Agricultural land lease in Slovakia. A low risk factor for farmers?

Slovakia has a very specific structure of ownership and lease of agricultural lands. 20% of the agricultural land is owned by so called “unknown owners”. The Slovak State is aware that these lands used to be owned by private people. However, contact with these owners or their heirs was mostly lost during WWII and the communist era. These 20% are managed by the Slovak State, that itself also owns 5% of the agriculture lands. The remaining 75% is owned by known private and corporate owners (including the Catholic Church).

More spectacular is that almost 90% of all agricultural lands are not owned by their users but rented out to farmers. Graph 1 clearly shows this special situation compared to other European states. This graph also shows that lands are mostly used by (larger) corporate farms, meaning that Slovakia has a very limited amount of smaller private farmers. Further liberalisation of the land market after May 1st 2014, could perhaps positively influence this structure, enabling smaller farmers (with or without investors) to get access to smaller acreages of agricultural land.

Graph 1

Source: Pavel Ciaian, d’Artis Kancs, Jo Swinnen, Kristine Van Herck and Liesbet Vranken: Sales Market Regulations for Agricultural Land in EU Member States and Candidate Countries,  Factor Markets Working Paper No. 14/February 2012

Source: Pavel Ciaian, d’Artis Kancs, Jo Swinnen, Kristine Van Herck and Liesbet Vranken: Sales Market Regulations for Agricultural Land in EU Member States and Candidate Countries, Factor Markets Working Paper No. 14/February 2012

Another character of ownership in Slovakia is that one land parcel can have multiple owners. Each owner holds his share (%) of the land. In most countries it is common that the oldest heir would inherit the complete parcel or that the parcel would be split into separate smaller parcels according the number of heirs. In Slovakia each heir will have his ownership share registered on the ownership deed. So when two people inherit the same parcel, each will have 50% of the ownership of that parcel. As such it is registered on the ownership deed.

When renting such parcel, the farmer, as user of the land, often has to draft several rental contracts for the same parcel, singed by each owner separately. Therefore, in Slovakia, it is widely common that farms renting up to 1000 hectares, have to administer over 500 different rental contracts. Fortunately, simple computer software can easily keep track of all the rentals, terms and payments. An advantage for users is that it is very complicated for competing farms to take over the rent after its expiration, when dealing with so many different owners. In that way current users are protected from “losing” land. Besides from a lack of financing, this protection is one of the reasons why most Slovak farms favour rents over investments in land ownership. The majority of rental contracts with such small owners are signed for an indefinite period with a cancellation period of 1 agricultural season (ending in November), or for definite periods of 5 to 10 years.

Land from the State (both State land and land from unknown owners) is mostly rented for periods of 5 years. These parcels are often “connected” to a specific farm yard in a region and therefor rental contracts are normally renewed with the same users after expiration. The risk of losing State rented land parcels in Slovakia is therefore very limited.

Larger parcels (10 hectare or more) with a limited amount of private owners carry a much higher risks. Before renewing the rental agreement, such owner(s) will search for the best user paying the highest rental price. However, such parcels are rare in Slovakia.

Another risk for users of rented agricultural land in Slovakia is the land consolidation process in a cadastre. In the final stage of this process (that normally takes 2 to 4 years) the ownership of land parcels is often changed and by law all rental contracts are cancelled at the end of the season (November). The user has then to renegotiate the rental terms with the (new) landowner and conclude new rental contracts. In case of fierce competition among farmers in a cadastre, this could result in loss of used land. Therefore, checking the situation of the land consolidation process in a cadastre and the structure of land ownership before the acquisition of a farm, should be part of the “due diligence”. With a pro-active approach, farmers could of course also benefit from such process of land consolidation, by getting additional land for usage.

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