New Land Code is the Centerpiece of Agriculture Reform in Kazakhstan
Zhaniya B. Ussen, Partner Assistance, LLC Law Firm, LLM (US)
Zarina S. Umerbayeva, Associate Assistance, LLC Law Firm
Adopted on 20 June 2003 the new Land Code1 is a forth-generation statute2 and is a key act of the ongoing land reform in Kazakhstan. Prior legislation, including the 2001 Law On Land and the 1995 Edict of the President On Land allowed the private ownership of certain types of land. However, agricultural land, which amounts to 90.9 million hectares or 33.4 per cent of all lands in Kazakhstan,3 has been excluded from the private ownership except for ownership by citizens of Kazakhstan for development of their personal homesteads and gardens, and construction of their summer houses. The new Land Code has abolished this exclusion, and private ownership of agricultural land by Kazakhstani legal entities and individuals for farming and agricultural production, is now permitted thereby creating another opportunity for investments and development of land market in Kazakhstan. In addition to this, the Land Code has clarified and streamlined the rights of foreign persons to own and lease land in Kazakhstan.
1. Land Code of the Republic of Kazakhstan #442-II of 20 June 2003.
2. The first statute of the independent Kazakhstan on land matters was the Land Code of 16 November 1990, replaced by the Edict of the President of the Republic of Kazakhstan with the Effect of Law On Land of 22 December 1995, which in its turn has been replaced by the Law of the Republic of Kazakhstan On Land of 24 January 2001, replaced by the 2003 Land Code.
3. All lands of Kazakhstan equal to 272.5 million hectares, KazInform, 23 October 2002, http://www.kazaag.kz/showarticle2.php/articleID=14398.
Land laws are based upon the Constitution,4 and comprise the new Land Code5 and other acts adopted in its implementation. In addition to this, the many issues of ownership, use, and possession of land and real estate are covered by the Civil Code and laws adopted in its implementation. Laws and regulations adopted prior to the effective date of the Land Code continue to apply to the extent they do not contradict to the Land Code. Treaties ratified by the Republic of Kazakhstan may also contain the applicable rules, which have the prevailing power over the rules contained in the Land Code in the event of a conflict.
4. Constitution of the Republic of Kazakhstan of 30 August 1995, as amended.
5. Civil Code of the Republic of Kazakhstan, General Part of 27 December 1994, as amended, and Special Part of 1 July 1999, as amended.
The Land Code provides only a general description of the lands designated for industrial, transportation, communications, defense and other nonagricultural purposes, referring for details regulating the use of such lands to the special legislation such as, for example, laws On Transportation at the Republic of Kazakhstan6, On Railway Transportation7, and On Communications.8
6. Law of the Republic of Kazakhstan #156-XIII On Transportation in Kazakhstan of 21 September 1994, as amended.
7. Law of the Republic of Kazakhstan #266-II On Railway Transportation of 8 December 2001, as amended.
8. Law of the Republic of Kazakhstan #382-I On Communications of 18 May 1999, as amended.
Along with the recently adopted Law On Investments,9 the Land Code governs the issues of allocation of land parcels and land use rights as in-kind grants to investors carrying out investments into the priority sector of economy.10
9. Law of the Republic of Kazakhstan #373-II On Investments of 8 January 2003.
10. For discussion of the law On Investments please refer to the article by Zhaniya B. Ussen New Kazakhstani Law on Investments Significantly Increases the Role of Investment Treaties for Foreign Investors in Kazakhstan, Kazakhstan Business Law Monitor, Vol. 2, Issue 1, March 2003, available at http://www.assistance-law.com/eng/KBLM_Mar_2003_Vol2.pdf.
The Land Code does not address the issues of use and protection of subsoil, water, air, flora, fauna, and other natural resources having significant ecological, scientific and cultural value, as well as the national parks. These issues are governed by special legislation, such as, for example, the laws On Subsoil and Use of Subsoil11, On Specially Protected Natural Territories12, Water Code13, and Forest Code.14
11. Edict of the President of the Republic of Kazakhstan with the Effect of Law #2828 On Subsoil and Use of Subsoil of 27 January 1996, as amended.
12. Law of the Republic of Kazakhstan #162-I On Specially Protected Natural Territories of 11 May 1999, as amended.
13. Water Code of the Republic of Kazakhstan #481-II of 9 July 2003.
14. Forest Code of the Republic of Kazakhstan #477-II of 8 July 2003.
Categories of land
There are seven categories of land in Kazakhstan depending on their utilitarian purpose:
• agricultural land;
• land of cities, towns and villages;
• land to be used for industrial, transportation, communications, defense and other nonagricultural purposes;
• land of protected natural territories, and land to be used for health improvement, recreation, historic and cultural purposes;
• forestry land;
• water fund land; and
• reserve land (i.e., all lands that are owned by the state and are not allocated for use or private ownership).
The above categories determine the legal regime of land. Once designated, the land and property located thereon contains restrictions on the use and type of constructions that can be built. Any acquisition and alienation of a land parcel are subject to land designation and zoning requirements. Land designation and zoning is performed by a local Land Resource Management Agency under the administration of a local executive authority, Akim, and requires approval of a local representative authority, Maslikhat. It is important, therefore, to verify the designation of a land parcel before transacting therewith.
Certain lands are exempt from land use transactions. This include lands of public use, lands designated for defense needs, forestry and water fund lands, and lands of protected natural territories, and land used for health improvement, recreation, historic and cultural purposes.
The Land Code enlists the following categories of rights in respect of a land parcel:
• permanent use;
• short term free use; and
• lease (i.e., use of land for a valuable consideration).
Rights to a land parcel generally extend to surface soil, landlocked water basins and plantation located within the boundaries of the parcel. Ownership or lease of a land parcel, per se does not confer the rights to develop a mineral resources deposit or a hydrocarbons field situated beneath that parcel. Those rights may be conferred by the state only in accordance with the laws governing subsoil use operations, for example, laws On Subsoil and Use of Subsoil15 and On Petroleum.16
15. Supra note 11.
16. Edict of the President of the Republic of Kazakhstan with the Effect of Law #2350 On Petroleum of 28 June 1995, as amended.
Rights of ownership, lease or use of a land parcel for more than one year are effective upon the state registration with the agencies of the Ministry of Justice’s Real Estate Registrar.17 Land rights are certified by a relevant act such as an Act of Ownership or an Act of Permanent Land Use, or an Act of Temporary Land Use issued by the local Land Resource Management Agencies on the basis of underlying legal documents such as a resolution of Akim, or a contract of sale (exchange, gift or other transaction for alienation of a land parcel), or a court judgment. Transactions with a land parcel in absence of the documents certifying the land rights to the parcel are prohibited.
17. Civil Code of the Republic of Kazakhstan (General Part) of 27 December 1994, as amended, Article 118; and Edict of the President of the Republic of Kazakhstan with the Effect of Law #2727 On State Registration of Rights to Real Estate and Transactions Therewith of 25 December 1995, as amended.
Unless the documents certifying the land rights expressly provide for indivisibility of a land parcel, it is deemed to be dividable, and a subdivided part thereof can be subject to a separate transaction.
Ownership of land
In terms of ownership, the Land Code echoes Article 6(3) of the Constitution providing for the state ownership of the land as a natural resource. Notwithstanding this, land parcels are allowed for private ownership, except for the following:
• lands occupied for the needs of defense and state security;
• lands of protected natural territories, and land used for health improvement, recreation, historic and cultural purposes;
• forestry lands other than land parcels of private persons covered with man-made woods created at the expense of such private persons;
• water fund lands other than land parcels occupied by privatized irrigation and drainage systems;
• lands occupied by railroads and automobile roads of public use;
• lands of cities, towns and villages designated as territories of public use; and
• lands designated for the state reserve.
A land parcel owner may generally conduct any transactions with its parcel, provided however, that such transactions are not expressly prohibited by the laws and do not change the designation of the land parcel. Among other things, a land parcel owner may sell, rent, exchange, pledge, give it as a gift, contribute into a charter capital of a legal entity, etc. However, owners of agricultural land parcels who have not paid in full the purchase price for privatisation of their parcels will be restricted in transactions with the parcels until they make the full payment.
To prevent mass accumulation of lands within an administrative territory in one hands, the Government is to set the upper limits for private ownership of agricultural land within such territory.
Use of land
Lands that cannot be owned privately may be allocated by the state for the land use, which can be temporary or permanent. Depending on the category of land, the right of land use may be provided either for free or for a valuable consideration.
Allocation of land for activities that require a license is conditioned upon receipt of the relevant license. Subsoil users who have a contract for exploration and/or production operations are entitled to allocation of the relevant land parcel on the basis of their contract.
Permanent land use may be granted to state-owned legal entities of the Republic of Kazakhstan, which have the right of possession and management in respect of buildings and premises in a condominium, or are engaged in agricultural and forestry production, or are using the lands of protected natural territories. Permanent land use rights of citizens and legal entities of the Republic of Kazakhstan, who have acquired such rights for a valuable consideration prior to the effective date of the Land Code, in respect of a land parcel designated for agricultural purposes will be converted into the ownership rights of such persons without an additional payment.
Short term free use of land is generally granted to citizens and legal entities of the Republic of Kazakhstan for up to 5 years. In certain cases, for example, resoiling of land, the free use may be granted for a longer period. Alienation of a land parcel granted for the short term free use is prohibited.
Lease of land, i.e. temporary use for a valuable consideration, may be authorized for a term ranging between 5 and 49 years. Both Kazakhstani and foreign individuals and legal entities, as well as foreign organizations, are allowed to lease a land parcel. However, citizens and privately owned legal entities of the Republic of Kazakhstan may lease the land for farming and agricultural production for up to 49 years, while foreign citizens and stateless individuals may lease it for the maximum term of 10 years. The Land Code is silent in respect of the maximum term for which the land for agricultural production may be leased by a foreign legal entity.
A lessee, which has duly performed its obligations under the original lease, has a preferential right to renew the lease on expiry. A lessee, which has fully paid for its lease to the state, may sublease, transfer or assign the land use rights to another person without changing the designation of the land parcel. This right, however, does not apply to land users engaged in farming and agricultural production, and those of them who have rented their land parcels of agricultural lands prior to the adoption of the Land Code have to terminate the rent by 1 January 2005. Further subleasing of the land parcel by a sub-lessee is prohibited.
Rights of foreign persons to land
Subject to a few limitations set forth by the Land Code, foreign companies and individuals can exercise the same rights as local entities and individuals. The term “Foreign Land Users” covers nationals of foreign countries, stateless individuals, foreign legal entities, foreign countries and international associations and organizations. Under the Land Code, Foreign Land Users cannot own parcels of agricultural and forestry land, have the right of permanent use of land, and lease parcels of agricultural land within the 3-kilometers protection zone adjacent to the state border of the Republic of Kazakhstan.
Private foreign legal entities and individuals may own parcels of land designated for construction and operation of buildings, whether industrial or not.
Legal entities established and registered under the laws of Kazakhstan, including those that are fully or partially owned by foreign persons, are deemed to be the “National Land Users,” and may own parcels of agricultural land, forestry land, and land designated for construction and operation of buildings, whether industrial or not. Unlike in the Russian Federation, where legal entities, wherein foreign persons control over fifty per cent of the equity, cannot own agricultural land,18 the Land Code permits such ownership in Kazakhstan by foreign-owned and/or foreign controlled legal entities of the Republic of Kazakhstan.
18. The Russian Federation Law on Agricultural Land adopted on 24 July 2002 and effective from 28 January 2003
Ownership of a building implies the right of the building owner to the land parcel occupied by the building. Assignment of title to the building would cause the simultaneous assignment of the land rights. Alienation of a building without the land parcel occupied by the building and vice versa is prohibited. By the same token, renting of a building would cause renting of the land parcel occupied by the building.
In event that a land user is statutorily prohibited from alienation of a land parcel, he is generally banned from alienation of the building situated on the land parcel.
Land for construction
An applicant seeking a land parcel for construction has to file a petition with a local Akim indicating the purpose for which the parcel is sought, its desired dimensions and location, as well as possession by the applicant of another land parcel. In case where the parcel is sought for development of a mineral resources deposit or a hydrocarbons field, the applicant would have to provide a copy of its exploration and/or production contract. Application is to be considered within three months from its filing.
Thereafter, the Akim would instruct a local Land Resource Management Agency to choose an appropriate land parcel, and would form a commission comprising representatives of the local Maslikhat, the Land Resource Management Agency, and the architecture to approve the chosen parcel. Approval follows by development of a land tenure project, which is to specify, inter alia, the size of the parcel, its location, boundaries, divisibility, existing easements and other encumbrances, and current owners and users of the parcel and calculation of damages they would sustain as a result of the parcel taking. The applicant is responsible for obtaining consent of such owners and users and is required to enter a contract with each owner and user providing for the terms and deadlines for vacating the land parcel, and is responsible for obtaining all relevant administrative consents and approvals as may be necessary. For example, a person seeking a land parcel to build an oil transportation infrastructure facility would be required to get an approval of the authorized state agency in the area of oil transportation. Allocation of the land parcel would be evidenced by the Akim’s resolution based upon the data contained in the land tenure project.
Mortgage security interest can be created in a land parcel that is privately owned or leased for at least 5 years. Mortgage of a land parcel is subject to general rules applicable to mortgage of real estate,19 provided, however, that the mortgage agreement cannot restrict the debtor’s rights to use the land parcel, or provide for the transfer of the land parcel or the rights of use in respect of such parcel to the creditor or third parties. Mortgage of a land parcel would cause simultaneous mortgage of the building situated on the parcel, and vice versa.
19. Edict of the President of the Republic of Kazakhstan with the Effect of Law #2723 On Real Estate Mortgage of 23 December 1995, as amended.
Mortgage is not valid in absence of its registration with a local agency of the Ministry of Justice’s Real Estate Registrar.
On default of the debtor, the mortgagee can realize on the mortgaged real estate, including the mortgaged land parcel, by having a foreclosure sale, either judicial or nonjudicial, under which the mortgaged real estate is sold to satisfy the debt. Both debtor and mortgagee are permitted to bid at the sale.
An easement is the right of a person or the state to use a land parcel of another person for a special purpose such as, for example, to lay pipe or access a road. Private easement is created on the basis of a contract with a land owner or user. An easement holder is required to compensate the land owner/user all damages associated with the easement. Private easements are subject to registration with a local agency of the Ministry of Justice’s Real Estate Registrar.
Public easements are created by an act of a local Akim to protect interests of the state and local population. In case where creation of a public easement makes it impossible for a land owner or user to continue the use of the land parcel, the owner or user may require the act of taking of the parcel by the state with payment of its market value and compensation of damages, or allocation of another parcel of equal quality.
Among other things, a public easement may be created for the purpose of geophysical and geological prospecting works on the basis of a permit for the land use issued by a local Akim. Duration of the easement and obligations for compensation of damages and restoration of land to the condition satisfactory for the use of the land parcel according to its designation are to be determined in a contract between a person conducting the geophysical and geological prospecting works and an owner/user of the land parcel that is subject to the easement right. Restoration must be performed, the latest, within one month from the completion of works.
Failure to use an easement for three years or longer would cause termination of the easement. Other grounds of termination include waiver of the easement right by a person to whom it has been granted, expiry of the fixed duration of the easement, a court rendering a judgment to terminate, and termination of the easement granted for an indefinite term by a land owner/user of the land parcel affected by the easement after one-month advance notice of termination.
Taking by the state of a privately owned or leased land parcel is allowed in the following cases only:
• attachment of the land parcel owner or lessee’s assets, which include the land parcel or the right of use thereof, to satisfy the debt of the parcel owner or lessee;
• taking of the land parcel for the state needs (including discovery of a mineral resources deposit or a hydrocarbons field underneath of the land parcel; construction of roads, power transmission lines and pipelines; and general plans of construction in cities and towns) after one year advance written notice of the expected taking;
• payment to the owner or lessee of the market value of the land parcel or rights thereto, and market value of the building situated in such parcel, and all damages sustained or to be sustained by the land parcel owner or lessee due to the taking, including damages that will be sustained due to premature termination of obligations to third parties; or
• upon agreement with the owner or lessee, allocation of a substitute land parcel;
• a court approving the taking due to failure of an owner or lessee of the land parcel, designated for construction or agricultural production, to use the parcel in accordance with its designation for one year (unless a longer term is established by the laws), provided that the land owner or lessee has been given at least one-year written notice stating the requirement to use the land parcel in accordance with its designation;
• a court approving the taking due to material violation by the land parcel owner or lessee of the rules on rational use of land continued after the land owner or lessee has been subjected to administrative penalties for the same misconduct;
• taking of the radioactively contaminated land parcel with provision to the owner or lessee of a substitute land parcel of equal quality;
• confiscation of the land parcel owner or lessee’s assets as sanction for crime committed by such land parcel owner or lessee;
• temporary taking for public needs in emergency situations with compensation of damages sustained by a land parcel owner or lessee; and
• termination or expiration of the lease term.
Disputes arising out of land relations are subject to settlement in judicial proceedings. Under the Code of Civil Procedure, the Kazakhstani courts have the exclusive jurisdiction over all disputes associated with rights to real property located in Kazakhstan.20
20. Code of Civil Procedure of the Republic of Kazakhstan, #411-I of 13 July 1999, as amended, Article 417(1)(1).
Land parcels that are privately owned, or granted by the state for permanent use or short term free use, are subject to land tax pursuant to the Tax Code.21 Tax rates are varying by the designated category a land parcel and its size. Tax rates for parcels of agricultural land also varying by the quality of soil.
21. Code of the Republic of Kazakhstan On Taxes and Other Obligatory Payments to the Budget (Tax Code) #209-II of 12 June 2001, as amended, Part 12, Chapters 53-56.
Land parcels provided by the state for the lease are subject to lease payments pursuant to the Tax Code22 or treaties ratified by the Republic of Kazakhstan.
22. Code of the Republic of Kazakhstan On Taxes and Other Obligatory Payments to the Budget (Tax Code) #209-II of 12 June 2001, as amended, Part 16, Chapter 81.
Allocation of land parcels by the state into private ownership is subject to payment pursuant to the resolution of an Akim. Payment is to be calculated on the basis of a Cadastre Value, which is to be determined by a local Land Resource Management Agency by multiplying a land parcel Base Payment Rate (the “BPR”) by an adjustment coefficient. BPRs are to be set forth by the Government at the rates not lower than the land tax. Adjustment coefficient is to be set forth by a local Maslikhat and shall not exceed the double amount of the applicable BPR.
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