How real properties are leased out to foreigners

Former President Duterte signed into law Republic Act (R.A.) No. 11659, which restricted the nationality requirements for ownership of public services to those classified as public utilities.

These services operate, manage, or control electricity distribution and transmission, petroleum and petroleum products pipeline transmission systems, water pipeline distribution systems and wastewater pipeline systems, seaports, and public utility vehicles.

It also effectively lifted the 40 percent foreign ownership limits on telecommunications, airline, domestic shipping, and railways industries, among others.Reactions to this legal development were polarized, with business chambers and stakeholders viewing it as a step toward attracting global players, generating more jobs, and improving the Philippine economy, while critics feared that it could pose a threat to national security.

While these hopes or fears may take a while to materialize since this law was only enacted last year, it is one among the many efforts of the government to encourage foreign investments in the Philippines. If successfully implemented, this law can also translate to more lucrative transactions with foreign nationals in the country’s real estate industry, such as long-term leases, which is the subject of the Investors’ Lease Act (ILA).

In enacting the ILA, the government sought to adopt a flexible and dynamic policy on granting long-term leases on private lands to foreign investors for, among others, the establishment of industrial estates, factories, plants, and land development for industrial, or commercial use, tourism, and other similar priority productive endeavors.

For this purpose, a foreign investor means someone who has made an equity investment in the Philippines through actual remittance of foreign exchange or transfer of assets, whether in the form of capital goods, patents, formulae, or other technological rights or processes, upon registration with the Securities and Exchange Commission.

Any such investor may lease private lands for as long as the corresponding contract shall subsist for at most 50 years, which period is renewable only once for not more than 25 years.

Moreover, the leased premises shall be used solely for the purpose of investment upon the parties’ mutual agreement, and which area shall be as reasonably required for the purpose of the investment, subject to the Comprehensive Agrarian Reform Law and the Local Government Code. In this regard, the foreign lease shall show that it has made social and economic contributions to the country.

This leasehold right may be sold, transferred, or assigned to other parties. But, the conditions and limitations respecting the use of the leased property in accordance with the ILA shall subsist when the buyer, transferee, or assignee is a foreigner or foreign-owned enterprise.

Withdrawal of the approved investment in the Philippines within the period of the lease agreement or the use of the leased area for other than the authorized purposes shall result to the ipso facto termination of the lease agreement, without prejudice to the lessor’s right to be compensated for damages he may have suffered.

For the purpose of this law, such withdrawal can either mean the failure to operate the investment project for any three consecutive years or the outright abandonment of the investment project at any time during the approved leased period.

Failure to pay the rent for three consecutive months, coupled with the failure to operate the investment project for the same period, shall be deemed an outright abandonment of the project.

Any lease agreement under the ILA which is renewable at the option of the lessee, subject to the same terms and conditions of the original contract, shall be interpreted to mean as renewable upon the mutual agreement of the parties.

In the case of tourism projects, the lease of private lands shall be limited to projects with an investment of not less than $5 million, 70 percent of which shall be infused in said projects within three years from the signing of the lease contract.