By: Atty. Gregorio B. Austral, CPA
New law guarantees stability for foreign investors’ land leases
Republic Act No. 12252, which amends the “Investors’ Lease Act” (R.A. No. 7652), marks a significant legislative effort to bolster the nation’s appeal to global capital. This landmark legislation was enacted primarily to liberalize the lease of private lands by foreign investors and establish the stability of long-term lease contracts. The State’s underlying policy is unequivocally to encourage foreign investments by adopting a flexible and dynamic policy on granting long-term leases. By ensuring the reliability of investors’ lease contracts, the State seeks to provide the stable environment necessary for foreign capital to flourish across priority endeavors such as industrial estates, tourism, agriculture, and ecological conservation.
A core component of this liberalization is the extended duration provided for these agreements. Foreign investors are now allowed to lease private lands with an aggregate contract period that shall not exceed ninety-nine (99) years. This extended duration provides the time horizon necessary for major industrial estates, factories, assembly or processing plants, and large-scale agro-industrial projects. However, the law provides a safety valve for national security: upon the recommendation of the Fiscal Incentives Review Board (FIRB) or other relevant agencies, the President of the Philippines may impose a shorter lease period for investments engaged in vital services or industries considered as critical infrastructure.
Eligibility for these lease benefits requires that the foreign investor demonstrate a serious commitment to the country. Specifically, the investor must have an approved and registered investment under relevant legislation, such as the ‘Foreign Investments Act of 1991’ or the ‘CREATE MORE’ Act. The law also strictly defines the parameters of land use, stipulating that the leased area shall be used solely for the purpose of the approved and registered investment upon the mutual agreement of the parties. Furthermore, the area of the leased premises must be reasonably required for the investment project, and this must comply with established laws like the Comprehensive Agrarian Reform Law and the Local Government Code.
The Act institutionalizes the stability of these contracts through mandatory registration requirements. Lease contracts shall be registered with the Registry of Deeds and must be annotated on the certificate of title. This registration is not merely procedural; the law specifies that the registration of the long-term lease contract shall be the operative act that renders the lease binding against third persons. Once registered, this contract is given robust legal protection: it shall not be subject to collateral attack and can only be modified or cancelled through a direct legal proceeding. This enhanced security means that the leasehold right acquired under these contracts may be sold, transferred, assigned, or may serve as security for a loan.
Despite the focus on liberalization, the Act includes essential limitations designed to protect the country’s economic and legal framework. A critical safeguard is the provision that the withdrawal of the approved and registered investment or the use of the leased area for an unauthorized purpose shall warrant the ipso facto termination of the lease contract. Additionally, specific types of investments, such as tourism projects, are subject to minimum capital requirements; the lease of private lands for tourism by qualified foreign investors is limited to projects with an investment of not less than Five million US dollars (USD5,000,000.00). Violations of the Act, such as stipulating a lease period in excess of the allowed duration, are met with stiff penal provisions, including a fine of not less than One million pesos (P1,000,000.00) or imprisonment of six (6) months to six (6) years.
Ultimately, this legislation signals a strong commitment to attracting and retaining foreign capital by providing legal certainty regarding land tenure. However, the benefits are contingent upon performance; failure to commence the investment project within three (3) years from the signing of the contract may lead to intervention by the FIRB or other relevant Investment Promotion Agencies (IPA), which could ultimately cause the revocation of all entitlements granted under this Act. To ensure a smooth transition, the Department of Trade and Industry (DTI), through the Board of Investments (BOI), and the Land Registration Authority (LRA) are mandated to promulgate the necessary implementing rules and regulations within ninety (90) days of the Act’s effectivity.