Condominium construction, industrial park development, solar power plant projects – there are numerous developments that in many cases cannot be implemented without the reclassification of agricultural land or land parcels into inner area. While the conditions for reclassification into inner area were previously well-defined and predictable, since the end of last year an element has been introduced into this process over which developers have no visibility. For the time being, lawyers are still scratching their heads as to how this situation could best be handled.
Conditions for reclassification into inner area
When it comes to the development-oriented utilization of agricultural land located in outer areas, it is often a key question whether the affected land parcel can be reclassified into inner area. Reclassification into inner area is in many cases a prerequisite for the property to be suitable for the planned investment, industrial, logistics, commercial or residential function.
The basic rules of reclassification into inner area are set out in the Act on the Protection of Agricultural Land. The procedure is not merely a technical or land registry matter, but one that must also be examined from land protection and urban development planning perspectives.
The approval of reclassification into inner area is subject to several conditions. It must be examined, for example, whether the affected land parcel is connected to an existing inner area, whether the intended purpose is in line with the zoning regulations, and whether the use of outer-area agricultural land is justified. A reason for refusal may be, for instance, if higher-quality agricultural land is intended to be reclassified into inner area while lower-quality agricultural land with inner-area connectivity would also be available. Reclassification may also be prevented if the intended purpose can be realized on an area already designated for development within the settlement’s inner area but not yet utilized. These rules all reflect the principle that reclassification into inner area must be based on a genuine urban development need and must not lead to unjustified use of agricultural land.
A request for reclassification into inner area may only be submitted by the municipality, and the decision is made by the competent unit of the capital/regional government office acting as the land registry and land protection authority. The procedure may be initiated by the landowner or the developer, but active involvement of the municipality is in any case required.
The four-year rule
In the application for reclassification into inner area, the municipality must also declare that the land parcels specified in the application will in fact be used for the stated purpose within four years. This four-year actual use declaration is an important safeguard. Reclassification into inner area must not serve purely speculative purposes aimed at increasing value; according to the legislative logic, it must be linked to a genuine urban development objective that can be realized within a foreseeable period. However, here comes a new ground for refusal introduced at the end of last year, which creates new risks for developers. Since 24 December last year, an application for reclassification into inner area must also be refused if, based on any decision previously granting reclassification into inner area for any purpose prior to the submission of the application, actual use did not take place within four years and the municipality did not take steps to reclassify the area back into outer area.
This provision introduced a new ground for refusal that is not linked to the given development plot itself, but to the municipality’s previous reclassification cases. From now on, the fate of a reclassification application will no longer depend solely on the characteristics of the given property. It may occur that the development plot itself would be suitable for the planned investment, the urban development plan also supports the use, and the municipality is cooperative, yet the reclassification into inner area still cannot be approved. If there has been a previous approved reclassification within the given municipality where actual use according to the designated purpose did not take place within four years, then the new application will not be legally feasible.
Why this is a practical problem and where the solution lies
In addition to the fact that the assessment of a reclassification into inner area no longer necessarily depends on the physical characteristics of the given plot or land parcel, the risk is also that this obstacle to reclassification does not appear in any way in the title deed, cadastral map extract, or in the usual real estate legal due diligence. The restriction is not linked to the specific property, but to previously approved but unimplemented reclassification cases within the municipality’s administrative territory.
Further uncertainty arises from the fact that not all municipalities necessarily have a complete, up-to-date, and easily retrievable register from which it could be clearly established whether there has been a previously approved reclassification into inner area where actual use according to the approved purpose did not take place within four years. This may cause difficulties in municipalities where earlier reclassification cases were initiated many years ago, were linked to multiple urban development planning or administrative procedures, or where the documentation was not recorded in a uniform system.
How this issue will be handled from a developer’s perspective is currently unclear. One possible solution may be that the developer requests a statement from the municipality even before the project begins regarding compliance with the four-year deadline at any given time – but it is questionable whether municipalities will be willing to issue such a statement, and if so, in what form and with what level of liability. The real question is how the developer will be able to mitigate the business risk arising from the municipality’s previous administrative actions.