Top EU court “unblocks” sale of agricultural land in Bulgaria to EU citizens and companies

31 January 2024

On 18 January 2024 the Court of Justice of the European Union rendered a long-awaited preliminary ruling in case C-562/22 (the “Preliminary Ruling”) at the request of the Burgas District Court. The CJEU ruled that a provision of the Bulgarian Ownership and Use of Agricultural Land Act (“OUALA”) that sets a condition to acquirers of agricultural land in Bulgaria to have had the status of resident for more than five years prior to the acquisition, is contrary to EU law, more specifically – to Article 63 of the Treaty on the functioning of the European Union (providing that “all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited”).

This Preliminary Ruling effectively “unblocks” the sale of Bulgarian agricultural land to EU citizens and companies registered in the EU, which was restricted due to public pressure and contrary to EU law (as evidenced by the Preliminary Ruling) almost 10 years ago.

1. Background

The Treaty concerning the accession of the Republic of Bulgaria and Romania to the European Union provided that after expiry of the 7-year provisional period agreed in Treaty citizens and companies based in EU member states shall receive the same rights to acquire agricultural land in Bulgaria as Bulgarian citizens and companies. In connection thereto, the provisions of the OUALA were amended accordingly.

However, after expiry of this provisional period (on 01.01.2014) and the opening of the Bulgarian agricultural market for EU nationals and companies, under public pressure in May 2014 the Bulgarian Parliament amended the OUALA adding new requirements for acquirers of agricultural land in Bulgaria:

  • Residence in Bulgaria of 5 or more years prior to the acquisition for natural persons;
  • Companies to have had their address in Bulgaria/to have been incorporated in Bulgaria for at least 5 years prior to the acquisition;
  • Companies which do not meet the above criterion shall have shareholders which meet the above residence criterion for natural persons.

An infringement procedure against Bulgaria was quickly initiated by the European Commission. In spite of that, no significant changes to this restriction in the OUALA were introduced in the following 10-year period and EU nationals and companies were not allowed to acquire agricultural land since they did not meet the 5-year residence requirement by design.

2. The Preliminary Ruling

This unlawful status quo was challenged by a Bulgarian judge from the Burgas district court. Resolving a dispute between an EU citizen and a Bulgarian national for ownership of Bulgarian agricultural land, in August 2022 the Bulgarian judge decided to refer the question whether the residency provision of the OUALA contradicts EU law for a preliminary ruling by the CJEU.

Prior to ruling on this question, the CJEU established whether the provision of the OUALA sets a restriction on the free movement of capital within the EU. The court ruled positively on the matter, ruling that “by virtue of its very purpose, the residence requirement laid down in Article 3c of the ZSPZZ (my note – the OUALA) constitutes an obstacle to the free movement of capital”.

The CJEU reviewed the declared goals of the Bulgarian legislative provision and whether these meet the principle of proportionality of EU law. The court holds the opinion that the adopted measures violate the proportionality principle: “as regards whether the national legislation at issue in the main proceedings is appropriate, it must be observed that it contains only a residence requirement and is not coupled with a requirement to farm the immovable property personally. Such a measure thus does not appear, in itself, to be capable of ensuring the attainment of the alleged objective”. The court further considers that: “the residence requirement laid down by that legislation does not guarantee, in and of itself, that the agricultural land will be purchased for agricultural purposes or, at the very least, for non-speculative purposes” and that “that requirement restricts not only the free movement of capital but also the right of the acquirer to choose his or her place of residence freely”.

Taking all of this into account, the court concludes that “Given that the residence requirement, laid down by the national legislation at issue in the main proceedings, thus adversely affects a fundamental right guaranteed by that convention, it therefore turns out to be particularly restrictive”.

Thus, the CJEU ruled that “Article 63 TFEU must be interpreted as precluding legislation of a Member State under which the acquisition of a right of ownership of agricultural land located in its territory is subject to the condition that the acquirer has the status of resident for more than five years.”.

This conclusion in the Preliminary Ruling effectively invalidated the residence requirement of the OUALA and restored the unrestricted rights of EU citizens and companies to acquire agricultural land in Bulgaria.

3. What the future holds

The Preliminary Ruling becomes effective immediately and in theory EU nationals and companies shall be allowed to freely acquire agricultural land in Bulgaria without any residence in Bulgaria being required or investigated. This also applies retroactively to past transactions where EU nationals and companies have acquired agricultural land after the residence requirement was introduced in May 2014. Prior to the Preliminary Ruling these transactions would have been considered null and void, but according to the mandatory interpretation of the CJEU, these are valid transactions and the acquirers shall be allowed to freely exercise their rights as owners of the land.

Still, it remains plausible that local administrative bodies may continue to try to enforce the residency requirement of the OUALA in violation of the CJEU Preliminary Ruling. Such unlawful practices may be proactively prevented by the Bulgarian Parliament with a repeal of this provision of the OUALA. As of the date of this article, there are no indications that the legislative body intends to deal with this controversial matter.

This material has been compiled for informational purposes and does not constitute detailed legal advice. If you want to get one in the context of a specific situation, we will be happy to be of use to you. The Law Firm shall not be liable for damages from actions or omissions taken only on the basis of this text.

Philip Kiossev, Principal Associate