Allocation of Deed of Sale and Title Transfer Costs for CLOA Land in the Philippines

Introduction

In the Philippines, the Certificate of Land Ownership Award (CLOA) represents a cornerstone of the agrarian reform program, granting ownership rights to qualified agrarian reform beneficiaries (ARBs) over agricultural lands redistributed under the Comprehensive Agrarian Reform Program (CARP). CLOA titles are issued pursuant to Republic Act No. 6657, as amended by Republic Act No. 9700, and are subject to specific restrictions to ensure the program's objectives of equitable land distribution and farmer empowerment are upheld. One key restriction is the 10-year prohibition on the sale, transfer, or conveyance of CLOA-awarded lands, except in cases of hereditary succession or to the government.

Once the 10-year period lapses and the land has been fully amortized (i.e., payments to the Land Bank of the Philippines or LBP are completed), ARBs may transfer ownership through a Deed of Sale. However, such transfers require clearance from the Department of Agrarian Reform (DAR) to verify compliance with agrarian laws. The process involves not only executing a Deed of Sale but also transferring the title, which incurs various costs. These costs—ranging from taxes and fees to administrative charges—are typically allocated between the seller (ARB or successor) and the buyer based on standard real estate practices, statutory provisions, and mutual agreement. This article explores the comprehensive aspects of these costs, their allocation, and the underlying legal considerations in the Philippine context.

Legal Framework Governing CLOA Land Transfers

The transfer of CLOA lands is governed by a framework designed to protect agrarian reform gains while allowing legitimate transactions. Key laws include:

Republic Act No. 6657 (CARP Law, 1988), as amended: Establishes the agrarian reform program, including the issuance of CLOAs and restrictions on transfers. Section 27 prohibits transfers within 10 years from award, except under specific conditions, and mandates DAR approval for any sale thereafter.
Republic Act No. 9700 (CARPER, 2009): Extends and strengthens CARP, emphasizing support services for ARBs and reinforcing transfer restrictions.
Presidential Decree No. 27 (1972): Applies to lands under Operation Land Transfer, which may overlap with CLOA issuances for rice and corn lands.
Republic Act No. 8424 (Tax Reform Act of 1997), as amended by Republic Act No. 10963 (TRAIN Law, 2017): Governs taxation aspects, including Capital Gains Tax (CGT) and Documentary Stamp Tax (DST) on real property transfers.
Local Government Code of 1991 (Republic Act No. 7160): Authorizes local government units (LGUs) to impose transfer taxes.
DAR Administrative Orders (AOs): Such as AO No. 08, Series of 1997 (on CLOA cancellations and transfers), AO No. 02, Series of 2009 (on agrarian legal assistance), and subsequent issuances detailing procedures for DAR clearance, including fees for affidavits and inspections.

Additionally, the Civil Code of the Philippines (Republic Act No. 386) governs the general validity of Deeds of Sale as contracts of sale, requiring them to be in public instrument form for registration purposes under the Property Registration Decree (Presidential Decree No. 1529).

For CLOA lands, transfers must not violate the agrarian reform intent; for instance, the buyer must qualify as a farmer or agricultural entity, and the land must remain agricultural in use unless reclassified by DAR.

Requirements for Executing a Deed of Sale and Title Transfer

Before delving into costs, it is essential to outline the prerequisites and steps for transferring CLOA land:

Eligibility Verification: The seller must confirm the 10-year restriction has expired and that amortization payments to LBP are fully settled, evidenced by a Certificate of Full Payment.
DAR Clearance: Application to the Provincial Agrarian Reform Office (PARO) or Municipal Agrarian Reform Office (MARO) for clearance, involving submission of documents like the CLOA, tax declarations, and affidavits of compliance.
Execution of Deed of Sale: A notarized document detailing the parties, property description, purchase price, and terms. It must reference DAR clearance.
Payment of Taxes and Fees: As detailed below.
Title Transfer: Registration with the Registry of Deeds (RD), leading to the issuance of a new Transfer Certificate of Title (TCT) in the buyer's name.
Post-Transfer Obligations: The buyer may need to register with the Assessor's Office for updated tax declarations.

Failure to comply with DAR requirements can result in CLOA cancellation, fines, or criminal liability under agrarian laws.

Costs Involved in Deed of Sale and Title Transfer

The costs associated with transferring CLOA land encompass taxes, fees, and incidental expenses. These are generally higher for agrarian lands due to additional administrative layers. Below is a comprehensive breakdown:

Taxes

Capital Gains Tax (CGT): Imposed on the seller at 6% of the selling price, fair market value (FMV), or zonal value (whichever is higher), per the Bureau of Internal Revenue (BIR). For CLOA lands, exemptions may apply if the transfer is to another qualified ARB or under certain agrarian schemes, but standard sales are taxable.
Documentary Stamp Tax (DST): 1.5% of the selling price, FMV, or zonal value (whichever is higher), payable to the BIR. This tax is affixed to the Deed of Sale.
Transfer Tax: Levied by the LGU (province or city) at rates ranging from 0.5% to 0.75% of the selling price or assessed value, collected by the Provincial or City Treasurer.
Withholding Tax: If applicable (e.g., for corporate sellers), but typically not for individual ARBs.
Value-Added Tax (VAT): Generally not applicable to agricultural land sales unless the seller is VAT-registered and the transaction exceeds thresholds.

Fees

Registration Fees: Paid to the RD, computed as a percentage of the property's assessed value (e.g., entry fee, annotation fee, and IT fees under RD guidelines). Approximately 0.25% to 1% of the value.
Notarial Fees: For the Deed of Sale, typically PHP 200 to PHP 500 plus 1% to 2% of the purchase price, depending on the notary's rates and the document's complexity.
DAR Clearance Fees: Includes processing fees (e.g., PHP 500 to PHP 1,000 for application), inspection fees (variable based on land size), and affidavit fees (PHP 100 to PHP 300). DAR may also charge for certifications.
LBP-Related Fees: If amortization is involved, release fees or annotation cancellations (around PHP 500 to PHP 2,000).
BIR Certification Fees: For Certificate Authorizing Registration (CAR), approximately PHP 100 to PHP 500.

Incidental Costs

Survey and Subdivision Fees: If the land needs subdivision (common for partial transfers), costs can range from PHP 5,000 to PHP 20,000 depending on area.
Legal Fees: For attorney assistance in drafting documents or securing clearances, often 1% to 3% of the purchase price.
Travel and Miscellaneous: Photocopying, transportation to offices, etc., which can add PHP 1,000 to PHP 5,000.

Total costs can amount to 5% to 10% of the property's value, with variations based on location, size, and transaction specifics.

Allocation of Costs Between Seller and Buyer

In Philippine real estate transactions, including CLOA lands, cost allocation follows customary practices rooted in equity and statutory implications, though parties may negotiate otherwise in the Deed of Sale. Standard allocations are as follows:

Seller's Responsibilities:
- Capital Gains Tax: Fully borne by the seller, as it represents income from the sale.
- Documentary Stamp Tax: Traditionally paid by the seller, though sometimes shared or shifted to the buyer by agreement.
- DAR Clearance Fees: Primarily the seller's, as they relate to verifying the land's eligibility for transfer.
- LBP Amortization Settlement: If any balance remains, the seller must clear it.
- Broker's Commission: If a real estate broker is involved, typically 3% to 5% paid by the seller.
Buyer's Responsibilities:
- Transfer Tax: Paid by the buyer, as it is a local tax on the acquisition.
- Registration Fees: Borne by the buyer, facilitating the title issuance in their name.
- Notarial Fees: Often paid by the buyer, especially if they initiate the document preparation.
- Incidental Costs: Such as legal fees for due diligence or survey costs, usually the buyer's.
Shared or Negotiable Costs:
- DST may be split if negotiated.
- Any penalties for delays (e.g., BIR surcharges) are assigned based on fault.
- For CLOA-specific costs like inspections, the seller often covers initial applications, while the buyer handles post-sale registrations.

Tax laws (e.g., BIR Revenue Regulations) imply that CGT and DST are seller obligations to avoid tax evasion claims, but buyers may advance payments for efficiency, with reimbursement. In practice, for CLOA transfers, DAR encourages equitable sharing to facilitate transactions for ARBs, who may have limited resources. Parties should document allocations clearly to prevent disputes, and consult a lawyer or DAR officer for case-specific advice.

Procedures for Handling Costs and Completing Transfer

Pre-Sale Phase: Seller obtains DAR clearance and settles LBP obligations, paying associated fees.
Execution Phase: Parties execute the Deed of Sale, with notarial fees paid upfront.
Tax Payment Phase: Seller files BIR returns for CGT and DST; buyer pays transfer tax to LGU.
Registration Phase: Buyer submits documents to RD with fees, obtaining the new TCT.
Post-Transfer: Update tax declarations with the Assessor's Office (minimal fees).

Delays in any step can incur penalties (e.g., 25% surcharge plus interest on unpaid taxes), emphasizing timely coordination.

Challenges and Considerations

CLOA transfers face unique challenges, such as disputes over land boundaries, multiple claimants, or non-compliance with agricultural use, which can escalate costs through litigation. Buyers should conduct thorough due diligence, including title searches and DAR verifications, to mitigate risks. Additionally, in regions with high agrarian tensions, community consultations may be required, adding indirect costs.

Tax incentives under CARP, like exemptions for transfers to cooperatives, can reduce burdens. However, violations (e.g., illegal conversions) may lead to reversion to government ownership, rendering costs moot.

Conclusion

The allocation of Deed of Sale and title transfer costs for CLOA lands in the Philippines balances statutory requirements with practical negotiations, ensuring agrarian reform objectives are preserved. While sellers typically shoulder income-related taxes and clearance fees, buyers handle acquisition and registration expenses. Understanding these elements is crucial for smooth transactions, promoting sustainable land ownership among Filipino farmers. Parties are advised to engage legal experts and adhere strictly to DAR protocols to avoid complications.