A land lease contract or a contract for the establishment of emphyteusis? Which is better?

In recent years, due to the repeated prolongation of the land moratorium, some agricultural enterprises began to appeal to landowners with a proposal to conclude a different treaty instead of a land lease agreement on the establishment of an embryo. As an incentive, it is proposed to immediately pay a much larger amount of money under this agreement than the annual rent amount paid under the land lease agreement. So is it worth to agree to replace the lease agreement with the agreement on the establishment of the emphyteusis?

As provided for by paragraph 2 of Article 407 of the Civil Code of Ukraine dated January 16, 2003 No. 435-IV (as amended), emphyteusis is the right to use someone else’s land for agricultural needs. So, on the right of emphyteusis, only agricultural land can be acquired.

This right is established by a contract between the owner of the land plot and the person who expressed a desire to use this land plot for agricultural needs (land user). The term of the contract on granting the right to use someone else's agricultural land plot of private property is not limited by law and is established by the parties to the contract by agreement. And for agricultural land plots of state or communal property, the term of the agreement on the establishment of emphyteusis cannot exceed 50 years.

Consequently, a citizen can transfer an agricultural land plot belonging to him on the right of ownership to a land user for any period, at least for 1000 years, and even forever (that is, indefinitely). However, if an agreement on granting the right to use someone else's land for agricultural purposes on the terms of emphyteusis has been concluded for an indefinite period, then each of the parties has the right to withdraw from the agreement, having previously warned the other party about this for at least one year. Therefore, the land user, in contrast to the owner of the land plot, is unprofitable to enter into an open-ended agreement on the establishment of emphyteusis.

Particular attention should be paid to the fact that by acquiring, on the basis of an agreement, the right to use a land plot for agricultural needs under emphyteusis, as opposed to a tenant, a land user acquires:

The right to alienate the emphyteusis to another person by entering into a contract of sale with him, barter, donation, etc .;
the right to transfer land by inheritance.
Moreover, the land moratorium does not prohibit the alienation of emphyteusis. And the owner of the land plot has only the preemptive right to redeem the right of emphyteusis, which will mean its termination. And if the owner of the land does not carry out the redemption of emphyteusis, then he will not be able to prevent his sale to another person. It is the possibility of free sale of emphyteusis that attracts agricultural enterprises, which provide the intention to use the land plots of the peasants not on the basis of a land lease agreement, but on the basis of an agreement on the establishment of emphyteusis. At the same time, if a land user sells his right to use a land plot on the terms of an emphyteusis to another person, the land owner has the right to receive a certain percentage of the sale price, the amount of which must be determined by the contract.

Thus, in the conditions of a prolonged moratorium on the alienation of agricultural land, the peasants began to offer emphyteusis, as if supposedly a safe substitute for the sale of land.

It is important that, according to the Tax Code of Ukraine dated 02.12.2010 No. 2755-VI (as amended), the land tax payer is the owner of the land plot. Therefore, at the conclusion of an emphyteusis contract, the owner of the land plot will be obliged to continue to pay land tax on it. After all, the Tax Code of Ukraine prohibits the transfer of the taxpayer's debt to another person (clause 36.4 of article 36 and clause 87.7 of article 87 of the Tax Code of Ukraine). So, the peasant or his descendants will have to pay land tax to the state until they buy out the right of emphyteusis to their land plot.

It should be especially emphasized that the right of emphyteusis is a real right. This means that for its occurrence it is necessary not only to conclude an appropriate contract, but also to register this right in the State Register of Real Estate Rights. Only from the moment of such registration the land owner will be considered to have transferred the right of emphyteusis to the land user, and the land user has acquired it.

Consequently, under the conditions of the moratorium, given the reality of the onset of negative material consequences during the transfer of land plots for use under the conditions of emphyteusis, we recommend land owners to enter into an agreement on the lease of land. And the conclusion of an agreement on the establishment of emphyteusis is permissible only in the case of extreme necessity of the landlord in obtaining a larger amount than the annual rent.