Agribusiness, News

Argentina: Permissive Uses of Rural Land by Foreigners

Our first installment highlighted the limitations and restrictions of the Rural Lands Law (“RLL” or “Rural Lands Law”)[1] on the foreign ownership of rural lands in Argentina (see #1 – Argentina: Restrictions on Rural Lands by Foreigners). Enacted in December 2011, the RLL sets out some obstacles to foreign ownership, making some lands off limits for foreign purchasers. However, there are alternatives to ownership available for foreign investors that we will analyze below.

Alternatives to Ownership: The RLL Go-Arounds

As soon as a foreign investor is looking at land outside of an urban area in Argentina the Rural Lands Law comes into play.  Consider the following limitations: 1) a 15% limit on foreign ownership and possession of rural land at national, provincial, and municipal levels; 2) a 30% limit on ownership and possession for all foreign nationals from the same nation; and 3) a 1,000-hectare limit on the foreign ownership of land in the “core area[2] or its “equivalent surface.”[3]  In addition, the Rural Lands Law restricts foreigners from owning or possessing “riparian lands.” Lastly, certain “border security zones” may require prior approval.

With such limits and restrictions in place, some foreign investors might think that the particular land that they were considering may be out of reach. For example, if the land is located in Cafayate, Province of Salta, a foreign investor would be precluded from purchasing the land, as the foreign ownership in that department has already exceeded the 15% limit. However, other possibilities are available. The following discussion provides three alternatives to the ownership of rural lands that would otherwise be prohibited under the RLL.

  1. Lease

While owning certain land may violate the Rural Lands Law, leasing the same land might provide a non-violating alternative. By structuring the deal as a lease, with an option to purchase further down the road should the laws relax on foreign ownership, a foreign investor might still be able to achieve a desirable outcome.

  1. Usufruct and Surface Rights

While the scope of the Rural Lands appears expansive, from time to time, the Government clarifies and cuts out exceptions. According to Decree No. 820/2016,[4] usufructs and surface rights are exempted from the RLL’s regulations.

A usufruct is a property right of limited duration to use and enjoy a property of another. The holder of this right is only prevented from damaging or changing the nature of the property. Typically, the owner (“grantor” or “bare owner”) of the property would transfer the right to use and enjoy the property to the beneficiary (“usufructuary”) but reserve the ownership. In return, the usufructuary would pay a price for the usufruct. Once the agreement has terminated (by expiration of the agreed term or if the usufructuary ceases to exist), the full property of the assets given in usufruct would return back to the owner. Under Argentine law, the maximum term allowed for an usufruct in favor of a corporation is 50 years.

Surface rights also involve a temporary in rem right over a property of another.  However, a holder of surface rights may use, enjoy, and dispose of its surface rights over such property, including the right to plant, forest, or build therein (or rights over what it is planted, forested, or built therein). Both the right to plant and forest is limited to a maximum term of 50 years, while the building rights are limited to 70 years.

At this time it is worth mentioning that whether you structure the deal as a usufruct or surface right, the Security Zones Regulations[5] may still play a role if the real property is located within a “security zone.”

  1. Stock-ownership not sufficient to prevail in corporate decisions

Lastly, the Rural Lands Law’s restrictions only apply to foreign entities and individuals. Certain domestic entities may be treated as a foreign entity, for purposes of the RLL, if their foreign ownership exceeds 51% or if the foreign ownership is sufficient to prevail in corporate decisions. Thus a domestic company with foreign ownership not exceeding 50% would be beyond the reach of the Rural Lands Law.

If the foreign purchaser acquires less than 50% of an entity that owns rural land within a “security zone,” the change will not be subject to the prior consent of the Security Zones Commission under the Security Zones Regulations.[6]

Lastly

While laws, such as the Rural Lands Law, can make things more difficult for foreign investors, a nuanced knowledge of the laws can help you realize that just because one door appears to have closed does not mean that all doors are closed. By applying these alternative approaches, the Rural Lands Law need not be a dead end.

[1]        The Rural Lands Law No. 26,737 (enacted on December 22, 2011) and its implementing regulations provided by Decree No. 274/2012 and Decree No. 820/2016, issued on February 28, 2012 and on June 29, 2016, respectively.

[2]        Pursuant to the RLL, the departments that comprise the “core area” are as follows: Marcos Juarez and Union in the Province of Córdoba; Belgrano, San Martin, San Jerónimo, Iriondo, San Lorenzo, Rosario, Constitución, Caseros, and General Lopez in the Province of Santa Fe; and the districts of Leandro N. Alem, General Viamonte, Bragado, General Arenales, Junín, Alberti, Rojas, Chivilcoy, Chacabuco, Colon, Salto, San Nicolas, Ramallo, San Pedro, Baradero, San Antonio De Areco, Exaltacion De La Cruz, Capitan Sarmiento, Pergamino, Arrecifes, Carmen de Areco, and San Andrés de Giles in the Province of Buenos Aires.

[3]        The determination of the “equivalent surfaces” is done at the provinces’ proposal. If the provinces fail to file a proposal, the Interministerial Council is to make the determination.

[4]        Decree No. 820/2016 (issued on June 29, 2016) modified Decree No. 274/2012.

[5]        The Security Zones Regulations, Decree-Law 15,385 (published April 25, 1945) later modified by Law No. 23,554 (April 26, 1988).

[6]        The Security Zones Regulations states that: (i) the transfer of enough shares to control ownership of a corporation that owns a property in a Security Zone; and (ii) the conversion, merger or spin-off of a corporation that owns properties in a Security Zone, require the prior approval of the SZC. The rules do not contain a definition of the term “control”. Nevertheless, Article 33, paragraph 1, of the Argentine Companies Law states that, “a corporation is considered to be under control of another corporation, either directly or indirectly through another controlled corporation, when 1) it has a participation, that gives the controlling corporation the necessary votes to control the corporation’s decisions in the annual shareholders’ meetings or in the ordinary shareholders’ meetings.

Ignacio Torino Zavaleta

Senior Expert Associate

C.V.

Joshua David Sorensen

Associate

C.V.

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