Overview:
Koror lawmakers have approved a major land reform bill that could change how leaseholders use and transfer their property, potentially unlocking access to loans and new development opportunities.
Lawmakers target development gaps while raising questions on oversight and residency rules
By: L.N. Reklai
KOROR, Palau — The Koror State Legislature has passed a bill aimed at giving land leaseholders greater control over their leases, potentially opening the door to easier access to loans, property transfers and long-delayed development projects.
Koror State Legislature Bill No. 13-02, LD1 — known as the “Leaseholder Empowerment Act” — now awaits action by Gov. Eyos Rudimch.
If signed into law, the measure would allow leaseholders of public land in Koror to use their leases as financial assets, similar to how homeowners in other countries use property to secure loans.
What the bill would do
At its core, the bill gives leaseholders the legal right to mortgage or transfer their leases, even if existing lease contracts restrict those actions.
Leaseholders could:
- Use their lease as collateral for mortgages, home equity loans or development financing.
- Transfer their lease to another person during their lifetime or pass it to heirs after death.
Supporters say this change could help families unlock financing for home improvements or business development — something many leaseholders have struggled to do under current rules.
The bill also requires that any leaseholder or recipient be free of debts owed to the Koror State Government or its agencies, with a 15-day window to settle outstanding balances.
Safeguards and limits
Lawmakers included several provisions aimed at preventing abuse of the new flexibility.
An anti-monopoly clause would allow the Koror State Public Lands Authority to force a person or company to give up extra residential leases if they are found to be accumulating multiple properties for rental income.
The bill also limits lease transfers to residents of Palau, requiring any foreign individual who acquires a lease through a loan default to transfer it to a Palauan resident within 30 days if directed.
In addition, the government would retain a 30-day review period to block lease transfers deemed not in the public interest under unusual circumstances.
State role in loan defaults
If a leaseholder defaults on a loan tied to their lease, the government must be notified and would have 14 days to step in — either by taking over the debt or assigning a new leaseholder.
However, the bill specifies that public funds can only be used if the Legislature approves, potentially limiting how often the government can intervene.
Why lawmakers say it’s needed
A legislative committee report cited long-standing barriers that have prevented leaseholders from fully using their land.
Many current leases include “due on transfer” clauses or require government consent, making it difficult to sell or use leases as collateral. As a result, some properties remain underdeveloped, and families are unable to build wealth through their land.
The report also noted that lenders — including the National Development Bank of Palau — have faced uncertainty when issuing loans tied to leases, slowing access to credit.
Lawmakers argue the bill could stabilize lending and encourage development, while still protecting public ownership of land.
Key questions remain
Despite broad support, several issues remain unclear as the bill heads to the governor:
- Oversight of anti-monopoly decisions: The law gives broad authority to regulators to force divestment, but does not clearly outline an appeals process or safeguards against arbitrary decisions.
- Definition of “resident”: It is unclear how the residency requirement would apply to Palauan citizens living overseas who may inherit leases.
- Handling loan defaults: While the government has a right of first refusal, questions remain about what happens if legislative approval for funding is delayed — and how lenders and tenants would be affected in the interim.
What happens next
Gov. Rudimch can sign the bill into law, veto it, or return it with proposed changes. If enacted, leaseholders could request amendments to existing contracts to align with the new rules.