In a shift from past policy the government of Myanmar has issued a notification liberalizing the rights of foreign investors to take leasehold interests in privately owned land. Previously only state land was available to investors. The new rules will provide a greater range of options to foreign investors, especially those in the construction, hotels and tourism, manufacturing and agriculture sectors. Our team in Yangon reports:
The Government of the Republic of the Union of Myanmar issued the “Order relating to the right to use land in connection with the Myanmar Foreign Investment Law” (the “Order”) on September 30, 2011, under sections 14 and 15 of the Transfer of Immovable Property Restriction Law of 1987.
Under the Order, foreign investors operating their business under the Myanmar Foreign Investment Law (the “Investment Law”) are entitled to lease privately owned land with the prior approval of the Union Government. The Order gives foreign investors a maximum leasehold right for 30 years, which is renewable for two additional terms. Each renewable term is 15 years. In cases of land situated in remote areas, a leasehold right may be granted to foreign investors for a period of more than 30 years, determined at the discretion of the Myanmar Investment Commission (the “Investment Commission”).
Previously, foreign investors had a limited right to lease private land for periods not exceeding one year at a time. In addition, foreign investors were typically required to lease state land for their investment projects. The Order therefore marks a significant break with past policy. It should be noted that these new leasehold interests are available to foreigners who have registered their investments under the Investment Law. Such investments avail foreigner investors of various tax incentives and investment guarantees. In order to qualify as an investment under the Investment Law, minimum capital requirements must be met.
As is the case in many jurisdictions, the leased land must be used only for specified activities. These activities are mentioned in the permit issued by the Investment Commission under the Investment Law. The land may be used for other activities with further approval of the Investment Commission. The foreign investor may sublease or mortgage the land (which we understand to mean the leasehold interest in the land as opposed to the land itself) with the approval of the Investment Commission. The foreign investor may also transfer shares and assign the project with the approval of the Investment Commission.
Those foreign investors wishing to lease privately owned land under the new Order may submit an application to the Investment Commission. The application must be accompanied by evidence of consent from the landlord, the agreed land lease rate per annum in accordance with the market rate, and the approval of the relevant Region or State Government. If the project to be implemented by the foreign investor involves the construction of buildings, the approvals from the relevant Development Committee and the relevant Region and State Government, the relevant government departments and organizations must also accompany the application.
After obtaining the approval of the Investment Commission, the foreign investor and the landlord will enter into the lease agreement and send the same to the Investment Commission. It is important to note that the landlord may not unilaterally terminate a lease approved under these provisions. In the event that the lessee breaches a provision of the lease or fails to pay rent in accordance with its terms, he may request the Investment Commission to intervene. The Investment Commission may terminate the lease on hearing the landlord’s complaint or it may do so unilaterally, if it is found that the lessee has contravened local law, is convicted of an offence or the investor has been “blacklisted” by the a relevant authority. It should be noted that the Investment Commission has similar powers in respect of state land concessions under which investors have been entitled use state land for their investment projects. To date, we are not aware of any reported instances where a state land concession has been terminated for the reasons stated above. Given this has been the practice in the past, it is anticipated that the Investment Commission will continue observe the provisions of leasehold interests in private land under the new Order in the same manner.
A word of caution: privately owned land is a relatively new concept in Myanmar and it is therefore prudent for foreign investors wishing to make use of these new leasehold rights, to ensure proper due diligence is conducted on the land title of the landlord, before executing any lease agreements.
If you have any questions about this Legal Update, please send us an email to: myanmar@dfdl.com
6 October 2011
