DAR Land Valuation Rules Amendment 1992

Legal basis and constitutional policy

The valuation rules implement the constitutional command of just compensation for agrarian reform land acquisitions under Article XIII, Section 4.
The Order expressly connects the valuation rules to Proclamation No. 131 (instituting a comprehensive agrarian reform program) and to Republic Act No. 6657 (agrarian reform).
Republic Act No. 6657 requires that, in determining just compensation, consideration must include (1) the cost of acquisition, (2) the current value of like properties, (3) the land’s nature and actual use and income, (4) the sworn valuation by the owner, (5) tax declarations, and (6) government assessors’ assessments, plus social and economic benefits and non-payment of taxes or government-financing loans.
Executive Order No. 129-A is cited for institutionalizing partnership between government and organizations of farmers and farmworkers in agrarian reform policy formulation, program implementation, and evaluation.
Republic Act No. 6657 is cited for the role of the Barangay Agrarian Reform Committee in assisting the initial determination of land value.
The Order is issued pursuant to Republic Act No. 6657.

Coverage and valuation approach

The rules amend certain provisions of Administrative Order No. 17, series of 1989, as amended by Administrative Order No. 3, series of 1991, governing valuation of lands subject of acquisition under VOS and CA.
The Order establishes one basic formula for land valuation covered by VOS or CA regardless of the date of offer or coverage of the claim, using whichever factors are present and applicable.
The computed land value must use the lower of (1) the value computed using the applicable formula or (2) the Declared Value by Landowner (DV).
The valuation treatment contains specific formulas for Capitalized Net Income (CNI), Comparable Sales (CS), and the Market Value per Tax Declaration (MV), including circumstances where one or more factors cannot be used.
Land improvements (non-crops) are valued by the Land Bank of the Philippines (LBP).
The landowner is not compensated for improvements made or contributed by the government and/or the farmer-beneficiaries.

Core valuation formula and declared value

The Order sets the basic valuation formula as:
- LV = (CNI × 0.6) + (CS × 0.3) + (MV × 0.1).
The basic formula applies only if all three factors (CNI, CS, and MV) are present, relevant, and applicable.
If CS is not present and CNI and MV are applicable, then LV = (CNI × 0.9) + (MV × 0.1).
If CNI is not present and CS and MV are applicable, then LV = (CS × 0.9) + (MV × 0.1).
If both CS and CNI are not present and only MV is applicable, then LV = MV × 2.
The land value adopted is whichever is lower between:
- the computed value using the applicable formula; and
- the Declared Value by Landowner (DV).
DV is defined as:
- For VOS, DV is the amount indicated in the landowner’s offer or the Listasaka declaration, whichever is lower, and then grossed-up.
- For CA, DV refers to the amount indicated in the Listasaka, and then grossed-up.
DV gross-up uses the immediately preceding semestral Regional Consumer Price Index (RCPI) from:
- the date of offer (VOS) or the date of Listasaka (VOS/CA) up to the date of receipt of claimfolders by LBP from DAR for processing.

Capitalized Net Income (CNI) rules

The Order defines CNI as the difference between gross sales and total cost of operations, capitalized at 12%:
- CNI = ((AGP × SP) − CO) / 12% (capitalization at 12%).
AGP is the one year’s Average Gross Production immediately preceding:
- the date of offer in VOS, or
- the date of notice of coverage in CA.
SP (Selling Price) is the average price for the immediately preceding calendar year from the date of receipt of the claimfolder by LBP for processing, secured from the Department of Agriculture (DA) and other appropriate regulatory bodies, or in their absence, from the Bureau of Agricultural Statistics.
SP should be gathered, if possible, from the barangay or municipality where the property is located; if unavailable, SP may be secured within the province or region.
If CO (cost of operations) cannot be obtained or verified, the Order requires use of an assumed Net Income Rate (NIR) of 20%.
If the landholdings are planted to coconut and are productive at the time of offer/coverage, coconut landholdings must continue to use a 70% NIR.
DAR and LBP must conduct joint industry studies to establish the applicable NIR for each crop covered under CARP.

CNI input sources, deadlines, and special cases

Industry data on production, cost of operations, and selling price must be obtained from government/private entities, including DA, Sugar Regulatory Authority (SRA), Philippine Coconut Authority (PCA), and other knowledgeable private persons/entities.
The landowner must submit a statement of net income derived from the land subject of acquisition, including total production and cost of operations per crop, selling price(s) (farm gate), and other required data.
DAR and LBP field personnel must validate/verify submitted data.
The primary information source for verification is the actual tenants/farmworkers of the subject property; if not available, the primary source shifts to the tenants/farmworkers of adjoining property.
If the landowner fails to submit the required statement within three (3) weeks from receipt of a letter-request from the Municipal Agrarian Reform Office (MARO), or if the data cannot be verified/validated from the farmers, LBP may adopt any available industry data; in the absence of verifiable industry data, LBP may conduct an industry study on the specific crop to determine production, cost, and net income.
For permanent crops introduced by farmer-beneficiaries, CNI equals 25% of annual net income capitalized at 12%.
For permanent crops that are unproductive or not yet fruit-bearing at the time of ocular inspection (OCI), the Order requires using the cumulative cost from land preparation up to OCI as a substitute for CNI; if production cost data cannot be verified, DAR and LBP must secure the data from concerned agencies, or otherwise establish it.
Total income must be computed from the combination of crops actually produced on the covered land, whether seasonal or permanent.

Seasonal and permanent crop computations

For landholdings planted to permanent crops with another permanent crop/s:
- If all permanent crops are productive or fruit-bearing at OCI, compute CNI per hectare as TNI/Ha divided by 12% capitalization:
  - CNI/Ha = (TNI/Ha) / 12% where TNI/Ha = (NI1 + NI2 + ... + NIn) / Total Area.
- If some permanent crops are productive/fruit-bearing and others are not yet fruit-bearing, compute CNI as the sum of:
  - CNI per hectare of productive crops (as in the productive case), and
  - the cumulative cost per hectare of non-fruit-bearing trees.
- If all permanent crops are not yet productive or not yet fruit-bearing, compute CNI as the sum of cumulative cost per hectare of each crop.
For landholdings planted to permanent crops with seasonal crop/s:
- Seasonal crops’ CNI is considered only if intercropping has been continuously practiced for three (3) consecutive crop cycles immediately preceding the date of offer/coverage.
- One crop cycle is defined as the period from planting until the crop bears fruit or is harvested.
- If both permanent and seasonal crops are productive at OCI, compute CNI using the productive permanent-crop per-hectare formula.
- If permanent crops are productive but seasonal crops are early productive stage at OCI, and the three-cycle intercropping condition is met, compute CNI as:
  - sum of CNI per hectare of productive permanent crops (productive-case formula) plus
  - CNI per hectare of seasonal crops using AGP of previously completed crop cycles.
- If permanent crops are not yet productive and seasonal crops are also not productive, compute CNI as the sum of:
  - cumulative cost per hectare of permanent crops and
  - CNI per hectare of seasonal crops per the applicable seasonal computation rules.
For landholdings planted to seasonal crop/s with another seasonal crop/s, compute CNI per hectare using the same formula framework as the productive permanent-case per-hectare divisor approach, subject to the intercropping/continuous-practice conditions for seasonal inclusion described above.

Computing AGP for seasonal crops

For seasonal crops, the Order requires using:
- at least one normal crop cycle for crops whose cycles are less than one (1) year, and
- two (2) normal crop cycles for such crops.
If a crop cycle is less than one (1) year, compute AGP using total productions and months as follows:
- If there is more than one (1) cropping cycle within the year but only one is completed:
  - AGP = (TP1 + TP2) × 12 / (No. of months in two complete cycles), where TP1 and TP2 are total actual production for each crop cycle.
If the crop cycle is more than one (1) year, compute AGP as:
- AGP = (TP × 12) / (No. of months in one complete cycle).
For permanent crops covered by existing lease contract, the Order requires using lease rental income instead of the standard (AGP × SP − CO)/12% framework:
- CNI/Ha = LRI / 12% where LRI is lease rental income per hectare/year as stipulated under the contract.

Lease-based CNI and failure to submit lease copies

When leases are involved, LRI must be computed depending on the lease arrangement:
- If lease rental is a fixed amount regardless of production, LRI equals the fixed amount.
- If lease rental is a fixed percentage of yearly gross production, LRI equals:
  - LRI = AGP × SP × Percentage Lease Rental.
- If lease rental is a variable amount progressively increasing during the term, LRI equals:
  - LRI = (Sum of Annual Lease Rental per Hectare over the Remaining Term of the Lease Contract) / (Remaining Term of Lease, Years).
- If future lease rentals corresponding to the entire effectivity are prepaid in one lump sum, compute the equivalent annual lease rental as an equivalent annuity of the total advanced lease payment discounted at 12% over the effective term:
  - LRI = Total Advance Payment / Hectare ÷ Annuity Factor of 12% for the term of the lease contract.
If the landowner and/or lessee fail to submit copies of the Lease Contract within three (3) weeks from receipt of LBP’s letter-request, or if LBP fails to secure the same document from the lessee within the same period, CNI must be computed using:
- CNI = (((AGP × SP) − CO) × 0.25) / 12%.

Comparable Sales (CS) computation

The Order defines CS as one of the applicable sub-factors or their average:
- CS is one or the average of ST, AC, and MVM.
The sub-factors are defined as:
- ST = Sales Transactions,
- AC = Acquisition Cost, and
- MVM = Market Value Based on Mortgage.
The Order provides mandatory minimum and selection rules for CS inputs:
- There must generally be at least three (3) Sales Transactions.
- At least one comparable sales transaction must involve land whose area is at least ten percent (10%) of the area being offered/acquired, but not less than one (1) hectare.
- The other transaction(s) must involve land of at least one (1) hectare each.
- If more than three (3) STs are available in the same barangay, all are considered.
- If fewer than three (3) STs are available, ST usage may be allowed if AC and/or MVM are present.
The Order prescribes the CS formula depending on which sub-factors are present:
- If two or more STs and MVM and/or AC are present:
  - CS = (STA + MVM + AC) / 3 (as applicable).
  - When only ST and MVM are present: CS = (STA + MVM) / 2.
  - When only ST and AC are present: CS = (STA + AC) / 2.
- If there is only one ST and AC and/or MVM is present:
  - CS = (STA + MVM + AC) / 3 when three components apply,
  - CS = (STA + MVM) / 2 when only ST and MVM apply,
  - CS = (STA + AC) / 2 when only ST and AC apply.
- If three or more STs are present and AC and/or MVM are not available:
  - CS = STA.
- If AC and/or MVM are present and STs are not available:
  - CS = (AC + MVM) / 2, or
  - CS = AC, or
  - CS = MVM (as applicable).
STA (average of STs) is computed as:
- STA = (ST1 + ... + STN) / N, where N is the number of STs.

CS sales transaction criteria, dating, and gross-up

Comparable sales transactions must be sourced to complete required comparable STs when not enough exist at the barangay level.
When STs are insufficient at barangay level, additional STs may be taken from the municipality to complete required three (3) comparable STs; if more than required exist at municipality level, the most recent transaction is used.
If STs are insufficient at municipal level, the same approach applies at the provincial level.
The combination of STs sourced from barangay, municipality, and province must not exceed three (3) transactions.
Comparable properties must be similar in topography and land use (including being planted to the same crop), and for permanent crops must be comparable in productivity stage and plant density.
Comparable sales transactions must have been executed and registered within January 1, 1985 to June 15, 1988.
STs must be grossed-up from the date of registration to the date of receipt of claimfolders by LBP from DAR for processing using the immediately preceding semestral RCPI.

Acquisition Cost (AC) and mortgage-based MVM

AC is relevant when the property subject of acquisition was acquired through purchase or exchange with another real property within January 1, 1985 to June 15, 1988, and the property condition remains substantially similar from that acquisition date to the date of offer/coverage.
AC must be treated as an additional input in determining CS and must not be used as a ceiling.
AC must be grossed-up from the date of registration of the Deed of Sale up to LBP’s receipt of claimfolders for processing using the immediately preceding semestral RCPI.

Market Value Based on Mortgage (MVM)

MVM is the appraised value and must be not more than two (2) years prior to the date of offer or coverage.
MVM applies only if the property offered is mortgaged to a bank at the time of offer or coverage.
MVM must not apply if all of the following are present:
- several titles covered by CARP belong to the same landowner;
- the titles cover contiguous landholdings with similar topography, land use, and productivity; and
- not all of the properties are mortgaged.
If the landowner or mortgagee bank fails to submit the latest appraisal report within six (6) weeks from receipt of LBP’s letter-request, MVM must not be applicable.
MVM must be grossed-up from the date of the latest appraisal report up to LBP’s receipt of claimfolders for processing using the immediately preceding semestral RCPI.

Market value per tax declaration and MV rules

MV is the market value per tax declaration issued before August 29, 1987 (the effectivity of EO 229).
MV is taken from the most recent set of values indicated in the latest schedule of unit market value (SMV), and those values must be grossed-up for inflation from the effectivity date up to LBP’s receipt of claimfolders for processing.
If the area appearing in the tax declaration differs from findings during actual ocular inspection (OCI), the OCI findings prevail.
If land classification/land use per OCI differs from that shown in the tax declaration, OCI prevails, and the unit market value for the land classification under OCI must be obtained from the municipal assessors’ office concerned.
If the approved market value for a certain land classification in the municipality where the property is located is not available, the unit market value for the same land classification may be taken from adjacent municipalities.
If the trees are not yet productive or fruit-bearing, MV must include only the value of the land, using unit market value for the land based on SMV classification.
If the trees are already productive or fruit-bearing, the land productivity classification must be established according to the relevant assessment regulations where possible; otherwise, the productivity classification in the latest tax declaration must be used.
The value of trees introduced by the farmer-beneficiaries must not be considered in MV computation.

Improvements, clarificatory guidelines, and pending claims

LBP must undertake valuation of improvements (non-crops).
The landowner receives no compensation for improvements made or contributed by the government and/or the farmer-beneficiaries.
LBP is authorized to issue, from time to time, clarificatory guidelines to implement the rules and regulations.
All pending claims whose memorandum of valuation has not yet been forwarded to DAR must be valued in accordance with DAR Administrative Order No. 6, series of 1992.

Repeal and amendment of prior issuances

DAR Administrative Order No. 6, series of 1992 repeals or amends accordingly:
- Administrative Order No. 05-88,
- Administrative Order No. 06-89,
- Administrative Order No. 17-89, and
- Administrative Order No. 03-91,
- and any other issuances or parts thereof that are inconsistent with its provisions.