Agribusiness, News

Argentina: Restrictions on Ownership of Rural Lands by Foreigners

Investing in Rural Lands

With a more-than-ever inter-connected world, companies and individuals are regularly making investments in foreign farmland. Investing in this global marketplace requires a greater familiarity with the laws of foreign countries that might affect a deal.

Argentina, the 8th largest country in terms of land mass, is a prime option for real estate investing. However, without some knowledge of the laws that might affect an investment, potential foreign investors might lose out on an otherwise big win.

 

Rural Lands Law – The Break Down

Any foreign investor that is considering purchasing real estate in Argentina needs to be familiar with the Rural Lands Law (“RLL” or “Rural Lands Law”)[1]. Over 95% of Argentina’s lands are considered rural lands. This means that whether the foreign investor is purchasing land in Patagonia, Mendoza or Salta, or nearly anywhere else for that matter, the RLL will likely affect the deal.

So with that in mind, below are 4 things that every foreign investor in real property in Argentina should know concerning the RLL:

  1. Scope

The Rural Lands Law affects every foreign investor looking to acquire, transfer, or assign any possessory rights to rural land in Argentina.

Whether an individual (with some exceptions) or a legal entity from a foreign country, the RLL will apply. Even some Argentine companies might fall within the scope of the Rural Lands Law, as the law also applies to any Argentine legal entity who’s foreign ownership exceeds 51% or who’s foreign ownership can prevail in the entity’s decision-making process regardless of shares owned.

Simply put, rural land means any piece of land outside of the urban grid. Regardless of its location or destiny, if the piece of land is not on an urban grid, then it is rural.

  1. Limitations and Restrictions

The RLL limits the percentage of land that foreign investors in Argentina can own. Three limitations are worth noting. First, the RLL prohibits the foreign ownership of land to exceed 15% of the total rural lands, but not only 15% of the rural lands on a national level but also on provincial and municipal levels. Second, foreign ownership by individuals and entities from the same nation cannot exceed 30% of this 15% limit. Lastly, a foreign investor cannot own or possess more than 1,000 hectares in the “core area” of Argentina[2] or its “equivalent surface” in those areas that do not qualify as a core area, as is determined by the Inter-ministerial Council of Rural Lands.

As of September 1, 2016, the Rural Lands Registry provided that only 5.80% of rural lands in Argentina are foreign owned. Further, none of the provinces exceed the 15% limit, but the exact percentages can vary greatly. In the Province of Salta, for example, the foreign ownership is at 11.80%, while in the Province of Jujuy is at 4.97%. It is of particular note that at the municipal level there are 45 departments that already exceed the 15% threshold. Thus, a foreigner would be prevented from purchasing rural land in Cafayate, Province of Salta, for instance, as Cafayate is one of the departments where foreign ownership has already exceeded the 15% threshold.

Two primary restrictions also exist: “riparian lands” and “border security zones”. Firstly, foreign investors cannot possess “riparian lands”. Generally, this means lands that include or are next to “permanent and significant bodies of water” (such as rivers, lakes, etc.). Secondly, foreign investors cannot own, transfer, or lease land that is located within “border security zones” without prior approval from the Security Zone Council. Such restricted areas include anywhere within 150 kilometers from any of Argentina’s territorial borders and within 50 kilometers from maritime shores.

  1. Authorization

Generally, foreign investors in rural lands need to get prior authorization from the Rural Lands Registry. The foreign investor is required to file an application with the Rural Lands Registry regarding the land that the investor wishes to acquire. Once filed, and subject to the compliance of certain requirements, the Rural Lands Registry would then issue an authorization certificate.

In addition, when a legal entity owning rural lands in Argentina goes through a change of control, the entity must notify the Rural Lands Registry of the transaction. The Registry would then verify whether such transaction complies with the limits stated in the RLL.  This kind of change-of-control transaction is not subject to the prior authorization but to a notification duty, which must be carried out by the Board of Directors of the legal entity that owns rural lands within 30 days as from the closing of the change-of-control transaction.

  1. Violation of RLL

The transaction may be completely null and void. The Rural Lands Law is clear that all legal acts that are not in compliance with the RLL shall be null and void. The parties, and other participants, to the non-compliant transaction won’t have any rights to claim damages in connection with the transaction. However, sometimes the RLL allows for a grace period to cure. For example, in the case of a change in control over the rural lands that exceeds the 1,000-hectare limit, the new controller has 90 days to become compliant (i.e., transfer the excess hectares or transfer control of the company to a 3rd party in compliance).

 

Last but not Least

Understanding the Rural Lands Law, along with other Argentine laws, is crucial to wisely navigating the real estate investment landscape in Argentina. With this knowledge and a little guidance, foreign investors can move forward with confidence.

[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: Marcos Juarez and Union in the Province of Córdoba; Belgrano, San Martín, 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, Junin, Alberti, Rojas, Chivilcoy, Chacabuco, Colón, 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.

 

Ignacio Torino Zavaleta

Senior Expert Associate

C.V.

Joshua David Sorensen

Associate

C.V.

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