CJEU, 8th chamber, January 14, 2024, No C-562/22

THE COURT (Eighth Chamber),

1 This request for a preliminary ruling concerns the interpretation of Articles 18, 49, 63 and 345 TFEU and of Article 45 of the Charter of Fundamental Rights of the European Union.

2 The request has been made in proceedings between JD, an Austrian national, and OB, a Bulgarian national, concerning an application for a declaration that contracts relating to the acquisition of agricultural land in Bulgaria are void in view of their allegedly fictitious nature.

Legal context

European Union law

3 Article 1(1) of Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article [63 TFEU] (OJ 1988 L 178, p. 5), provides:

‘Without prejudice to the following provisions, Member States shall abolish restrictions on movements of capital taking place between persons resident in Member States. To facilitate application of this Directive, capital movements shall be classified in accordance with the Nomenclature in Annex I.’

4 As is apparent from point II-A thereof, the Nomenclature established in Annex I to Directive 88/361 provides that the capital movements covered by that directive include ‘Investments in real estate on national territory by non-residents’.

5 The part of that Nomenclature entitled ‘Explanatory Notes’ is worded as follows:

‘For the purposes of this Nomenclature and [this] Directive only, the following expressions have the meanings assigned to them respectively: 

…

Investments in real estate

Purchases of buildings and land and the construction of buildings by private persons for gain or personal use. This category also includes rights of usufruct, easements and building rights.

…’

Bulgarian law

6 Article 3c of the Zakon za sobstvenostta i polzvaneto na zemedelskite zemi (Law on the ownership and use of agricultural land), in the version applicable to the dispute in the main proceedings (‘the ZSPZZ’), provides the following:

‘(1) Natural or legal persons who have been resident or established in Bulgaria for more than five years may acquire a right of ownership of agricultural land.

(2) Legal persons registered under Bulgarian law for less than five years may acquire a right of ownership of agricultural land where the members of the company, the members of the association or the founders of the joint stock company satisfy the requirements of paragraph 1.

…

(4) Paragraph 1 does not apply in the case of acquisition of a right of ownership of agricultural land by legal inheritance.’

The dispute in the main proceedings and the questions referred for a preliminary ruling

7 In 2004 and 2005, EF, a Bulgarian national, who is the father and testator of the defendant in the main proceedings, OB, made a proposal to JD, an Austrian national, to acquire, with other persons, an undivided share in three separate parcels of agricultural land located in Bulgaria (‘the agricultural land at issue’).

8 JD accepted that proposal by paying a sum of EUR 51 000 for the acquisition of the undivided shares in the agricultural land in question and a sum of EUR 9 000 in respect of transaction costs. In the course of that transaction, EF informed JD that, because of the prohibition, then applicable in Bulgarian law to foreigners, of acquiring rights of ownership of agricultural land located in Bulgaria, the notarial deeds relating to the purchase of the agricultural land in question would have to identify EF’s name as purchaser for JD’s undivided shares, it being specified that the latter would be the actual purchaser of those shares. EF also stated that those undivided shares would be officially transferred to JD by notarial deed after the repeal of that prohibition in Bulgarian law.

9 The sale of the agricultural land in question to the various co-owners was the subject of three contracts concluded by notarial deeds in 2004 and 2005, identifying EF’s name as purchaser of the undivided shares to be returned to JD.

10 In 2006, EF made three sworn declarations before a notary, for each of the plots of agricultural land at issue, stating that JD was the actual owner of those undivided shares.

11 On 3 April 2021, EF died, leaving his son, OB, as his sole heir.

12 The action brought by JD before the Rayonen sad Burgas (District Court, Burgas, Bulgaria), which is the referring court, seeks a declaration, first, that he is the actual owner of those undivided shares and, second, that the three contracts for the sale of the agricultural land at issue are void. In that regard, JD submits that those agreements are fictitious, since he must be regarded as the actual owner, according to the sworn declarations made by EF, who acted only as a front man.

13 OB submits that the declarations relied on by JD were not capable of demonstrating that his father acted as a front man, since they were not signed by both parties, namely JD and EF.

14 The referring court states that, in accordance with the Bulgarian legislation currently in force, more specifically Article 3c of the ZSPZZ, only natural and legal persons who have been resident or established in Bulgaria for more than five years may acquire a right of ownership of agricultural land located in the territory of that Member State.

15 It states that it must rule in the present case on whether the three contracts of sale concluded by EF are fictitious and, if so, whether the agreement concealed by those three contracts must prevail and have effect. In order to do so, it is necessary for that court, in accordance with the national legislation currently in force, to ascertain whether the conditions for the validity of the concealed agreement are met, one of those conditions being that the purchaser has the right to acquire agricultural land in Bulgaria. JD does not satisfy that condition, since he does not satisfy the residence requirement laid down in Article 3c of the ZSPZZ.

16 In the same context, the question arises as to whether Article 3c of the ZSPZZ infringes EU law in that it constitutes a restriction, inter alia, on the freedom of establishment and the free movement of capital enshrined in Articles 49 and 63 TFEU respectively. The answer to that question is all the more relevant since the European Commission opened infringement proceedings against the Republic of Bulgaria relating inter alia to that provision of Bulgarian law.

17 In those circumstances, the Rayonen sad Burgas (District Court, Burgas) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

‘(1) On the basis of Article 19(3)(b) TEU and point (b) of the first paragraph and the third paragraph of Article 267 TFEU: Does the legislation of the Republic of Bulgaria, as a Member State [of the European Union], at issue in the main proceedings, under which the acquisition of ownership of agricultural land in Bulgaria is subject to the condition of five years’ residence in the territory of that Member State, constitute a restriction which infringes Articles 18, 49, 63 and 345 TFEU?

(2) More specifically, does that condition for the acquisition of ownership constitute a disproportionate measure which fundamentally infringes the prohibition of discrimination under Article 18 TFEU and the principles of free movement of capital and freedom of establishment within the Union which are enshrined in Articles 49 and 63 TFEU and Article 45 of the Charter of Fundamental Rights …?’

Consideration of the questions referred

18 By its questions, which it is appropriate to examine together, the referring court asks, in essence, whether Articles 18, 49, 63 and 345 TFEU must be interpreted as precluding legislation of a Member State under which the acquisition of a right of ownership of agricultural land located in its territory is subject to the condition that the acquirer has the status of resident for more than five years.

The jurisdiction of the Court

19 It follows from the settled case-law that the Court has jurisdiction to interpret EU law as regards its application in a new Member State with effect from the date of that State’s accession to the European Union (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 39 and the case-law cited).

20 In the present case, it should be noted that the contracts of sale relating to the agricultural land at issue were concluded in 2004 and 2005, that is to say, before the accession of the Republic of Bulgaria to the European Union on 1 January 2007. The sworn declarations made by EF in 2006 also predate that accession.

21 However, it is apparent from the request for a preliminary ruling that, because of the requirements of the Bulgarian legislation, the referring court could be required to assess the validity of the concealed agreement in the light of the national legislation in force on the date on which it is called upon to give a ruling. In the present case, that court is required to apply Article 3c of the ZSPZZ, adopted in 2014. In such a situation, JD’s rights of ownership could therefore be recognised by a rule of law introduced after the accession of the Republic of Bulgaria to the European Union.

22 Furthermore, it is apparent from the order for reference that only the application of the national legislation currently in force is capable of conferring a right of ownership on JD, since the Bulgarian legislation prior to the adoption of Article 3c prohibited any foreign natural or legal person from acquiring a right of ownership of Bulgarian agricultural land.

23 It follows from the foregoing that the question referred by the national court concerns the compatibility with EU law of national legislation, adopted by a Member State after the date of its accession to the European Union, capable of having legal effects on contracts of sale and on declarations made before that date.

24 In those circumstances, the Court has jurisdiction to answer the questions referred in the present case.

Substance

The applicability of Article 49 TFEU, on freedom of establishment, and/or Article 63 TFEU, on the free movement of capital, to the dispute in the main proceedings

25 As a preliminary point, it should be borne in mind that Article 18 TFEU, mentioned by the referring court in its questions, applies independently only to situations governed by EU law for which the TFEU lays down no specific rules of non-discrimination. That Treaty lays down such a specific rule in Article 49 TFEU in the area of freedom of establishment and in Article 63 TFEU in the area covered by the free movement of capital, with the result that there is no need to examine the national legislation at issue in the main proceedings in the light of Article 18 TFEU (see, to that effect, judgments of 5 February 2014, Hervis Sport- és Divatkereskedelmi, C‑385/12, EU:C:2014:47, paragraphs 25 and 26, and of 30 April 2020, Société Générale, C‑565/18, EU:C:2020:318, paragraph 16).

26 Furthermore, Article 345 TFEU, to which the national court also refers in its questions, expresses the principle of the neutrality of the Treaties with regard to the rules in Member States governing the system of property ownership. However, that article does not have the effect of exempting the Member States’ systems of property ownership from the fundamental rules of the TFEU. Thus, although that provision does not call into question the Member States’ right to establish a system for the acquisition of immovable property which lays down specific measures that apply to transactions concerning agricultural land, such a system remains subject inter alia to the rule of non-discrimination and to the rules relating to freedom of establishment and free movement of capital (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 51 and the case-law cited).

27 Those clarifications having been made, the questions referred for a preliminary ruling refer both to the freedom of establishment, enshrined in Article 49 TFEU, and to the free movement of capital, guaranteed by Article 63 TFEU. It is therefore necessary to determine which freedom is at issue in the main proceedings, taking into consideration, in order to do so, the purpose of the national legislation at issue in that dispute (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 52 and 53 and the case-law cited).

28 In the present case, the national legislation at issue in the main proceedings, namely Article 3c of the ZSPZZ, is intended to govern the right of non-resident natural and legal persons to acquire agricultural land located in Bulgaria by limiting that right. It should be noted that, when the right to acquire, use or dispose of immovable property on the territory of another Member State is exercised as the corollary of the right of establishment, it generates capital movements (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 54 and the case-law cited).

29 Thus, although, in the present case, Article 3c of the ZSPZZ is, prima facie, capable of being covered by both the fundamental freedoms mentioned by the referring court, the fact remains that, in the context of the main proceedings, any restrictions on freedom of establishment resulting from that national legislation are an inevitable consequence of the restriction of the free movement of capital and, therefore, do not justify an independent examination of that legislation in the light of Article 49 TFEU (see, by analogy, judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 55 and the case-law cited).

30 As is clear from the Nomenclature of capital movements set out in Annex I to Council Directive 88/361, capital movements include investments in real estate on the territory of a Member State by non-residents; that Nomenclature still has the same indicative value for the purposes of defining the notion of capital movements (judgment of 6 March 2018, SEGRO and Horváth, C‑52/16 and C‑113/16, EU:C:2018:157, paragraph 56 and the case-law cited).

31 That notion encompasses, inter alia, investments in real estate relating to the acquisition of rights of ownership over agricultural land, as is attested, in particular, by the clarification, contained in the explanatory notes to that Nomenclature, that the category of investments in real estate covered by that directive includes ‘purchases of buildings and land’.

32 In the present case, it is apparent from the request for a preliminary ruling that the dispute in the main proceedings concerns the acquisition by a non-resident, namely an Austrian national, of rights of ownership over agricultural land situated in the territory of the Republic of Bulgaria.

33 Since that situation falls within the scope of the free movement of capital, for the purposes of Article 63 TFEU, it is necessary to examine the national legislation at issue in the main proceedings exclusively in the light of that freedom.

Whether there is a restriction on the free movement of capital

34 According to settled case-law, Article 63(1) TFEU generally prohibits restrictions on movements of capital between Member States. The measures prohibited by that provision as restrictions on the movement of capital include those which are liable to dissuade non-residents from making investments in a Member State or to dissuade residents of that Member State from making investments in other States (judgment of 29 April 2021, Veronsaajien oikeudenvalvontayksikkö (Income paid by UCITS), C‑480/19, EU:C:2021:334, paragraph 26 and the case-law cited).

35 It must be held that, by virtue of its very purpose, the residence requirement laid down in Article 3c of the ZSPZZ constitutes an obstacle to the free movement of capital (see, by analogy, judgment of 25 January 2007, Festersen, C‑370/05, EU:C:2007:59, paragraph 25). That national legislation is, moreover, liable to deter non-residents from making investments in Bulgaria (see, by analogy, judgment of 21 May 2019, Commission v Hungary (Usufruct over agricultural land), C‑235/17, EU:C:2019:432, paragraph 58 and the case-law cited).

36 Thus, that legislation creates a restriction on the free movement of capital enshrined in Article 63 TFEU.

Justification for the restriction on the free movement of capital

37 As is apparent from the Court’s case-law, a measure such as the national legislation at issue in the main proceedings, which restricts the free movement of capital, is permissible only if it is justified by overriding reasons in the public interest and observes the principle of proportionality, a condition that requires the measure to be appropriate for ensuring the attainment of the legitimate objective which it pursues and not to go beyond what is necessary in order for it to be attained (see, to that effect, judgment of 21 May 2019, Commission v Hungary (Usufruct over agricultural land), C‑235/17, EU:C:2019:432, paragraph 59 and the case-law cited).

38 It must also be pointed out in that regard that national legislation is appropriate for ensuring attainment of the objective relied on only if it genuinely reflects a concern to attain it in a consistent and systematic manner (see, to that effect, judgment of 21 May 2019, Commission v Hungary (Usufruct over agricultural land), C‑235/17, EU:C:2019:432, paragraph 61 and the case-law cited).

39 In the present case, as regards the objectives pursued by Article 3c of the ZSPZZ, the request for a preliminary ruling does not contain any precise information in that regard. Following a request for information from the Court of Justice to the referring court, the latter stated that that national provision, by introducing restrictions on investments in real estate in Bulgarian agricultural land, seeks to ensure that that agricultural land continues to be used in accordance with its purpose. That court explained that speculative transactions relating to such agricultural land and the sale of that land to foreign investors who intend to use the land for other purposes, would lead to a significant reduction in arable land, together with the corresponding disappearance of large and small Bulgarian agricultural producers.

40 In that regard, it should be noted that, although such objectives are in themselves in the public interest and are capable of justifying restrictions on the free movement of capital (see, to that effect, judgment of 25 January 2007, Festersen, C‑370/05, EU:C:2007:59, paragraph 28 and the case-law cited), the fact remains that those restrictions must be appropriate and necessary for the attainment of the objectives referred to in the preceding paragraph of the present judgment.

41 In the first place, as regards whether the national legislation at issue in the main proceedings is appropriate, it must be observed that it contains only a residence requirement and is not coupled with a requirement to farm the immovable property personally. Such a measure thus does not appear, in itself, to be capable of ensuring the attainment of the alleged objective of ensuring that agricultural land located on Bulgarian territory continues to be used in accordance with its purpose (see, by analogy, judgment of 25 January 2007, Festersen, C‑370/05, EU:C:2007:59, paragraph 30).

42 As regards the objective of preventing the acquisition of agricultural land for purely speculative purposes, it is true that the legislation at issue in the main proceedings may have the effect of reducing the number of potential purchasers of agricultural land, so that it is likely to reduce the pressure on that land. However, the residence requirement laid down by that legislation does not guarantee, in and of itself, that the agricultural land will be purchased for agricultural purposes or, at the very least, for non-speculative purposes.

43 In the second place and in any event, it is still necessary to ascertain whether the residence requirement laid down by the national legislation constitutes a measure which does not go beyond what is necessary to attain the objectives pursued by that legislation.

44 For the purposes of such an assessment, account must be taken of the fact that that requirement restricts not only the free movement of capital but also the right of the acquirer to choose his or her place of residence freely, a right which the acquirer is, however, guaranteed by Article 2(1) of Protocol No 4 to the European Convention for the Protection of Human Rights and Fundamental Freedoms, signed in Rome on 4 November 1950 (see, by analogy, judgment of 25 January 2007, Festersen, C‑370/05, EU:C:2007:59, paragraph 35).

45 Given that the residence requirement, laid down by the national legislation at issue in the main proceedings, thus adversely affects a fundamental right guaranteed by that convention, it therefore turns out to be particularly restrictive (judgment of 25 January 2007, Festersen, C‑370/05, EU:C:2007:59, paragraph 37). The question therefore arises whether other measures less restrictive of the free movement of capital than those laid down by that legislation could have been adopted in order to attain the objectives pursued by that legislation.

46 As the Commission pointed out in its written observations, the objectives pursued by the legislation at issue in the main proceedings relating, first, to agricultural land continuing to be used in accordance with its purpose and, second, to the prevention of the acquisition of such land for speculative purposes could be attained through the use of measures introducing, inter alia, higher taxation on resale of agricultural land occurring shortly after acquisition, or even the requirement of a substantial minimum duration for leases of agricultural land (see, by analogy, judgment of 25 January 2007, Festersen, C‑370/05, EU:C:2007:59, paragraph 39). Another measure that is less restrictive of the free movement of capital is the introduction of a right of first refusal to farming tenants, which would make it possible, where the latter do not acquire the property, for title to be acquired by natural or legal persons whose activity does not fall within the agricultural sector, but who must nevertheless maintain the agricultural use of the property in question (see, to that effect, judgment of 23 September 2003, Ospelt and Schlössle Weissenberg, C‑452/01, EU:C:2003:493, paragraph 52).

47 It follows from all those considerations, in the light of the information available to the Court, that the residence requirement laid down in Article 3c of the ZSPZZ appears to go beyond what is necessary to attain the objectives pursued by that national legislation.

48 In the light of all the foregoing, the answer to the questions referred is that Article 63 TFEU must be interpreted as precluding legislation of a Member State under which the acquisition of a right of ownership of agricultural land located in its territory is subject to the condition that the acquirer has the status of resident for more than five years.

Costs

49 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

On those grounds, the Court (Eighth Chamber) hereby rules:

Article 63 TFEU must be interpreted as precluding legislation of a Member State under which the acquisition of a right of ownership of agricultural land located in its territory is subject to the condition that the acquirer has the status of resident for more than five years.