Honoring of COLR by Banks

On the second work day of the new year, the Subic Bay Freeport Chamber of Commerce sent a letter to SBMA Chairman and Administrator Roberto Garcia regarding the ineffectivity of the COLR as a financial instrument.
The COLR, short for Certificate of Ownership of Leasehold Rights, was devised and first drafted by the SBMA in 2009. This was later implemented early in 2010.

Under Section 5 of its General Provisions in the Implementing Rules and Regulations (IRR), it declares as policy for the SBMA to adopt an accurate, systematic, and comprehensive leasehold rights registration and information system, which shall:

1. Enhance the value of leasehold rights over SBMA real estate properties;
2. Protect the integrity of leasehold rights in conformity with the original terms and conditions of the Lease Agreement or Lease Development Agreement;
3. Concretize ownership of leasehold rights through the issuance of a Certificate of Ownership of Leasehold Rights; and
4. Regulate conveyances of SBMA real properties by the issuance of a certificate of ownership of leasehold rights and recordings of all transfers and encumbrances involving said real properties.

For all intents and purposes, the COLR is considered a title to leased properties which are:

1. Duly registered;
2. Technical survey done and approved;
3. Property properly insured; and
4. Corresponding titling fees paid.

The COLR, as originally intended, has the potential of being an excellent financial devise. It was expected to enhance the commercial value of the leasehold rights and should effectively facilitate commercial transactions and standardize all documents pertaining to loans and financial agreements entered into by COLR owners.

All good and well, especially since the acquisition of a COLR is voluntary (after the Chamber’s insistence of it being so).

The COLR, in short, when acquired and paid for by a locator is expected to be a valid collateral instrument in a bank loan application.

Regrettably, this has not happened. Banks do not consider the COLR as a valid collateral.

But can a COLR be actually considered a valid financial instrument? It should be.

According to the International Accounting Standards (IAS) 32 and 39, a financial instrument is defined as “any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.”

A financial instrument, therefore, is a tradable asset of any kind, either cash or evidence of an ownership interest in an entity. The COLR is an evidence of a title to an asset, specifically, ownership of a prepaid long-term lease; therefore, it is a financial instrument.

The ability of locators to use acquired COLRs as collateral in loan applications with the banks is a crucial tool in the financial development of the Subic Bay Freeport. This is essentially not different from any company using their assets to raise working capital.

However, the passive posture of the banks in the Philippines towards the COLR puts any locator in the Subic Bay Freeport in an awkward position. In fact, some locators, after investing in the acquisition of COLRs were surprised later of the banks’ policy of not honoring the COLR as valid collateral.

The Finance Committee of the Subic Chamber, headed by Director Tom de Bruin, tried to resolve this issue in a practical way by working with the previous SBMA administration but without much success. The banks will still not accept the COLR as collateral.

But perhaps the banks only need to understand more what the COLR is. Perhaps the SBMA only needs to proactively explain and guarantee the validity of COLRs. Perhaps the banks only need to be encouraged to be more responsive and be open to contribute to the development of the Subic Bay Freeport.

Since solving this issue is crucial in the economical development of the Subic Bay Freeport, the Subic Chamber requested the assistance and intervention of Chairman Garcia and the SBMA in an effort to finally resolve this important matter.

(SBFCC Newsletter Volume 17 Issue 1)