Long-Term Land Lease in the Philippines for Foreign Investors: Rules Under RA 12252

Foreign investors may lease private land in the Philippines for an aggregate period of up to ninety-nine (99) years under Republic Act No. 12252, which amended the Investors' Lease Act (Republic Act No. 7652). The lease must be used solely for an approved and registered investment, the contract must be registered with the Registry of Deeds and annotated on the certificate of title, and the lessee must comply with the conditions set by law. Registration is the operative act that makes the lease binding against third persons.

What the law allows foreign investors to lease

Under Section 2 of Republic Act No. 7652, as amended by Republic Act No. 12252, the State encourages foreign investments consistent with the constitutional mandate to conserve and develop the country's patrimony. The law adopts a flexible policy on granting long-term leases of private lands to foreign investors for 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.

The policy also expressly aims to ensure the reliability of investors' lease contracts to provide a stable environment for foreign investments.

Who may lease and for how long

Section 4 of Republic Act No. 7652, as amended, allows any foreign investor investing in the Philippines to lease private lands, subject to conditions. The aggregate period of the lease contract shall not exceed ninety-nine (99) years.

The President may impose a shorter lease period for investors engaged in vital services or industries considered critical infrastructure, in the interest of national security, or pursuant to government-identified priorities for national development. This may be done upon the recommendation of the Fiscal Incentives Review Board (FIRB) or other relevant government agencies.

Conditions for a valid long-term lease

The law requires the following:

• The leased area must be used solely for the purpose of the approved and registered investment, upon the mutual agreement of the parties.
• The leased premises must comprise only such area as may reasonably be required for that investment, subject to the Comprehensive Agrarian Reform Law and the Local Government Code.
• The foreign investor must have an approved and registered investment under the Foreign Investments Act of 1991 (Republic Act No. 7042), the CREATE Act (Republic Act No. 11534) as amended by the CREATE MORE Act (Republic Act No. 12066), or applicable laws, or must have complied with the investment requirements of the appropriate Investment Promotion Agency (IPA).

Registration and its legal effect

The lease contract must be registered with the Registry of Deeds of the province or city where the leased area is located and annotated on the certificate of title covering the leased area.

Under Section 4-A of Republic Act No. 7652, as inserted by Republic Act No. 12252, registration is the operative act that renders the lease binding against third persons. Registration follows Presidential Decree No. 1529, as amended. A registered lease contract is not subject to collateral attack; it cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law.

The Register of Deeds registers the contract only if: the investor presents proof of an approved and registered investment; the date of commencement and maximum duration of the lease are certain; the technical description of the property is clearly specified; the lessee has performed preparatory acts for the commencement of its investment project; and the contract provides for its termination in case of a change in purpose or project, or failure to commence the investment project within a reasonable period from signing.

Selling or assigning the leasehold right

The leasehold right acquired under a long-term lease may be sold, transferred, assigned, or serve as security for a loan. However, when the buyer, transferee, assignee, or creditor is a foreigner or foreign-owned enterprise, the conditions and limitations on the use of the leased property continue to apply.

Termination and penalties

Withdrawal of the approved and registered investment within the lease period, or use of the leased area for a purpose other than that authorized, warrants the ipso facto termination of the lease contract, without prejudice to the lessor's right to be compensated for damages.

If the investment project is not commenced within three (3) years from signing of the lease contract, the FIRB, Board of Investments (BOI), or relevant IPA may order the lessee to explain the delay and, if merited, require commencement within a reasonable period. Failure to comply may, after due notice and hearing, cause revocation of all entitlements granted under the Act.

Contracts executed in violation of prohibited acts are null and void ab initio, and both contracting parties may be fined not less than One million pesos (P1,000,000.00) but not more than Ten million pesos (P10,000,000.00), or imprisoned from six (6) months to six (6) years, at the court's discretion.

Subleases

Unless there is an express prohibition in the lease contract, the lessee may sublease the property with the lessor's consent. The conditions under Section 4 apply to the sublease contract, and sublease contracts must be registered with the Registry of Deeds and annotated on the certificate of title.

Frequently asked questions

How long can a foreign investor lease land in the Philippines? Up to ninety-nine (99) years in the aggregate, unless the President imposes a shorter period for investors in vital services, critical infrastructure, or priority sectors.

Can a foreign investor lease land without an approved investment? No. The investor must have an approved and registered investment under the Foreign Investments Act of 1991, the CREATE Act as amended, or applicable laws, or must have complied with the requirements of the appropriate IPA.

Can the leasehold right be sold to another foreigner? Yes, but the same conditions and limitations on the use of the leased property continue to apply to the foreign buyer, transferee, assignee, or creditor.

Practical takeaways

• The maximum aggregate lease period is ninety-nine (99) years, subject to a possible shorter period imposed by the President for critical sectors.
• The lease must be tied to an approved and registered investment and used solely for that purpose.
• Register the contract with the Registry of Deeds and have it annotated on the certificate of title; registration makes it binding against third persons.
• Withdrawal of the investment or use for an unauthorized purpose results in ipso facto termination of the lease.
• Failure to commence the project within three (3) years may lead to revocation of entitlements after due notice and hearing.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• REPUBLIC ACT NO. 386 - AN ACT TO ORDAIN AND INSTITUTE THE CIVIL CODE OF THE PHILIPPINES

• REPUBLIC ACT NO. 12252 - AN ACT LIBERALIZING THE LEASE OF PRIVATE LANDS BY FOREIGN INVESTORS, ESTABLISHING THE STABILITY OF LONG-TERM LEASE CONTRACTS, AMENDING FOR THE PURPOSE REPUBLIC ACT NO. 7652, OTHERWISE KNOWN AS THE "INVESTORS' LEASE ACT"

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.