The Future UNIDROIT-FAO-IFAD Legal Guide on Agricultural Land Investment Contracts (ALIC)
The process of preparing, negotiating and implementing an agricultural land investment contract in a manner consistent with the principles and standards laid out in the Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security (VGGT) and the CFS Principles for Responsible Investment in Agriculture and Food Systems (CFS-RAI Principles), can be very challenging for investors, governments, legitimate tenure right holders and local communities alike.
The International Institute for the Unification of Private Law (UNIDROIT), in collaboration with the Food and Agriculture Organization of the United Nations (FAO) and the International Fund for Agricultural Development (IFAD), is preparing a future Legal Guide on Agricultural Land Investment Contracts (ALIC), to cater for the needs of legal counsels working on the leasing of agricultural land from States and local communities.
The ALIC guide’s aim is not to promote large-scale land acquisitions, but rather to raise awareness about alternative investment models. In acknowledging that land acquisitions continue to occur, however, the instrument will help to ensure that leases of agricultural land are done responsibly, with necessary safeguards to protect human rights, livelihoods, food security, nutrition and the environment, and that stakeholders’ rights, including those of legitimate tenure right holders, are both protected and respected.
The instrument, building on the success of the UNIDROIT-FAO-IFAD Legal Guide on Contract Farming and the UNIDROIT Principles of International Commercial Contracts, is being developed by a Working Group of experts, representatives of international organisations, and stakeholders. The resulting Zero Draft is currently being circulated as widely as possible in order to solicit comments and feedback.
Structure of the ALIC Zero Draft
The instrument will address the following six main aspects:
(1) Legal framework: The applicable legal framework is made up of various domestic sources of law (e.g. legislation, judicial decisions, regulations and, in some instances, customary rules) and various international sources (e.g. international human rights treaties, investment treaties or soft law instruments). The framework may also vary according to the type of agricultural land investment contract, which might be an investment agreement, lease contract or related agreements.
(2) Parties, due diligence and formation: There are various possible parties to agricultural land investment contracts, and numerous stakeholders that could be affected by such contracts. Difficult tasks could include: (a) identifying both the holders of legal title to the land and any holders of legitimate tenure rights with respect to that land; (b) consulting with those various holders, including in customary settings in which the roles of various authorities might not be clearly defined; and (c) conducting detailed feasibility studies and rigorous impact assessments, with respect to possible tenure, social, environmental and economic impacts.
(3) Obligations and rights of the parties: The agricultural land investment contract, which may be a single agreement or series of agreements, can set out provisions addressing not only the particular tenure and related rights that are granted, but also necessary safeguards to bridge gaps in the State’s law and possible impacts of the investment.
(4) Contractual non-performance and remedies: As leases of agricultural land usually involve long-term contractual relationships, it is important to understand the inherent risks in a particular investment and to promote cooperation between the parties and stakeholders.
(5) Transfer and return: The transfer of leased agricultural land from one investor to another can raise various concerns, including whether or not the granted tenure rights are actually transferable, the transfer complies with any contractual limitations, and such transfer is disclosed to the public.
(6) Grievance mechanisms and dispute resolution: Understanding the types of grievances and disputes that commonly arise under agricultural land investment contracts and the various mechanisms for resolving them (e.g. expert determinations, negotiation, mediation, arbitration and litigation) can also create a more balanced and sustainable contract.
In this online consultation we invite you to share with us thoughts and inputs you may have on the Zero Draft. Comments concerning the general approach of the Guide or on specific Chapters, sections or issues would be most welcome. In particular, we are seeking feedback on the following:
- Are there sections in the draft Guide that appear to be non-exhaustive or to have gaps in the addressed issues? If so, how would you propose to bridge them?
- Are there sections that lack clarity? If so, how would you propose to clarify them?
- Does the draft Guide present any sections where the content is redundant (i.e. has already been presented elsewhere)?
All comments received will be submitted to the Working Group and taken into account, as appropriate, for the draft's final revision, which is to take place between 1 October and 20 December 2019.
Subject to the final revision process in coordination with FAO and IFAD, the Legal Guide on Agricultural Land Investment Contracts will be adopted by the UNIDROIT Governing Council at its 99th session in May 2020.
Many thanks in advance for your time and valuable input.
Carlo Di Nicola
Senior Legal Officer, UNIDROIT
This activity is now closed. Please contact [email protected] for any further information.
FSN Forum Team
Thank you very much for your comments,
For those who would still like to provide feedback on the ALIC Zero Draft, you may do so directly at UNIDROIT’s website until 31 October 2019:
In ENGLISH: (https://www.unidroit.org/work-in-progress/agricultural-land-investment/online-consultation);
In FRENCH: (https://www.unidroit.org/fr/current-studies-fr/contrats-en-terres-agricoles/consultation-en-ligne).
Prof. Yixin Xu
The newly amended Land Administration Law of the People's Republic of China was issued on 26th August 2019 and will become effective from 1st January 2020. It shares some common ground with the ALIC. It prioritizes biodiversity conservation and sustainable development (Art. 18). The acquisition of land is limited to clearly defined purposes and procedures (Art. 45-7). The amendment strengthens the protection of tenure right holders (Art. 48) and simplifies the procedure of the transaction of land tenure rights to non-local entities and individuals (Art. 13).
Considering the international audience of the ALIC, it would be beneficial to have an appendix at the end showing the available official online sources of relevant countries’ national legislation.
Mr. Fabiano de Andrade Correa
I'd also raise a point with regards to FPIC, and its potential applicability beyond indigenous communities. Though it was originally formulated with regards to indigenous peoples, FPIC is nowadays considered an applicable principle to all types of communities potentially affected by land transactions. In fact, FPIC is nowadays considered an expression of the realization of different human rights (adequate housing, culture, etc.)
In addition, the VGGT Technical Guide on FPIC emphasizes that, as an expression of the right to self determination, “FPIC can be fairly interpreted as applying to all self-identified peoples who maintain customary relationships with their lands and natural resources, implying it is enjoyed widely in rural Africa and Asia” (for instance).
In this regard, shold the guide make reference for consultations with other non IP communities tofollow the FPIC standards and allow a “right to say no”?
Dr. Wei Yin
There are few things that can be improved in Chapter 1- The Legal Framework. First, after reading this chapter, the structure and classification of each part is not that clear and sometime overlap. It would be helpful if the drafting team can reconsider a more logical structure of this chapter. Second, in 1.5 (page 15), it mentions ‘customary land rights’ and ‘customary rights’. Would it possible to provide footnotes or examples on this? In 1.8 – Domestic legal system in general, it mainly discusses and/or mentions constitution or constitutional system. While, in some countries, the institution does not specifically mentions contract regulation or provide information on how to regulate contract with public factors. This part can provide few more general information concerning the domestic legal system. In part A-Domestic Sources 1.10, the guide use ‘legal rules’ to include all mandatory domestic legal sources, but I have some reservations about it. The case law may not be described as ‘rules’. The guide puts the 1.10, 1.11, and 1.12 into parallel parts, while it seems that the three parts might not be the same level. Or it would be nice if considering putting the ‘customary rules’ and ‘recognition of customary rules’ in one part with sub-titles. There are also overlaps in part B- International sources and Part II. Relevant Areas of Law, especially when mentioning international instruments concerning human rights. In 1.21, the guide mentions applicable tax and finance regime, but in the bullet points, it only emphasises fiscal regime and accounting standards.
Prof. Yixin Xu
Some private companies are willing to invest in sustainable agricultural activities to show their leadership in addressing global environmental or social challenges. However, these investing companies themselves may not be specialized in agricultural projects. Instead of investing directly, they may seek intermediaries. Such intermediaries may have various forms, such as development banks and private companies. They usually have their own teams of experts and codes of conduct. Many explanations of basic legal knowledge may not be helpful for them. For instance, ‘this is because domestic courts can exercise compulsory personal and subject matter jurisdiction over persons and disputes located in that State’s territory’(p.123). Hence, after defining a clear scope of the audience in the revision, the draft may consider rearranging the structure of texts so that legal experts can locate the core issues easier.
Prof. Yixin Xu
Regarding the certification schemes for sustainable agricultural products and supply chains, the draft may also consider adding more clarifications and details. Several separate places mentioned relevant concepts very briefly: para. 2.26. ‘certification providers’ (p. 30), para. 2.56 ‘certification schemes’ (p. 36), para. 3.112 ‘private standards and multi-stakeholder certification schemes’ (p. 74), para. 3.122 ‘private certification schemes’ (p. 77), para. 3.150, ‘certification bodies, which may be public or private entities’ (p. 82). It may be stronger to provide a clear definition at the beginning and explain a bit more about how these certification schemes operate and specific rights and responsibilities that need to be agreed on in the land investment contracts.
Prof. Yixin Xu
Another idea that may be interesting for the parties is the possibility to combine multilateral funding for sustainable agricultural activities. There are multilateral funds that support biodiversity conservation, climate change mitigation and adaption, and capacity building, such as the Global Environmental Fund, Green Climate Fund, and Adaptation Fund. If the planned agriculture activities are relevant to any of those themes above, the parties may consider applying for additional funding and repay with the positive environmental and social results that would be generated regardless. In this context, the parties may need to arrange in their investment contract, which area is for such funding and their relevant rights and responsibilities.
Ms. Omoyemen Lucia Odigie-Emmanuel
I have included some text amendment The underlines are not showing so I have attached a word document to easily identify them.
CHAPTER 1 - THE LEGAL FRAMEWORK
1.11. Customary and Religious rules. While legal professionals are likely familiar with the roles of legislation, regulations and judicial decisions in various legal systems, often there is not the same level of familiarity with customary and religious rules. Such rules may play a significant role in some legal systems, and they often derive from practices, traditions and religion, may be neither codified nor written, and may deal with matters such as personal status, family relationships, inheritance, governance and use of land and other natural resources, rights over livestock or seasonal rights to land for the grazing of livestock. Those latter rights may also be collective and pertain to the whole community. With respect to agricultural land investment contracts, customary rules and religious may deal with who is entitled to hold rights to land, the capacity of persons to enter into and execute an agreement on behalf of group right holders, the validity of agreements, issues of form and evidence, or performance and sanctions for non-performance. Such rules may be exclusionary and inconsistent with human rights and public policy, for example by prohibiting women from owning or inheriting land or from entering into contracts.
1.12. Recognition of customary and religious rules. Customary and religious rules are recognised in certain States, by the State’s constitution, statute or judicial decision. The applicability and scope of these rules, how they are recognised, and how possible conflicts between the various autonomous legal orders are to be solved, depend on the particular features of each State’s legal system. In other settings, customary rules and religious rules may be applied by courts as local customs or usages,6 and these two concepts are often conflated. Even when a particular practice or tradition does not legally amount to a custom, the parties to an agricultural land investment contract should carefully take them into account in their dealings, especially when the relationship has a strong social, cultural and personal dimension. In this regard, the parties should also keep in mind that there may be differences, for example, between how a State’s court interprets and applies a local community’s customary rules and how those communities interpret and apply them.
1.22. Human rights. Various human rights instruments establish civil, cultural, economic, environmental, political and social rights. States have a duty to respect, protect and fulfil such rights,16 and investors have a corresponding responsibility to respect human rights and to identify and assess the potential negative impact their investment would have on rights and establish precautionary ,easure to avoid such negative impacts and also to remedy any negative impacts they have on such rights.17 There are various areas of human rights law that might be affected by agricultural investment including, inter alia:
• Food security and the right to food: Ensuring food security for all and the progressive realisation of the right to adequate food are central tenets of the VGGT and the CFS-RAI Principles.18 In accordance with the VGGT and CFS-RAI Principles, a host State’s legal framework may contain laws or regulations that seek to ensure food security, for example, by temporarily banning the export of food if there is a threat to food in that State. Because an agricultural investment could pose as an obstacle to pose as an emerging obstacle to the right food thus negatively affect food security. and a Any perceived threat to food security could provoke strong local opposition to a possible agricultural investment, it is essential that a risk assessment be conducted in this regard (see Chapter 2.IV.B.2).
Dr. Wei Yin
In the part of IV. Protection of Investment and Regulatory Autonomy, there are few things that need to be improved or clarified. First, in 3.126, the guide mentions ‘domestic investment codes’, but I would suggest not to use the term ‘codes’ but ‘law’ or ‘rules’ or ‘regulation’ since in many countries they do not have investment “codes” but investment law, or regulation, or provisions in relation to investment in other codes or law. The term of ‘codes’ is not frequently used in investment law field. In 3.132, when mentioning ‘indirect expropriation or regulatory taking’ or ‘tantamount’, other similar alternatives or terms can be also mentioned for wide readers, e.g. ‘creeping’, or ‘de facto’ expropriation. In 3.134 (page 79), whether the examples of ‘discounted cash flow method, book value, replace value’ can be further explained or with footnotes provided. In 3.139 (page 80) and 3.140, it would be helpful if the term ‘economic equilibrium clauses’ or ‘stabilisation clauses’ can be explained since many other people may not be familiar with these technical terms. Actually, there are two basic types of stabilisation clause, i.e. ‘freezing clauses’ and ‘economic equilibrium clause’. The guide in this part may have to clarify the relation of these clauses to make readers clearly understand it. In addition, this part seems to provide an approach or an view to address or reflect the conflict between protection of investment and protection of the right to regulate and try to make a balance, however, the obligation (binding or non-binding) of investors has seldom been mentioned. It seems that the view of this part is mainly to provide measures or approaches that the government can take to balance this conflicting interest but not the measures or approaches that the government can take to protect its right to regulate, i.e. countermeasures. The guide mentioned CSR, responsible business conduct or similar expression but in this part these terms do not appear. Given that, for the readers, the obligation or soft responsibility of investors is not a key issue but this is also very important for the purpose of achieving sustainable investment.
Prof. Yixin Xu
The ALIC zero draft has mentioned many times that environmental issues are one of the important components of the bargain. The draft provides four pathways to ensure positive environmental results, whereas some of them are slightly hidden in the texts. After explaining that there are national and international laws on relevant environmental issues, the draft mainly addresses these issues by suggesting a feasibility study for the investors to be aware of the environmental risks and environmental impact assessments (EIA) as required by the law. The draft also suggests that ‘in response to these potential impacts, investors ought to prepare management programs that create operational procedures, practices, plans, and legal agreements ... These ought to include environmental and social action plans with measurable targets as well as for monitoring and review as well as for stakeholder...’ Lastly, the investor may be obliged to pay compensation for the misuse of the land as discussed in Chapter 5.
These pathways are thoroughly listed in the text, whereas the draft should also make it more evident in the table of contents and make it more visible with subtitles. Then it would be easier for practitioners to locate where to look when the non-performance, transfer, and dispute are about environmental issues in Chapters 4, 5, and 6.
Also, it is doubtful whether international and national legal systems can provide a credible EIA to mitigate environmental risks, hence they may not be able to provide ‘assurances that environmental standards will be maintained’. The EIA is sometimes not binding under international law. For instance, in the case of CDM agriculture activities, whether to conduct an EIA is subject to the decision of the designated national authority, and relevant international agencies do not conduct a substantial review. The national/local authorities may have deficient standards or lack of the institutional and financial capacity to hold a credible EIA.
It is a smart idea to ask investors to make environmental plans to prevent future risks. It has happened in international cases, that a project was terminated because the NGOs discovered significant adverse environmental impacts during the implementation. In the case concerning Gabcίkbvo-Nagymaros project, the International Court of Justice (ICJ) ruled the Hungarian government to continue the project, and both parties should apply newly developed norms of environmental law. However, would the private investors be willing to bear such a responsibility (as suggested below, state maybe investors as well. But the discussion here focuses on the private investors)? For those who invest in sustainable agricultural production, are they institutionally and financially capacity to design and implement a mechanism that even international and national authorities could hardly achieve, and then what kind of mechanism it would be? If it is possible, the revision of the draft would be very beneficial for the investors to give more details on the design of such a mechanism (combining operational procedures, practices, plans, legal agreements, and action plans) to mitigate environmental risks.
 E.g. ALIC Zero Draft, UNIDROIT/FAO/IFAD (2019), p. 17, 23
 Ibid., p. 24
 Ibid., p. 47
 Ibid., p. 116
 Ibid., p. 24
 Para. 132, Annex 1, Clean Development Mechanism Validation and Verification Manual, CDM EB 55 Report, p. 26.
 Ibid., p. 112; L. Schneider, Is the CDM Fulfilling its Environmental and Sustainable Development Objectives? An Evaluation of the CDM and Options for Improvement. Öko-Institut for Applied Ecology, 2007 (248), p. 1685.
 ICJ, Summaries of Judgments and Orders, Case Concerning Gabcίkbvo-Nagymaros Project (Hungary/Silovakia), Judgment of 25 September 1997.