opposition to the extension of the moratorium and the Constitutional Court’s ruling against it, in 2014 some restrictions that enlarged the scope of land acquisition and de facto introduced the ban again were effectively introduced into the Law on Ownership and Use of Agricultural Land;
the principles of free movement of capital, effective protection of private property and the rule of law in general, are still not widely recognized in Bulgaria even after 8 years of its accession into the EU. That points at the major flows of Bulgarian political class understanding of what is important for the growth, prosperity and wellbeing of Bulgarian citizens.