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The Sempastous Bill’s Impact on Farm Transmissions

12 November 2021

Decoding by Jacques Goyet and Louis Vallet,
lawyers at Bignon Lebray legal firm, and WI&NE key experts

A bill filed by Mr. Sempastous “on emergency measures to ensure the access regulation to agricultural land through corporate structures” is under discussion in the Senate after its adoption by the National Assembly.

Land ownership in France has become highly unequal reaching. Aiming to fight against land concentration under ever larger holdings controlled by fewer hands and encourage young farmers’ installation, the Sempastous bill seeks to extend the Safer’s (French Land Development & Rural Settlement Corporation) control over the transfer of company shares in the continuity of several previous laws. However, the reasoned urgency in passing the legislation is not apparent as it concerns a subject that has troubled the agricultural sector for years.

Thus, Law No. 2014-1170 of 13 October 2014 on the future of agriculture, food, and forestry (known as “AAAF” in French) has already granted preemption rights to Safer in the event of total transfers of shares, making up the share capital of a company whose primary purpose is farming or agricultural property. However, this text proved ineffective, as selling less than 100% shares was sufficient to avoid a preemption risk. Law No. 2016-1691 of 9 December 2016 (known as “Sapin 2”) had therefore wished to extend this right of preemption to partial sales of shares. Still, the Constitutional Council had first censured these provisions, considering them to be legislative riders unrelated to the purpose of the law.

Law No. 2017-348 of 20 March 2017, devoted to the “fight against agricultural land grabbing” (rather unfortunate vocabulary for establishing agricultural land concentration control), had taken up the torch and attempted to grant this right of preemption to Safer in the event of a partial transfer of company shares when the transfer leads to the acquisition of the majority of the capital or a blocking minority. However, the Constitutional Council again censured these disproportionate infringement provisions against the right of ownership and the freedom of enterprise. The censure seemed logical insofar as such preemptions would have led to an indefinite presence in the capital of the companies concerned by Safer holding a majority or a blocking minority, a situation that would have resulted in a loss of value for the other shareholders “stuck” in their company with a Safer—an arrangement that is inferior to all the top choices.

The legislator then introduced investments in the production, processing, and distribution of agricultural products into the scope of the regime for foreign investments in France (Law No. 2019-846 of 22 May 2019 and Decree No. 2019-1590 of 31 December 2019). Since 2020, this control has applied to foreign investments in agricultural companies. 

To date, Safer has two tools at its disposal for the transfer of shares in agricultural companies:

The Sempastous bill provides a new control mechanism in the hands of the Safer (for the study of files) and prefects (for the final decision), in addition to those already in place, to authorize or refuse a transmission project resulting in a change in agricultural business control. This mechanism, as was reasonable to anticipate, is no longer based on a preemption right that is unsuitable for transfers of company shares but on a request for prior authorization that may result in either a refusal of the transaction, outright approval, or consent subject to conditions, following the example of the mechanisms for controlling mergers or foreign investments in France.

New Control Mechanism in the Hands of Safer

The “significant enlargement threshold,” which serves as a dynamic pivot mechanism, would be set by the State representative in the department concerned and would be between two and four times the average functional regional agricultural area specified in the regional agrarian master plan. The total area of land held would be assessed comprehensively. The scope of the companies concerned is extensive since reference is no longer made to a primarily agricultural purpose but to the simple holding or operation of real estate for agricultural use or purpose. This regime would include exceptions in the context of family transfers or gratuitous transfers. The non-compliance with these provisions is heavily sanctioned. It would lead to the transaction’s nullity and result in a fine of up to 2% of the transaction price.

Future transaction parties involving the transfer of shares in agricultural companies, including wine businesses, will have to be particularly vigilant when these new provisions come into force and when the final terms are adopted. As the bill stands, they will have to document their case to convince the administrative authority that their operations do not contribute to the “monopolization of French agricultural land”.

The parliamentary activities reveal that there is still room for improvement, particularly concerning the definition of the excessive enlargement threshold giving rise to prior authorization and the exact role of the Safer. The latter, which also plays an essential regulatory role, could oppose any operation. Moreover, as it is presently drafted, this law aggravates conflicts of interest by putting the Safer in a difficult position to be both the bodies responsible for examining applications and the obligatory intermediaries for any land transfer operations they have set as a condition.

Article translated FR>EN by:

Nathalie Parent Dumoulin, Translator, NEXT EDITION, WI&NE Nouvelle-Aquitaine

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