Newsletter
Amendment to Regulations for Favorable Rentals in Public Land Lease and Superficies in Infrastructure Projects
Under the pre-amendment Regulations for Favorable Rentals in Public Land Lease and Superficies in Infrastructure Projects ("Regulations for Favorable Rentals"), during the building period and the operation period of Promotion of Private Participation ("PPP") projects, the land rentals and declared land prices were closely correlated. Meanwhile, declared land prices had skyrocketed in recent years, and rentals in PPP projects calculated by the Regulations for Favorable Rentals would drive up the land rental cost, which would prejudice the projects and lead to disputes.
To facilitate the competent authority's enforcement and ensure the annual land rentals could cover the land tax, the Ministry of Finance and the Ministry of the Interior announced the amendment to Article 2 of the Regulations for Favorable Rentals. The post-amendment rentals for public lands in PPP infrastructure projects will be calculated as follows: during the building period, the rental shall be the declared land price multiplied by the land tax rate, and during the operation period, the rental shall be the declared land price multiplied by the land tax rate, plus 2 percent of the declared land price when the agreement is signed. This amendment is expected to greatly dampen the effect of the shifting declared land prices on the land rentals and curb land rental fluctuations. As for project agreements that have been signed, the explanation for the amendment states: “Considering the variety in scale, terms, financial planning of different projects, and the public bidding process, the PPP projects signed before the amendment of this article shall follow the principle of ‘resorting to the provisions before amendment for substantial issues.’ Therefore, the rentals for those projects shall be based on the regulations at the time the agreement was signed.”
Consequently, for private institutions in projects with agreements that have been signed, if they consider the post-amendment provisions to be more favorable and are concerned about applicability, we suggest reviewing the agreement to determine whether the post-amendment regulations apply. If they are inapplicable, it is possible to adopt the mechanism of investment agreements and petition the competent authorities to make necessary adjustments by consulting the post-amendment regulations. For projects under the bidding process, the calculation of land rentals should be examined to determine whether it follows the amended provisions or requires adjustments by the competent authority. Since we have provided legal services in many domestic landmark PPP projects and helped draft and negotiate provisions on land rentals or land rental adjustment in ongoing projects, we would be pleased to offer analysis of any issue related to land rentals based on our abundant experience and expertise.