Bill to Limit Rural Land Ownership by Foreigners

On April 27, 2011, the Executive Branch sent the Federal Congress a bill to limit ownership of rural land by foreigners (the “Bill”).

In order to become law, the Bill must be approved by both Chambers of the Federal Congress and afterwards be promulgated by the Executive. Given the political support behind the Bill, its final enactment into law can be considered probable, although its text may be amended in the legislative process. Although there is no time limit for the enactment of the Bill, pursuant to the current political climate in Argentina it is likely that the Bill will be approved before the Argentine presidential elections to be held in October, 2011.

1. Contents of the Bill

   The following is a summary of the most relevant provisions of the Bill. It must be noted that the text of the Bill is not totally clear in several parts.

   1. Ownership of rural land must conform to the Bill and pursuant to it any piece of land located outside urban sites is “rural land”.
   2. Any acquisition, transfer or assignment of rights over rural land is considered to constitute foreign ownership, if it is performed in favour of, among others, any: (i) foreign individuals, regardless their actual residence in or outside Argentina; (ii) legal entities in which more than 51% of its stock is owned by foreign individuals; (iii) legal entities linked or controlled by any foreign legal entities, in a percentage higher to 25 % of the shares or with a number of votes necessary to prevail in the entity’s decision-making process; (iv) companies which have issued bonds owned by foreigners which may be converted into shares in excess of 25% of the company’s stock; and (v) trusts whose beneficiaries are foreign individuals or entities in a percentage higher to that authorized by the Bill (51% and 25%, respectively).
   3. The Bill provides that foreign ownership of rural land shall not exceed 20% of the total amount of rural lands in the Argentine territory and that in no case foreign entities or individuals of the same nationality may own more than 6% of the total amount of rural lands in the Argentine territory.
   4. No foreigner shall own in excess of 1,000 hectares, regardless of their location.
   5. Rural land acquisition shall not be construed as “investment” under bilateral investment treaties executed by the Argentine Republic (“BITs”).
   6. The Bill provides expressly that it “does not affect any vested rights”. Its provisions shall enter into force the day after its publication in the Official Gazette.
   
   
2. Issues related with the Bill

The Bill raises several issues on which it does not provide a clear answer, which must then wait for the final text –if ever enacted– and the implementing regulations. Some of these issues are the following:

1. Can a foreign owner sell to another foreigner?
2. Can a foreign shareholder in an Argentine company which owns a piece of land and is foreign controlled, sell its shares to another foreigner?
3. Can a foreign company which owns land sell its shares to another foreigner?

The Bill raises constitutional issues since the Argentine Constitution grants to foreigners (without discriminating between residents and non residents) equal rights with respect to Argentine nationals.

The Bill also raises the question of whether it is consistent with BITs where protection of investment in non-renewable resources has not been expressly excluded.