The 99-Year Lease Law: Boon for Investments or Threat to Filipino Land Ownership?

We are only tenants, and shortly the great Landlord will give us notice that our leased has expired.

– Joseph Jefferson, 19^th century American Comedian

(Part 1 of 2)

By Realttorney^®

On December 16, 2024, the Senate of the Philippines passed on third and final reading Senate Bill No. 2898. The day after, the House of Representatives passed on third and final reading House Bill No. 10755. Both bills amend Republic Act No. 7652, known as the Investor’s Lease Act. The bicameral conference has not been scheduled at present.

The passage on 3^rd reading by both Houses of Congress of their respective versions of the amendatory bill has ignited significant discussion among stakeholders in the Philippines. SBN 2898 proposes a 99-year lease term for foreign investors, replacing the original 50-year lease term, with a 25-year renewal.

This development raises crucial questions regarding the potential breach of the constitutional prohibition on foreign ownership of land, its impact on the real estate sector, the negative impact on farmers, plantation workers, including the indigenous cultural communities, and the implications for the government’s land reform program. This part will delve into the specific amendments to the existing law and discuss the seeming evasion of the sacred constitutional prohibition.

The Philippine Constitution explicitly prohibits foreigners from owning land within the country but allows foreign entities to lease lands under certain conditions. According to civil society groups, the extension to a 99-year lease term in the amendatory bill gives rise to concerns that it circumvents the constitutional prohibition by granting de facto control over land without outright ownership.

What are the key constitutional and legal considerations that we all need to know to better understand this important piece of legislation?

Under Section 3, Article XII of the Constitution states, “Alienable lands of the public domain shall be limited to agricultural lands. Private corporations or associations may not hold such alienable lands of the public domain except by lease, for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and not to exceed one thousand hectares in area.”

The last paragraph of Section 3 declares, “Taking into account the requirements of conservation, ecology, and development, and subject to the requirements of agrarian reform, the Congress shall determine, by law, the size of lands of the public domain which may be acquired, developed, held, or leased and the conditions therefor.”

The constitutional mandate is quite clear. Section 3, Article XII of the Constitution, explicitly restricts the duration of leases to a maximum of 50 years for alienable lands of the public domain (agricultural lands), and not to exceed 1,000 hectares in area.

Meanwhile, the coverage of Rep. Act No. 7652, and the recently passed amendatory bills is the granting of long-term lease on private lands to foreign investors for the establishment of industrial estates, factories, assembly or processing plants, agro-industrial enterprises, land development for industrial, or commercial use, tourism, agriculture, agro-forestry, ecological conservation and other similar priority productive endeavors.

So, what is the difference between alienable lands of the public domain and private lands in the Philippines?

In the Philippines, alienable lands of the public domain refer to agricultural lands of the public domain that have been reclassified and made available for private ownership, while private lands are those that are not part of the public domain and are privately owned.

The key difference lies in ownership: public domain lands are owned by the State, while private lands are owned by individuals or corporations. Alienable public lands, once reclassified, become susceptible to private acquisition through various legal means.

To be sure, a lease of private land to a foreign investor for a reasonable period (25 years initially and extendible to another 25 years before) is valid. The amendment will now allow the aggregate period of the lease contract to extend beyond 50 years but not exceed 99 years.

It is important to note that only foreign investors who have approved and registered investment under Rep. Act No. 7042 (Foreign Investment Act of 1991, as amended), Rep. Act No. 11534 (Corporate Recovery and Tax Incentives for Enterprises Act) as amended by Rep. Act No. 12066 (CREATE MORE Act), or other applicable laws, or has complied with the investment requirements prescribed by the appropriate Investment Promotion Agency, according to existing laws, can avail of a contract of lease for a period not to exceed 99 years.

But what if you a foreign investor have no approved and registered investment under the laws mentioned above, but still want to set up shop in the Philippines by renting private lands. What would be the period of lease?

The law that would govern this case is Pres. Decree No. 471, entitled “Fixing a Maximum Period for the Duration of Leases of Private Lands to Aliens.” Under this law, the maximum period allowable for the duration of leases of private lands to aliens or alien-owned corporations, associations, or entities not qualified to acquire private lands in the Philippines shall be 25 years, renewable for another period of 25 years upon mutual agreement of both lessor and lessee. However, any contract or agreement made or executed in violation of Pres. Decree No. 471 shall be null and void ab initio.

Our legislators argue that the 99-year lease period will offer stability and predictability to foreign investors who want to invest in the Philippines. And it seems to pass constitutional scrutiny at this time. However, the long-term lease alone is not sufficient to entice foreign direct investments to the country.

What changes and/or improvements are introduced by the amendatory bills to the Investor’s Lease Act?

First, the lease contract between the foreign investors and the owners of private lands must be registered with the Registry of Deeds of the Province or City where the lease area is located and annotated on the certificate of title covering the leased area.

Please take note of the important conditions that must exist in order for the Register of Deeds to register the long-term lease contract: (1) the foreign investor must present proof of an approved and registered investment under the Foreign Investment Act of 1991, as amended, and the CREATE Act, as amended by the CREATE MORE Act; (2) the date of commencement and maximum duration of the lease are certain; (3) the technical description of the property subject of the lease is clearly specified; and (4) there is a provision in the lease contract providing for its termination if the investment project does not commence within 3 years from the signing of the lease contract.

The last condition is a “safety valve” that ensures that the registered and approved investment enterprise of the foreign investor will definitely push through within the 3-year period from the execution of the lease contract.

This is apart from the condition that warrants the ipso facto termination of the lease contract upon (1) the withdrawal of the approved and registered investment within the period of the lease contract, or (2) when there is unauthorized use of the lease area for other purposes than what was approved by the Investment Promotion Agency. Moreover, if the ipso facto termination of the lease contract indeed happens then the Lessor has the right to be compensated for the damages that the Lessor may have suffered.

Moreover, it should be noted that the registration of the long-term lease contract shall be the operative act that renders the lease binding against third persons. As such, registration shall be made following the appropriate provisions of Pres. Decree No. 1529, otherwise known as the Property Registration Decree.

The second important amendment to know is that the registered long-term lease contract shall not be subject to collateral attack. Hence, it cannot be altered, modified, or canceled except in a direct proceeding in accordance with law. However, this shall be without prejudice to a periodic review of the terms of the lease to be done by the Board of Investments (BOI) or the appropriate Investment Promotion Agency (IPA).

It should be noted that the continuation of the lease shall be subject to the condition that the lease contract remains equitable for all interest parties – Lessor, Lessee, and the government, as represented by the BOI or IPA. Add to this, is the condition for the renewal of the lease contract upon the foreign investor-lessee, which is the next amendment below.

The third important amendment is that the foreign investor shall show that that it has made social and economic contributions to the country and the communities in the leased land, as a condition for the renewal or extension of the lease period, which should not exceed 99 years in all.

Fourth, under the existing law, the leasehold right acquired under the long-term lease contracts may be sold, transferred, or assigned. The amendment now allows that the same leasehold right may serve as security for a loan or as collateral. But when the buyer, transferee, assignee, or creditor is a foreigner or foreign-owned enterprise, the conditions and limitations concerning the use of the leased property as provided under the amendatory law shall continue to apply.

Fifth, in the case of tourism projects, the lease of private lands by qualified foreign investors shall be limited to projects with an investment of not less than US$ 5,000,000.00, seventy percent of which shall be infused in said project within 3 years from the signing of the lease contract.

Sixth, in the case of agricultural and agro-forestry lands, the terms of the lease shall be subject to the rules on conversion and the rules of the Department of Agrarian Reform governing Joint Venture Agreements in agro-forestry lands.

Seventh, unless there is an express prohibition in the lease contract, the Lessee may sublet the leased property with the consent of the Lessor. All the conditions, coverage, and limitations mentioned in the amendatory law shall likewise apply to the sublease contract. Furthermore, the sublease contract shall be registered with the Registry of Deeds and annotated on the certificate of title covering the land, as well.

Finally, if there is a failure on the part of the foreign investor to initiate the investment project within 3 years from the signing of the long-term lease contract then the contract will be terminated, and all entitlements granted under the law shall be revoked. Thereafter, the Lessor shall be entitled to the possession of the leased property.

In all, there are adequate safety nets that will protect the owners of private land and balance the interests of the foreign investors and that of the Philippine economy. The amendments ensure that potential inequities or misuse of the leased land are conditions that would terminate the long-term lease.

In part two of this article, we shall discuss the impact of this proposed legislation on the real estate sector, the impact on farmers, and plantation workers, including the indigenous cultural communities, and the implications for the government’s land reform program.

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Atty. Jojo is a real estate attorney, an estate planning attorney, a licensed real estate broker, and a PRC-accredited Lecturer/ Speaker for Training Programs in Real Estate. He is committed to helping new and veteran real estate service practitioners be well-informed of the latest laws, rules, regulations, and information relevant to the real estate service sector.