Reform of Previously Existing Regulations

In the Philippines, as in other Southeast Asian countries, the acquisition of land by a foreign investor for commercial, industrial, or tourism purposes has traditionally been limited. Access was only possible indirectly, through a minority stake in a local company, or by entering into a long-term lease agreement. In the latter case, the law on land leasing governing this possibility, Act No. 7652 (“Investors’ Lease Act“), of June 4, 1993, which provided for, among other things, a contract duration of 50 years, renewable for another 25, has recently been amended by Act No. 12252, of September 3. This new act has introduced significant modifications to make the existing regulatory framework more competitive, stable, and predictable, and thus attract more foreign investment, which is still lower ($8.9 billion) than that captured by Indonesia ($24.2 billion) or Vietnam ($20.17 billion) in 2024.

Operations Covered by the New Regulations

The changes introduced by the new regulations affect practically all articles of the old one. The most important changes relate, firstly, to its material scope of application (Article 3) and its temporal scope of application (Article 2); secondly, to the limitations (Article 4) and contract termination (Article 7); and finally, to fines and penalties (Article 8). Regarding the material scope of application, it is worth noting an interesting extension, as it now covers not only commercial, industrial, or tourism operations, as the previous regulation did, but also those related to agriculture, agroforestry, and ecological conservation. This is in line with what is recognized by certain international instruments, such as the United Nations Framework Convention on Climate Change (UNFCCC) and the Convention on Biological Diversity (CBD), to promote better use and more effective exploitation of environmental resources.

Contract Duration: New Term and Conditions

While this extension is interesting, the one concerning the temporal scope of application is both interesting and important. The duration of the lease agreement is extended to 99 years, unless the President, upon the recommendation of the Fiscal Incentives Review Board (FIRB), decides to shorten it for reasons related to critical infrastructure, national security, or government priorities. In any case, this extension is subject to two mandatory conditions: first, the approval and registration of the investment as provided in Act No. 7042, of June 13, 1991 (“Foreign Investments Act“), as amended by Acts No. 11534 (“CREATE“), of July 27, 2020, and 12066 (“CREATE MORE“), of November 8, 2024; and second, the registration of the contract in the Registry of Deeds of the corresponding province or city, which will verify that the investment approval and registration have occurred beforehand.

Main Causes for Contract Termination

Turning now to the causes for contract termination provided in Article 4, there are three to consider especially: first, the non-execution of the project within three years of the contract’s signing; second, the withdrawal of the already approved and registered investment during the contract’s term; and third, the use of the leased area for purposes other than those authorized. A fourth cause is added for projects related to tourism activities, as these require an investment of no less than five million dollars, with the stipulation that 70% of this amount must be disbursed within three years of the contract’s execution, under penalty of termination for non-compliance. Other investments not regulated by this Act No. 1252 will continue to be governed by Presidential Decree No. 471, of May 24, 1974.

Acts Subject to Fines or Penalties

While Act No. 7652 stipulated various types of fines, Act No. 12252, which amends it, does so as well, essentially maintaining the acts that give rise to them but significantly increasing their amounts. Among the former are provisions for a contract duration exceeding the 99 years recognized by the Act; the use of leased lands for purposes contrary to current laws, public order, morality, or good customs; or the leasing of land in excess of the approved area. If these occur, the responsible contracting parties will face fines of between 1,000,000 (€14,763) and 10,000,000 (€147,634) Philippine pesos, or a prison sentence of between 6 months and 6 years, at the court’s discretion, with an equally significant additional penalty that the contract will be void from the beginning.

Will the New Law Boost Investment Attraction?

Although the new Act No. 12252 imposes two conditions not foreseen in No. 7652, namely the approval and registration of the investment and the registration of the lease agreement, and although it increases the amount of fines from a range of 100,000 (€1,480) to 1,000,000 Philippine pesos to between 1,000,000 and 10,000,000, the overall assessment of it is positive. This is due not only to the expansion of the operations that can benefit from it but also—and above all—to the extension of the contract duration, which now reaches a total period of 99 years. This represents a significant improvement over the previous term, which, including renewal, only reached 75 years. It is true that, as we have seen, this 99-year period can be exceptionally shortened, but this exception does not undermine the general rule, which is sufficiently long to allow foreign investors to plan their investments in a predictable, lasting, and secure manner.