June 16, 2008
DAR ADMINISTRATIVE ORDER NO. 02-08
SUBJECT : Guidelines Governing Lease of Lands under Agribusiness Venture Arrangement (AVA) in Agrarian Reform Areas and the Determination of Lease Rental Thereof
ARTICLE I
Preliminary Provisions
SECTION 1. Prefatory Statement and Legal Bases. — Section 8 of Republic Act (R.A.) No. 6657 provides that, ". . . . In general, lands shall be distributed directly to the individual worker-beneficiaries. In case it is not economically feasible and sound to divide the land, then they shall form a workers' cooperative or association which will deal with the corporation or business association or any other proper party for the purpose of entering into a lease or growers agreement and for all other legitimate purposes. Until a new agreement is entered into by and between the workers' cooperative or association and the corporation or business association, or any other proper party, any agreement existing at the time this Act takes effect between the former and the previous landowner shall be respected by both the workers' cooperative or association and the corporation, business association or such other proper party. In no case shall the implementation or application of this Act justify or result in the reduction of status or diminution of any benefits received or enjoyed by the worker-beneficiaries, or in which they may have a vested right at the time this Act becomes effective. . . . In no case shall a foreign corporation, association, entity or individual enjoy any rights or privileges better than those enjoyed by a domestic corporation, association, entity or individual".
Section 3 of R.A. No. 7905, amending Section 44 of R.A. No. 6657, provides that, ". . . The PARCCOM shall coordinate and monitor the implementation of the CARP in the province. . . . in addition, it shall: a) recommend to the PARC the following: . . . 3) continuous processing of applications for lease back arrangements, joint venture agreements and other schemes that will optimize the operating size for agricultural production and also promote both security of tenure and security of income to farmer beneficiaries: Provided, That lease back arrangements should be the last resort". DHcSIT
Section 11 of Executive Order (E.O.) No. 229 states that, "Leases and management contracts on land covered by land distribution and registered with the Register of Deeds prior to the approval of this Order may continue under their original terms and conditions, but not beyond five (5) years from the effectivity of the Order; provided that upon expiration, leases and management contracts may only be renewed subject to the agreement of the qualified beneficiaries; and provided further that upon the distribution or award of the land, where the existing lease rentals are not acceptable to the qualified beneficiaries, such rentals shall be renegotiated with the assistance of the Barangay Agrarian Reform Council (BARC). If the parties fail to agree, the DAR shall determine the rental. Mortgages and other claims registered with the Register of Deeds will be assumed by the Government up to the landowner's compensation value as provided for in Section 6 hereof".
Pursuant to the abovementioned provisions of law, the following rules and regulations are hereby issued for the guidance of all concerned in the lease of lands under agribusiness venture arrangements (AVAs) in agrarian reform areas and the determination of lease rental thereof.
SECTION 2. Coverage. — These guidelines shall apply to all lands covered by the Comprehensive Agrarian Reform Program (CARP) under agribusiness venture arrangement. It shall also apply to retained areas of small landowners and lands of agrarian reform beneficiaries (ARBs) that are fully paid and where the ten-year prohibitory period under Section 27 of R.A. No. 6657 has already lapsed, but ARBs have opted to include said landholdings under lease agreement. ACaEcH
SECTION 3. Definition of Terms. — As used in this Order, the following terms are defined herein:
3.1 Average Household Size refers to the ratio of household population to the number of households. This is estimated by the National Statistics Office (NSO).
3.2 Comparable Lands refer to lands of the same estate or municipality/province/region with similar features in terms of crops planted, terrain, soil properties and conditions (i.e., type, texture, PH, moisture content, etc.), distances and accessibility.
3.3 Economic Family-Size Farm Unit means an area of farm land that permits efficient use of labor and capital resources of the farm family and will produce an income sufficient to provide a modest standard of living to meet a farm family's needs for food, clothing, shelter and education with possible allowance for payment of yearly amortization on the land, and reasonable reserves to absorb yearly fluctuation in income. aCcEHS
3.4 Land Amortization Value (LAV) refers to the amount of the regular annual amortization per hectare paid by the ARBs for the agricultural lands awarded to them under CARP. It shall be based on the land valuation and land amortization schedule determined by the Land Bank of the Philippines (LBP), subject to the land value as determined by final arbitration of the DAR Adjudication Board (DARAB), Special Agrarian Court (SAC) or Court of Appeals (CA), in case the land valuation of the subject landholding is contested or under appeal by the landowner (LO).
In cases where the lands are fully paid by the ARBs or donated by the LO to the ARBs, the "Land Amortization Value" shall refer to the equivalent value or amount of annual amortization of comparable lands within the municipality, province or region where the subject landholding is located.
In the case of lands under the voluntary land transfer (VLT) scheme, the "land amortization value" shall refer to the fixed amount of land value specified in the signed agreement on voluntary land transfer between the ARBs and the LO. EDATSI
3.5 Lease Rental refers to the income accruing to the owner as payment for the agricultural use of his land subject of lease agreement.
3.6 Lease Agreement is an AVA scheme wherein the ARBs bind themselves to give the former LO or any other investor general control over the use and management of the land for a certain amount and for a definite period.
3.7 Lessee-Investor refers to any person, natural or juridical who, with the consent of the lessor, operates the leased land for agricultural production in accordance with the terms of the lease agreement.
3.8 Lessor-ARB pertains to an individual ARB or duly registered ARB cooperatives or associations, who lease their awarded lands to any investor for purposes of agricultural production. HICSTa
3.9 Poverty Threshold is the minimum income/expenditure for a family/individual to meet the basic food requirement and non-food requirements. This is established by the National Statistics Coordination Board (NSCB).
SECTION 4. General Policies. — The following basic principles shall govern the lease of CARP covered lands under AVA:
4.1 The terms and conditions of the lease agreement (LR Annex "A"), including the determination and computation of lease rental of lands under AVA, shall be mutually agreed upon by the contracting parties subject to the approval of the Presidential Agrarian Reform Council (PARC)/PARC Executive Committee (ExCom) upon the recommendation of the Provincial Agrarian Reform Coordinating Committee (PARCCOM), and review and evaluation of the National AVA Evaluation Committee (NAEC) pursuant to DAR Administrative Order (A.O.) No. 09, Series of 2006 titled, Revised Rules and Regulations Governing Agribusiness Venture Arrangements (AVAs) in Agrarian Reform Areas.
Any amendment, change, extension, or renegotiation of the terms and conditions of the lease agreement, including but not limited to, extension of period for the lease, renegotiated lease rental rates shall be subject to the same process of review and approval by the PARC or PARC ExCom. cTSDAH
The absence of a PARC or PARC ExCom approval on any lease agreement renders the said lease agreement null and void pursuant to Sec. 4.9 of A.O. No. 09, Series of 2006.
4.2 The DAR, through the NAEC, shall conduct an inventory, review and monitoring of all existing lease agreements with a period of at least 25 years and those subject of renegotiation, to determine the extent of development and use of the land, the parties' compliance with the terms of the lease agreement, the conditions relating to the period of the lease agreements, and the viability of full take over by the ARBs pursuant to the intent of agrarian reform.
4.3 In the negotiation or renegotiation of the annual lease rental (LR) per hectare, the concerned parties shall factor in the annual land amortization value per hectare, the annual Real Property Tax on the land per hectare, and the annual poverty threshold, and may consider the other forms of remuneration given to the lessor-ARBs and the historical net income of the company based on validated financial statements, the lease rental benchmark formula being: cACDaH
LR = PT + LAV + RPT
—–
3
where:
PT = annual poverty threshold which is computed by multiplying the annual per capita poverty threshold of the province where the subject landholding is located by the national average household size of five (5);
3 = maximum hectarage of lands that may be awarded to ARBs under R.A. No. 6657;
LAV = land amortization value per hectare per year; and
RPT = annual real property tax per hectare.
4.4 The computed and agreed lease rental shall be incorporated in the terms and conditions of the lease agreement or amendment thereto. All pertinent data and documents used as bases in the determination of the lease rental shall be submitted, together with the lease agreement, to the NAEC, through the AVA-Task Force (TF), for review and evaluation pursuant to DAR A.O. No. 09, Series of 2006.
4.5 Renegotiation of the amount of lease rentals or any other provisions of the lease agreement shall be undertaken by the concerned parties every five (5) years or earlier if any of the following grounds under Sec. 4.14 of DAR A.O No. 09, Series of 2006 arise: (1) extraordinary increase in inflation rate; (2) drastic change in price fluctuation on both production input and output; (3) declaration of the areas as calamity or disaster area due to force majeure; and (4) other meritorious grounds. ISaCTE
In no case shall the renegotiated lease rental be lower than the lease rental preceding the renegotiation.
4.6 Any conflict that may arise from the negotiation or implementation of the lease agreement, or compliance of lease rental payments shall be governed by the provisions of Secs. 14 to 16 of DAR A.O. No. 09, Series of 2006. However, in the event of failure to resolve the issue, any of the parties may submit their dispute for arbitration in accordance with the above A.O., provided that during the arbitration period, the lessee-investor shall continue to pay the lessor-ARB the lease rental, and productivity and quality premium, if any, based on the lease rental rate of the preceding year until the conflict has been resolved.
4.7 Without prejudice to the filing of a case for breach of contract, the lease agreement shall provide sanctions for violations or non-compliance by either party of the terms and conditions of the lease agreement. The DAR shall periodically monitor the implementation of these lease agreements pursuant to Sec. 4, Item 4.21 of A.O. No. 09, Series of 2006.
SECTION 5. Rights and Obligations of the Lessor-ARB (Whether Individual ARB or Organized as Cooperative or Association) and Lessee-Investor. — The following are the rights and obligations of the lessor-ARB and lessee-investor: cDCIHT
5.1 The lessor-ARB shall:
5.1.1 Receive from the lessee-investor rentals on the subject landholding and other benefits that may be agreed upon by the parties;
5.1.2 Pay land amortization due on the subject land (if applicable) and realty taxes on the leased property, the amounts of which shall be segregated by the lessee-investor from the lease rental for the said purpose;
5.1.3 Keep the lessee-investor in full and peaceful possession and enjoyment of the leased property during the duration of the lease agreement and shall not physically appropriate or partition the leased land among the ARB cooperative's/association's members; HEDSCc
5.1.4 Have the right to ownership of permanent improvements introduced on the land by the lessee-investor upon the termination of the lease agreement, unless the lease agreement provides otherwise:
5.1.5 Have the option to buy non-permanent improvements which are beneficial to the land at the amount agreed upon by both parties; and
5.1.6 Permit and/or allow the annotation of the lease agreement in the Office of the Registry of Deeds (ROD) of the province where the leased property is located, and a memorandum thereof annotated and entered on the Certificate of Land Ownership Award (CLOA).
5.2 The lessee-investor shall:
5.2.1 Manage and operate the subject landholding within the period stipulated in the lease agreement, premised on the payment of lease rental and other benefits at rates agreed upon with the ARB/s and adherence to all other lease agreement stipulations;
5.2.2 Provide the required capital to develop, plant, cultivate, harvest or process the agricultural crops, extend all technical and management services for the efficient operation of the farm, and assume the risk of loss of agricultural operations;
5.2.3 Pay property taxes on buildings and any other improvements on the land;
5.2.4 Remit in the name of the lessor-ARB/s the payments for the real estate/property tax to the Local Government Units, the land amortizations to the Land Bank of the Philippines in the case of compensable lands, or to the landowner for lands under voluntary land transfer (VLT), which were segregated from the lease rental, and provide the original copy of receipts thereof to the lessor-ARB/s; ACSaHc
5.2.5 Have the right to construct buildings and introduce other physical improvements or facilities on the property, which are necessary for agricultural operations in consultation with the lessor-ARB/s. In no case, however, shall any such improvement on the property decrease the aggregate agricultural area to the extent of lowering the land rental and other privileges accruing to the ARBs;
5.2.6 Manage and care for the leased property and assume its undertakings properly and efficiently in accordance with sound agricultural, financial, business and environmental practices;
5.2.7 Bear all expenses for production, cultivation, harvesting and marketing of products, and all charges necessary for the conduct of business operations including business taxes and other impositions such as business license fees, regulatory fees, etc.; EHaCTA
5.2.8 Comply, in good faith, with the duty to pay the lease rent and to observe and perform all other obligations contained in the lease agreement. In case of failure to pay the annual lease rent to lessor-ARB/s within the agreed period, the lessee-investor shall pay an interest charge of twelve percent (12%) of the annual lease rental, or the prevailing legal rate on interest charges, whichever is higher.
5.2.9 Obtain the consent of the lessor-ARB/s before the conduct of any experimental project(s) not directly related to the production and processing of the agricultural products, but deemed necessary for sound agricultural production;
5.2.10 Have the option to remove, transfer or move non-permanent improvements with the written consent of the lessor-ARB/s, prior to or upon termination/expiration of the lease agreement in case the lessor-ARB/s will not opt to purchase such non-permanent improvement, chargeable to the lessee's account, and without causing any damage to the premises and the land; ScTaEA
5.2.11 Implement, in collaboration with the DAR, a transfer of technology and management program focused on production technologies, entrepreneurship, marketing, resource mobilization, and project monitoring and evaluation pursuant to DAR A.O. No. 09, Series of 2006 within one year from the effectivity of the lease agreement to ensure a successful management of the land by the ARBs at the expiration of the lease agreement; and
5.2.12 Maintain ecological balance through sustainable and efficient use of natural resources in the area, preserve soil fertility by providing the necessary investments to conserve the quality of the land such as soil and water conservation and fertility maintenance, and ensure the safety of the agricultural workers by conforming to internationally accepted standards in the use of hazardous chemicals pursuant to DAR A.O. No. 09, Series of 2006. aATCDI
SECTION 6. Prohibitions on the Lessor-ARB and the Lessee-Investor. — The lessor-ARB and the lessee-investor are governed by the following prohibitions:
6.1 During the pendency of a petition for nullification of lease agreement, it shall be unlawful for the lessor-ARB/s to dispossess the lessee-investor of the leased land during the period of the lease that is subject of the said petition. The lessor-ARB/s who shall unlawfully dispossess the lessee-investor without due process of law shall be liable for damages.
6.2 It shall be unlawful for the lessee-investor to:
6.2.1 Cultivate/grow/produce other crops on the land or use the landholding for purposes other than what has been agreed upon in the lease agreement;
6.2.2 Plant, grow, raise or permit the planting, growing or raising of any plant or its fruits, produce, and products as defined by R.A. No. 9165 titled, "An Act Instituting the Comprehensive Dangerous Drugs Act of 2002, Repealing Republic Act No. 6425, Otherwise Known as the Dangerous Drugs Act of 1972, as Amended, Providing Funds Therefor, and for Other Purposes"; ECSHID
6.2.3 Cause, through its operations, any substantial and unreasonable damage on the land and the deterioration/depletion of the fertility of the soil and the other improvements thereon; and
6.2.4 Sub-lease or assign the rights to the lease of the property to another person or entity.
ARTICLE II
Operating Procedures
SECTION 7. Operating Procedures. — The operating procedures for the filing, review, approval, revocation/cancellation, reporting and monitoring of lease agreements shall subscribe to the provisions of DAR A.O. No. 09, Series of 2006.
ARTICLE III
Final Provisions
SECTION 8. Transitory Provision. — The provisions of this Administrative Order (A.O.) shall govern all lease applications filed and those renegotiated for revised terms and conditions of the lease agreement upon the effectivity of this A.O. including pending applications under process in the DAR Provincial Offices (DARPOs) at the time of the effectivity of this Order.
In the case of existing lease agreements approved under the provisions of DAR A.O. No. 02, Series of 1999, the same may be renegotiated, upon petition of the parties pursuant to the provisions of Sec. 2, Items (d) and (e), Sec. 12 (last para.) and Sec. 15 (2nd para. last sentence) of A.O. No. 2, Series of 1999.
SECTION 9. Repealing Clause. — All administrative orders, circulars, memoranda, rules and regulations or portions thereof inconsistent with the provisions of this Order are hereby revoked, cancelled, amended or modified accordingly. aCASEH
SECTION 10. Effectivity. — This Order takes effect ten (10) days after its publication in two (2) national newspapers of general circulation.
Diliman, Quezon City, June 16, 2008.
(SGD.) NASSER C. PANGANDAMAN
Secretary
Published in The Philippine Star on June 19, 2008.