Understanding key terms is critical for understanding land contracts. This glossary can help you navigate the contracts provided on OpenLandContracts.org. Additional explanations and terms are provided in the Guide to Land Contracts: Agricultural Projects and Guide to Forestry Contracts available here, and a list of other relevant glossaries are provided at the bottom of this page.
Products derived or obtained as a result of agricultural activities, including crops and livestock, whether cultivated or not, as well as other products derived as a result of the processing of any of the above.
A legal person that, with respect to a second legal person, directly or indirectly controls, is controlled by, or is under common control with, that second legal person.
A private form of final and binding dispute resolution by an impartial tribunal, based upon the agreement of the parties but regulated and enforced by the state.
The transfer of the benefits of a contract to a new party, but not the obligations.
Breach of Contract
A failure of a party to a contract to perform its obligations as set forth by the terms of such contract.
Requirements regarding consultation of the local community generally provide for a mechanism through which the community can be informed of the planned investment project and consulted with on elements of the project that will affect the lives of community members. In some cases, these requirements also include an obligation to obtain the Free, Prior and Informed Consent of local communities and/or land users.
Community or Commodity Funds
Mechanisms to channel income contributions or other funds from the investor for the benefit of the community. Such obligations in a land contract might take the form of a “community development fund” or a specific commodity development fund (e.g. oil palm development funds).
The grant of exclusive privileges by the State or controlling authority.
Source: Guide to Forestry Contracts
An agreement made between a host state and an investor, usually through a locally-incorporated entity, which allows for the construction, development and operation of a particular investment project.
A condition that one party to a contract is obliged to fulfill before another party to the contract is required to perform its own obligations under the contract.
The area of land to which the contract applies. In some contracts, this may be equivalent to, and referred to as, the “concession area” or the “production area.” In other contracts, the concession area or production area might include the land identified in the contract as well as additional land transferred under other agreements.
A tax imposed on imports (and, sometimes, on exports) by the customs authorities of a country to raise state revenue, and/or to protect domestic industries from more efficient or predatory competitors from abroad. A customs duty is generally based on the value of goods or upon the weight, dimensions, or some other criteria of the item.
Monetary compensation that a court may order one contracting party to pay a second contracting party for loss or injury that the second party (or its property) suffers due to the fault or negligence of the first contracting party.
Date of Contract Signature
The date upon which the contract was signed by the relevant parties. In many cases, this date can be found on the signature page of the contract.
Date of Ratification
The date upon which the contract was approved by the relevant authority, typically the legislative branch of a government for an agreement entered into by the government (or an agency/entity thereof).
Source: Negotiation Support Portal
The date upon which the contract takes effect. The effective date is frequently specified in the Definitions section of the contract and often refers to the point when all parties have signed the contract or when conditions precedent have been fulfilled.
Environmental Impact Assessment
An Environmental Impact Assessment (EIA) is an assessment and evaluation of the environmental impact of a proposed investment project. An EIA "aims to predict environmental impacts at an early stage in project planning and design, find ways and means to reduce adverse impacts, shape projects to suit the local environment and present the predictions and options to decision-makers."
Source: Convention on Biological Diversity: What is Impact Assessment
Environmental Management Plan
The “mitigation, monitoring, and institutional measures to be taken during implementation and operation to eliminate adverse environmental and social impacts, offset them, or reduce them to acceptable levels.” Contracts that require EMPs might also include information on the financing of such plans, or relevant external environmental standards that will be used.
Requirements to monitor the environmental impacts of the investment.
A monetary charge imposed by the Government on goods or services that become payable when the goods leave the economic territory or when the services are delivered to nonresidents.
The compulsory seizure of private property by, or compulsory surrender of private property to, a government authority, ostensibly for the public benefit.
A study conducted prior to the award of an investment to verify whether the proposed project is well-founded and is likely to meet the needs of its intended users/beneficiaries. The study should take account of policy, technical, economic, financial, institutional, management, environmental, socio-cultural, and gender-related aspects.
An event that produces a fundamentally different situation to that contemplated by the parties when entering the contract, rendering the contractual obligations incapable of being performed. A force majeure clause suspends or removes liability when a force majeure event occurs without the default of either party. For example, war, natural disasters, blockades and riots are often considered force majeure events, and each party’s obligations under the contract are suspended for the duration of that event.
Source: Guide to Forestry Contracts
Forest Management Plan
A document describing the manner in which commercial forestry will be carried out, and which may specify optimum harvest rates, means of minimizing environmental impacts, measures to ensure the health and safety of workers, and processes to accommodate interests of local communities.
Source: Guide to Forestry Contracts
Free, Prior and Informed Consent
The right of a group of people, usually an indigenous community, to be consulted with and to provide or withhold their consent, prior to the establishment of any project that stands to directly affect their access to lands, territories or resources that they have traditionally owned, occupied or used. Obtaining a community’s FPIC involves governments or companies engaging with local communities to agree together on how, or whether, projects are implemented. It is also a crucial part of gaining a social license to operate. Any consent obtained is to be ‘free’, occurring without coercion, intimidation or manipulation; it must be obtained sufficiently ‘prior’ to the commencement of the project or policy; and it should be given after the group is sufficiently ‘informed’ about all aspects of the project, including potentially adverse effects, through the provision of information in an accessible and culturally appropriate format.
The system of law designated by the parties to apply to the operation of the contract and any disputes arising from it.
Source: Guide to Forestry Contracts
A grievance mechanism is a routinized process through which an individual or group of people can bring complaints concerning any aspect of an investment and seek a remedy. Grievance mechanisms can be operated by the State, or by other entities, such as investor companies or financiers, and can be judicial or non-judicial in nature.
Provides for instances where a party is unable to fulfill its obligations under the contract owing to unforeseen events or circumstances.
The country in which an agricultural investment takes place (sometimes referred to as the host country).
Human Rights Impact Assessment
A human rights impact assessment (HRIA) is a "process to measure the gap between the human rights commitments of the state and the actual enjoyment of these rights by rights-holders. By calling on the participation of all stakeholders involved in the investment project, the [HRIA] seeks to identify the rights that are not respected, or indications that they might not be respected in the future, so that satisfactory solutions can be found."
Source: Rights & Democracy: Getting it Right: Human Rights Impact Assessment Guide.
Basic physical and organizational structures and systems (for example, buildings, roads, water, and power supplies) required for the production of goods and services and the distribution of raw material and finished products.
A body of laws that has been promulgated by a governing body and that has effect over a given jurisdiction.
Refers to measures that require foreign investors to use a certain proportion of local resources when producing goods or providing services. It includes local ownership requirements, local employment, skills training requirements, local procurement requirements, and technology transfer requirements. Local content measures are a type of performance requirements.
Local Development Agreement
An agreement between the investor and a community that provides a mechanism through which the benefits of an investment project can be shared directly with local communities and other project-affected stakeholders. Sometimes referred to as a ‘community development agreement’ (CDA) or a benefit sharing agreement.
Measures that require foreign investors to employ citizens of the host state. Together with “local procurement” terms, these measures are often referred to generally as local content measures.
Measures that require foreign investors to use materials available locally (or in the host state) in implementing the investment project. Together with “local employment” terms, these measures are often referred to generally as local content measures.
An asset that can be moved from one location to another.
Net Present Value
“A method used in evaluating investments, whereby the net present value of all cash outflows (such as the cost of the investment) and cash flows (returns) is calculated using a given a discount rate, usually the required rate of return. An investment is acceptable if the NPV is positive. In capital budgeting the discount rate used is called the hurdle rate and is usually equal to the incremental cost of capital.” The net present value of a project is essentially the value in today’s terms of future incomes and expenditures.
An asset that cannot be moved from one location to another, or that cannot be moved without destroying or altering it.
An asset that is not physical in nature. Common non-tangible assets include intellectual property (such as patents, trademarks, and copyrights), goodwill, and brand recognition.
In an outgrower program, the Investor typically commits to purchasing a fixed quota of agricultural products from local--often smallholder--farmers. When a land contract includes a provision on outgrower programs, the provision may identify the basic parameters of the program, describe the amount of land available for the program, or establish a price-setting mechanism or monitoring requirements. Even when an outgrower program is described in a land contract, the Investor might sign separate agreements with participating farmers or cooperatives of farmers.
A legal person who enters into a binding contract with other legal persons and thus assumes certain benefits and obligations as specified therein.
Periodic Review Clause
A term in an investment contract which provides the circumstances under which the parties to the contract can revisit the terms of the deal.
“The relocation of individuals, households, or communities from their land or from land they are occupying... Resettlement can be either voluntary or involuntary. Voluntary resettlement is accomplished with the free will of the persons to be resettled. Involuntary resettlement occurs without the informed consent of the displaced persons and results in the forced movement of people from their land to other locations.”
Right of Way
The legal right, established by usage or grant, to pass along a specific route through grounds or property belonging to another.
Right to Access Concession Area (Non-Contracting Parties)
The right of non-contracting parties (e.g. local community members) to enter and/ or use the area of land under contract.
The date when a contract is signed by all parties.
Size of Concession Area
The size of area of land to which the contract applies, typically given in acres, hectares, or square kilometers.
Social Impact Assessment
A Social Impact Assessment (SIA) "includes the processes of analysing, monitoring and managing the intended and unintended social consequences, both positive and negative, of planned interventions (policies, programs, plans, projects) and any social change processes invoked by those interventions. Its primary purpose is to bring about a more sustainable and equitable biophysical and human environment."
Social/ Human Rights Management Plan
Plans for mitigating the risk of adverse social or human rights impacts, as well any information on the financing of such plans. In addition, this includes any relevant external social and/or human rights standards that will be used.
A clause in a contract between an investor and a host state that addresses changes in law in the host state during the life of the project. There are three broad categories of stabilization clauses:
- Freezing clauses ― that specify that the law that is in effect on the day that a contract is signed will apply to the project for the life of the project notwithstanding any subsequent changes in law.
- Economic equilibrium clauses that require an investor to comply with new laws, but to be compensated by the host state for doing so. Compensation can be in the form of rebates, adjusted tariffs, an extension of the term of the project, or tax reductions, for example.
- Hybrid clauses which are a combination of freezing clauses and economic equilibrium clauses (IFC Study).
The purpose of a stabilization clause is to offer investors – and their lenders – some assurance that the investment will not be subject to unpredictable and costly changes in law. However, stabilization clauses may also have negative impacts on the host country by, for example, reducing its ability to maintain flexibility to changing economic and political circumstances.
Source: Negotiation Support Portal
A company that is owned or controlled by another company.
Surface Fees or Rent
The monetary amount paid by the investor to the host state in return for possession and/or use of land under contract.
An asset that is physical in nature. Common tangible assets include land, buildings, vehicles, machinery, inventory, and cash.
Rights, whether legally or customarily defined, with respect to land and other natural resources. In the context of agricultural investments, tenure rights may, for example, take the form of “freehold” or “fee simple” ownership interests in the land (meaning complete ownership of the land) or concessions or leases over the land (which grant certain temporary rights to possess the land and exploit its resources).
The period of time for which the contract governs the relationship between parties to the contract with regard to the investment.
Termination provisions provide for circumstances in which a party may end the contract prior to expiration of the term. Such circumstances may include breach of contract, frustration of the contract, failure to meet performance criteria, or bankruptcy. Termination provisions may also provide for termination by agreement between the parties or by payment of a termination fee.
A person who is not party to a contract or agreement but has involvement and/or may be affected by the outcome.
Third Party Beneficiary Provision
A provision in a contract that determines if any non-parties have any enforceable rights under the contract. In many cases, these provisions are drafted as “no third party beneficiary provisions”—that is, they state that non-parties do not have any rights under the contract.
Transfer pricing refers to the mechanism by which cross-border, intra-firm transactions are priced. It occurs, for example, where a locally-incorporated company operating in a host country procures goods or services from another company in the same multinational group. Transfer pricing per se is not illegal. What is illegal, or abusive, is where the intra-company provision of goods or services is not conducted at a fair (or market price) value, and is thereby used as a means for a company to lower its tax burden in the host state.
Source: Negotiation Support Portal
Focuses on the right of the investor to use or access water, including any relevant water fees, licenses, or permits that the investor must pay/obtain.
Income tax deductions on dividends and salaries. Withholding taxes are collected at the point of income disbursement and are paid directly to the State by the collecting entity.
Useful external glossaries:
- Food and Agriculture Organization of the United Nations (FAO), Land Tenure and Rural Development: ftp://ftp.fao.org/docrep/fao/005/y4307E/y4307E00.pdf
- FAO, Term Portal: http://www.fao.org/faoterm/en/
- International Institute for Environment and Development (IIED), Land Tenure Lexicon: http://pubs.iied.org/pdfs/7411IIED.pdf?
- Negotiation Support Portal: http://www.negotiationsupport.org/glossary
- United States Agency for International Development, Land Tenure and Property Rights Framework: http://usaidlandtenure.net/sites/default/files/USAID_Land_Tenure_Framework.pdf