Condominium developments, industrial park projects and solar power plant projects are just some examples of developments that, in many cases, cannot be implemented without the inclusion of agricultural land into the inner area of a municipality and, where applicable, its withdrawal from agricultural cultivation. While the conditions for inclusion into the inner area used to be relatively well-defined and predictable, a new element has recently been introduced into the process over which developers have no real control. For the time being, legal practitioners are still considering how this new risk can best be managed.
Conditions for inclusion into inner area
When it comes to the development-oriented (non-agricultural) utilization of arable land located in outer areas, it is often a key question whether the affected land parcel can be included into inner area and reclassified as non-arable land. Inner area inclusion and reclassification (i.e., withdrawal from agricultural cultivation) are in many cases the prerequisites for the property to be suitable for the planned investment, industrial, logistics, commercial or residential function.
The basic rules of inclusion 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 inclusion 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 local zoning regulations, and whether the non-agricultural use of outer-area arable land is justified. A reason for refusal may be, for instance, if higher-quality agricultural land is intended to be included 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 inclusion into inner area must be based on a genuine urban development need and must not lead to unjustified non-agricultural use of arable land.
An application for the inclusion of agricultural land into the inner area may only be submitted by the municipality, and the application is decided by the competent unit of the capital or county government office acting in land registry and land protection matters. 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 inclusion 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. Inclusion 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 inclusion into inner area must also be refused if, based on any decision previously granting inclusion into inner area for any purpose prior to the submission of the application, actual other purpose 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/inclusion cases. From now on, the fate of an inclusion 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 inclusion 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 an inclusion 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 inclusion 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 inclusion into inner area 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.