21.05.2025

Giving-in-payment of agricultural land

I.                   What is pre-emption when selling agricultural land?

The sale of agricultural land located outside the rural areas shall be carried out in compliance with the right of pre-emption, at the price and under equal conditions, of the pre-emptors provided for by Law no. 17/2014. According to Law no. 17/2014, as recently amended by Law no. 175/2020, the pre-emptors have the right of pre-emption at the price and under equal conditions in the following order:

a)     first-degree pre-emptors: co-owners, first-degree relatives, spouses, relatives and relatives in law up to and including the third degree;

b)     second level pre-emptors: owners of agricultural investments for the cultivation of trees, vines, hops, exclusively private irrigation and/or tenants, owners of agricultural investments;

c)     third-ranking pre-assessors: owners and/or tenants of agricultural land neighbouring the land to be sold;

d)     IV pre-emptors: young farmers (up to 45 years old);

e)     V rank pre-emptors: the Academy of Agricultural and Forestry Sciences "Gheorghe Ionescu-Șișești" and research and development units;

f)      Pre-assessors of rank VI: natural persons having their domicile/residence situated in the administrative-territorial units where the land is located or in neighbouring administrative-territorial units;

g)     VII pre-emptors: the Romanian State, through the State Domains Agency.

If the holders of the pre-emptive right do not express their intention to purchase the land, the alienation by sale of agricultural land located outside the rural area may be made to natural or legal persons under the following cumulative conditions:

a)         have their domicile/residence/registered office located in Romania for at least 5 years prior to the registration of the offer for sale;

b)        to carry out agricultural activities in Romania for at least 5 years prior to the registration of the offer for sale;

c)         in the case of individuals, be registered with the Romanian tax authorities at least 5 years prior to the registration of the offer for sale;

d)        in the case of legal entities, at least 75% of the total income of the last 5 fiscal years must represent income from agricultural activities, and the associates/shareholders who control the company must prove that they have been domiciled in Romania for at least 5 years prior to the registration of the offer for sale.

 

If the right of pre-emption is not exercised, if none of the potential buyers fulfils the conditions to be able to buy the agricultural land outside the rural area, the sale can be made to any natural or legal person.

The sale of agricultural land located outside the public domain without respecting the right of pre-emption, or without obtaining the final approval or the approval of the Ministry of National Defence or the Ministry of Culture, as the case may be, is prohibited and is punishable by absolute nullity.

 II.                 What is a payment in lieu of payment?

An assignment in lieu of payment is a contract and, at the same time, a means of discharging an obligation whereby the creditor agrees, on the debtor's proposal, to receive another performance in place of the one the debtor was originally obliged to perform .[1]   The terms of the assignment in lieu of payment are :[2]

a)      the creditor's acceptance of the creditor's replacement of the initial performance must be concurrent with the payment;

b)     there must be a relative equivalence in value between the benefit owed and the benefit offered in exchange by way of consideration;

c)      fulfil all substantive and formal conditions for the validity of the contract.

III.               Is it necessary to go through the pre-emption procedure provided for by Law 17/2014 in the case of a sale in payment?

 

A.     In the case of enforcement

According to Art. 20 paragraph (3) of Law no. 17/2014, the provisions of this law do not apply in foreclosure proceedings and contracts of sale concluded as a result of the fulfilment of public auction formalities, such as those carried out in the framework of insolvency prevention and insolvency proceedings or as a result of the property belonging to the private domain of local or county interest of the administrative-territorial units.

In a decision in a case[3] , where the prospective buyer of a promise of sale sought the absolute nullity of a contract of assignment in payment concluded with a third party in the context of a foreclosure, the High Court of Cassation and Justice ruled that Article 16 para. (1) of Law No 17/2014 does not penalise with absolute nullity any civil act, but only those acts by which the alienation by sale of agricultural land situated outside the rural area is effected, and by the deed of assignment in payment, concluded for the discharge of a debt in the context of enforcement proceedings, such alienation by sale does not take place on the basis of freedom of contract between the sellers and the buyers, but a forced sale:

"The exemption of the acts concluded within the framework of the procedures mentioned by the rule of law from the application of Law no. 17/2014 was imposed by the legislator in consideration of the fact that the right of preference recognised by Articles 4 and 4¹of this special law to certain categories of persons when purchasing land located outside the urban area of the municipalities, although it affects the contractual freedom of the seller, does not represent a forced sale, by substituting the will of the seller, but only means a limitation of the seller's freedom to choose the person of the buyer.

In contrast, by the acts concluded in the proceedings provided for in Article 20 para. (3) of the special law, including the enforcement proceedings, there is a forced alienation of the debtor's assets, which is incompatible with the principle of freedom of contract governed by Article 1169 of the Civil Code, reiterated by Article 4¹para. (5) of Law 17/2014."

 

Therefore, there is no doubt that when the deed of assignment in lieu of payment transferring the ownership of an arable land outside the open arable land instead of the debt due is concluded in the context of a levy of execution, it is not necessary to follow the procedure provided for by Law No 17/2014.

 B.     Before the notary public

Notwithstanding the fact that, also in the context of foreclosure, analysed above, the deed of assignment in lieu of payment must be concluded in authentic form ad validitatem, the question arises whether, in the case of deeds of assignment in lieu of payment concluded in the absence of a foreclosure procedure, it is necessary to follow the procedure provided for by Law No 17/2014. In other words, when the alienation of the debtor's property is not forced, but voluntary, is it necessary to obtain the final opinion provided for by Article 9 of Law No 17/2014?

On the one hand, according to Art. 1651 of the Civil Code, the provisions of this chapter concerning the seller's obligations apply, accordingly, to the obligations of the alienor in the case of any other contract having as its effect the transfer of a right, unless the regulations applicable to that contract or to obligations in general provide otherwise.

And according to Article 1492, paragraph (2) of the Civil Code, if the service offered in exchange consists in the transfer of property or another right, the debtor is bound by the guarantee against eviction and the guarantee against defects in the thing, according to the rules applicable to the sale, unless the creditor prefers to demand the original service and compensation for damages.

 

In addition, it has been recognised in the legal literature that, if the object of the transfer in payment is the transfer of ownership of an asset, all the other conditions of the contract of sale must be complied with .[4]

From the above, it could be concluded that when an arable land outside the arable area is given in payment by the will of the parties, the procedure provided for by Law no. 17/2014 should be followed and the final opinion obtained, just as in the case of sale.

On the other hand, however, according to Article 10 of the Civil Code, laws which derogate from a general provision, which restrict the exercise of certain civil rights or which provide for civil penalties apply only in the cases expressly and limitatively provided for by law.

And according to Articles 4 and 4¹of Law No 17/2014, the right of pre-emption and the right of preference apply to the alienation by sale of agricultural land located in the extravilan. And according to Article 16 paragraph (1) of the same law, the alienation by sale of agricultural land located in extravilan, without respecting the right of pre-emption or without obtaining the permits required by law, is punishable by absolute nullity.

Thus, in case law, in a case in which the issue of assimilation of the act of giving in payment with the act of sale was raised, in order to be able to assess the impact of the provisions of Articles 4 and 16 of Law No 17/2014, it was held that, strictly legally, the two acts (giving in payment and sale) are clearly different, having distinct legal effects and regulations (Art. 1492 of the Civil Code defines the payment in lieu of payment as a contractual way of extinguishing the obligation, which may include as an effect the transfer of ownership / art. 1650 of the Civil Code provides as the main effect of the sale the transfer of ownership) .[5] 

Moreover, a draft law of 2018[6], proposed to amend Law No 17/2014 in order to apply it also to acts of assignment in lieu of payment, which received a negative opinion and was not promulgated. Therefore, if the legislator had wished to include acts of assignment in lieu of payment within the scope of Law No 17/2014, he could have done so, but he chose otherwise.

Accordingly, we are of the opinion that, in the absence of an express provision for the application of Law No 17/2014 and the sanction of absolute nullity contained in Article 16 thereof, the procedure provided for by Law No 17/2014 and the obtaining of the final opinion in the case of assignation deeds are not necessary.

C.     In the case of fraud

However, when the intention of the parties is to circumvent the provisions of Law No 17/2014, other legal provisions become applicable, which affect the validity of the deeds of assignment in payment thus concluded.

Thus, according to Article 1238, paragraph (2) of the Civil Code, an illicit or immoral cause entails the absolute nullity of the contract if it is common or, otherwise, if the other party knew of it or, according to the circumstances, should have known of it. And according to Article 1237 of the Civil Code, the cause is unlawful also when the contract is merely a means of circumventing the application of a mandatory legal rule.

In its case law, the High Court of Cassation and Justice has stated that, structurally, legal fraud contains two elements: an objective (external) element, consisting in the apparently legal means that are used, and a subjective element, consisting in the intention to circumvent or evade the applicable legal rule. Thus, legal fraud is that operation whereby, when drafting a legal act, in order to circumvent mandatory legal rules, other legal rules are used, by diverting them from the purpose for which they were enacted by the legislator. In this sense, by circumventing the law, the letter of the law of public order is not violated, but its spirit is disregarded . [7]

Therefore, when the parties to the deed of transfer in payment of an arable land outside the arable land area seek to evade the obligations laid down by Law No 17/2014, the deed of transfer in payment may be null and void for fraudulent evasion of the law.

D.     In the simulation

In another vein of ideas, according to Article 1289 of the Civil Code, a secret contract produces effects only between the parties and, unless the nature of the contract or the stipulation of the parties to the contrary, between their universal or universal successors. However, a secret contract does not take effect between the parties, unless it fulfils the substantive conditions required by law for its valid conclusion.

It is a question of penalising simulation, which has been defined as a complex legal operation consisting in the fact that the parties to a secret contract, hidden from the eyes of the other participants in the civil circuit, make up an apparent agreement, ostensible to the latter, with the sole purpose of concealing the effects of the secret act .[8]

In such a situation, the case law has held that the payment in lieu of payment in a case in which it was requested to establish the simulation and absolute nullity of a contract of payment in lieu of payment, in which in exchange for repayment of a fictitious loan of EUR 16,000, the debtor gave in payment an arable land of 50,600 square metres, without complying with the procedure provided for by Law no. 17/2014, the appellate court held that the payment in lieu of payment in the present case is a contract of sale and purchase, having the legal nature of the latter, given the subject matter of the parties' obligation and the legal regime of the property given in lieu of payment, which is why the provisions of Law no. 17/2014 apply to the act of giving in lieu of payment .[9]

 

IV.               Conclusions

The transfer in lieu of payment of arable land is a thorny issue that needs to be treated with great care and caution. Thus, in principle, Law No 17/2014 is not applicable to contracts for the payment in lieu of payment of arable land outside arable land, provided that they are lawful and honest.      

An article signed by Marius Chelaru, Managing Associate (mchelaru@stoica-asociatii.ro),STOICA & ASOCIAȚII