Bulgarian land acquisition provision deemed incompatible with EU law by CJEU

On 18 January 2024, the Court of Justice of the European Union (CJEU) officially released a long-anticipated judgment in which it ruled that a provision of the Bulgarian Agricultural Land Ownership and Use Act (Article 3B) was incompatible with EU law.

Article 3B of the Bulgarian Agricultural Land Ownership and Use Act requires that foreign individuals or entities should have resided or be established in Bulgaria for more than five years to be eligible to acquire agricultural land in Bulgaria, even if they are based in the EU.

The CJEU, however, ruled out such restrictions, finding the Bulgarian national provision incompatible with EU law and specifically stating that the provision contradicts Article 63 of the Treaty on the functioning of the European union (TFEU), which prohibits all restrictions on the movement of capital between member states and between member states and third countries.

The CJEU's judgment does not annul the legal force and effect of the provision that provides for this restriction. Judgments on preliminary rulings, however, are binding not only on the referring court, but on all courts in EU member states.

This means that if a Bulgarian court is approached with a claim on the validity of a transaction involving acquisition of agricultural land in Bulgaria by EU-based individuals or entities in breach of the existing restriction, the court must rule according to the CJEU's judgment and confirm that the transaction is valid.

The primary reasoning supporting the CJEU ruling includes the following:

·       The CJEU examined the objectives of the provision of Article 3в of the Bulgarian Agricultural Land Ownership and Use Act, which was meant to ensure that agricultural land continues to be used in accordance with its intended purpose and not for speculative purposes.

·       Although such objectives are of general interest and may justify restrictions on the free movement of capital, the restrictions must be proportionate. The residency or establishment requirement laid down in the legislation does not guarantee that agricultural land will be acquired for farming or at least for non-speculative purposes.

·       Bulgaria could have taken adequate measures to limit the acquisition of agricultural land for speculative purposes and to ensure that it is used for its intended purpose, such as measures introducing higher taxes on transactions for the resale of agricultural land shortly after it has been acquired.

For additional information on the CJEU judgment and on the Bulgarian Agricultural Land Ownership and Use Act, contact your CMS client partner or these local CMS experts: Jenia Dimitrova and Ivan Manoilov.