Land rights and long investment horizons are two of the biggest concerns in forestry and agarwood projects. Fortunately, SPVs (Special Purpose Vehicles) and secure land use agreements (LUAs) are powerful tools that can de-risk these issues for investors.
How SPVs & LUAs De-Risk Land and Timeline Concerns
1. SPVs Provide Legal and Financial Separation
What is an SPV?
A Special Purpose Vehicle is a legally separate corporate entity created specifically to own and operate one project—such as an agarwood plantation.
Benefits for Investors:
- Asset protection: The plantation’s liabilities don’t affect the parent company or other ventures.
- Simplified ownership: Investors buy into the SPV, not into land directly—making legal, tax, and profit-sharing clearer.
- Exit options: SPVs can be sold, franchised, or refinanced as an independent unit, giving flexibility to investors.
2. Secure Land Use Agreements Mitigate Tenure Risk
What are LUAs?
These are contracts between the SPV (or developer) and the landowner (private, government, or ancestral domain) that grant the exclusive right to use land for agroforestry or plantation activities.
Investor Advantages:
- Legal clarity: Establishes lease term (typically 25–50 years), permitted uses, and conflict resolution terms.
- Due diligence: Includes verification of clean title or rights of use (especially critical in the Philippines where land fragmentation is common).
- Enforceability: LUAs are notarized and often registered with the Registry of Deeds or DENR, adding security.
3. Timeline Risk Is Addressed Through Layered Cash Flows
Long timelines (7–10 years for agarwood) are a concern, but SPVs can:
- Integrate short-term crops (e.g., intercropped cash crops, apiculture, lemongrass)
- Add value-added components (e.g., nursery sales, early resin sampling, inoculant sales)
- Provide milestone-based returns (profit sharing at inoculation, thinning, partial harvests)
This layered model helps generate revenue before full harvest and improves IRR (internal rate of return).
Sample Structure:
| Component | Description |
|---|---|
| SPV | Owns plantation assets, signs LUAs, holds licenses |
| LUA | Grants long-term land use rights (25–50 yrs) |
| Investor shares | Linked to equity or profit-sharing in the SPV |
| Exit mechanisms | Include buybacks, land-sale share, IPO or REIT tie-in |
Bottom Line:
SPVs isolate risk, LUAs secure land tenure, and structured cash flow models reduce long timeline concerns. Together, they create an investable framework with clarity, scalability, and legal integrity.