The Relationship Between Investment and the Musataha Contract

The Musataha contract (Right of Surface) is considered one of the most prominent legal instruments adopted by the Iraqi legislator.

It serves as a vital means to empower investors to establish their investment projects on lands owned by the state, the private sector, or the mixed sector.

This prominence stems from the flexibility this contract provides, granting the investor the right to build and construct on land owned by others for a specified period, without transferring the ownership of the land itself.

The importance of this contract has increased significantly in light of the growing trend towards attracting investments and revitalizing economic activity in Iraq.

Consequently, this prompted the legislator to organize the relationship between the right of Musataha and investment activity through special legislative texts that supersede the general provisions found in the Civil Code.

Legislative Framework for the Musataha Contract in the Investment Sector

The Legal Basis Under the Investment Law

Investment Law No. (13) of 2006 established the legal foundation for utilizing the Musataha contract in the investment field. Article (10/Third/A) of the law stipulates the following:

The Iraqi or foreign investor has the right to lease real estate or establish a Musataha right on it from the state, the private sector, or the mixed sector.
This is for the purpose of establishing investment projects thereon.
The duration shall not exceed fifty years, which is renewable upon the approval of the Commission granting the license and the relevant authority.
This is subject to the nature of the project and its economic feasibility.

It is worth noting that the legislator excepted industrial projects constructed in "Industrial Cities" from this provision, as they may be owned upon payment of a fee according to the effective instructions.

Analysis of the Legislative Scope

From the aforementioned text, it is evident that the legislator has expanded the scope of the Musataha contract's use to include investment projects of various types.

Duration: The maximum duration was set at fifty years, which aligns with the limit prescribed in the Iraqi Civil Code.
Renewability: The legislator added the possibility of renewal subject to the approval of competent authorities, granting investment projects greater flexibility to ensure their continuity.
Equality: The text explicitly includes both Iraqi and foreign investors equally. This reflects the legislator's desire to create an attractive investment environment that does not discriminate between investors based on nationality regarding the right of Musataha.

The Role of the National Investment Commission

Investment Regulation No. (2) of 2009 further clarified these procedures. Article (39) states that:

"The National Investment Commission shall prepare a report on the nature of the project and the extent of the feasibility and benefit it achieves for the national economy, to be utilized when determining the duration of the Musataha or its renewal."

The implication of this provision is significant:

Determining the duration of the Musataha contract in the investment field is not left solely to the will of the contracting parties.
Instead, it is subject to an objective assessment conducted by the competent Commission.
This assessment takes into account the nature of the project and its economic return.
This constitutes an additional guarantee to achieve a balance between the investor's interest and the interest of the national economy.

Regulatory Evolution: From 2017 to 2025

Based on the legal foundations mentioned above, subsequent regulations were issued to organize the practicalities of land allocation:

Regulation No. (6) of 2017

The "Regulation for the Sale and Lease of Real Estate and Lands of the State and Public Sector for Investment and Musataha Purposes No. (6) of 2017" was issued to organize detailed mechanisms for dealing with real estate allocated for investment projects. It determined rental and Musataha fees according to the nature of each project.

Regulation No. (12) of 2025

Subsequently, the "Regulation for the Sale and Lease of Real Estate and Lands of the State and Public Sector for Investment and Musataha Purposes No. (12) of 2025" was issued.

This new regulation introduced the following changes:

It repealed the previous regulation (No. 6 of 2017).
Exception for Acquired Rights: It excluded investment projects that obtained an investment license before the effective date of Regulation No. 12 of 2025.
It reorganized these issues in a more comprehensive and detailed manner to align with economic and investment developments in the country.
It ensured the observance of acquired rights for projects that had already obtained investment licenses under the previous regulations.

Mechanisms for Estimating and Regulating Musataha Fees

The Iraqi legislator has paid significant attention to the issue of estimating Musataha fees in investment projects.

To this end, specialized committees were formed to undertake this task according to specific controls.

The Framework Under Regulation No. (6) of 2017

The "Regulation for the Sale and Lease of Real Estate and Lands of the State and Public Sector for Investment and Musataha Purposes No. (6) of 2017" clarified in Article (2) the mechanism for forming these committees on two levels:

1. The First Level (Strategic and Major Projects) This level concerns strategic projects, projects of a federal nature, and projects valued at two hundred and fifty million US dollars ($250,000,000) or more.

The committee is formed as follows:

Chaired by: The Head of the National Investment Commission.
Membership: Representatives from the Investment Commission of the relevant Region or Governorate, the General Commission of Taxes, the Real Estate Registration Department, and the entity owning the real estate.

2. The Second Level (Local Projects) This level concerns projects valued below the aforementioned amount.

The committee is formed as follows:

Chaired by: The Head of the Investment Commission in the Region or Governorate.
Membership: Representatives from the same entities mentioned above, but at the governorate level.

Fundamental Amendments Under Regulation No. (12) of 2025

The "Regulation for the Sale and Lease of Real Estate and Lands of the State and Public Sector for Investment and Musataha Purposes No. (12) of 2025" reorganized these committees, introducing substantial amendments to their formation and competencies.

Changes in Formation:

The presidency of the committee at the first level is now held by a representative of the National Investment Commission, rather than its Head personally.

Changes in Competence and Jurisdiction:

The new regulation raised the value ceiling for projects falling under the jurisdiction of the first committee to one billion US dollars ($1,000,000,000).
This is an increase from the previous limit of two hundred and fifty million dollars.
This amendment signifies an expansion of the powers of local committees to include larger-scale projects.

Procedural Discipline:

The new regulation stipulates in Article (2/Third) that the quorum for these committees is achieved by the presence of the majority of members.
Decisions must be taken by the absolute majority of the number of its members, adding further procedural discipline to their work.

Binding Force of Estimates and Implementation Guarantees

Both regulations emphasized that real estate-owning entities are obligated to accept the sale, lease, or Musataha fees estimated by these committees.

In the event of non-compliance:

The National Investment Commission shall present the estimation minutes to the Council of Ministers.
The Council of Ministers shall issue the appropriate decision to adopt them.

Both regulations also obliged the owning entities to conclude legal disposal contracts for real estate allocated to investment projects within thirty days from the date of fee estimation.

New Guarantees for Land Handover (2025)

The new regulation added an additional guarantee under Article (1/Third), which includes:

The obligation to hand over the real estate allocated for the project to the investor within thirty days from the date of granting the investment license.
The real estate must be free of any occupants or encumbrances.
The Council of Ministers is granted the authority to transfer the ownership of real estate without compensation to the National Investment Commission if the owning entities delay the handover for a period exceeding sixty days.

Periodic Review and Financial Balance

Notably, the new regulation stipulated in Article (8) the necessity of reviewing the estimation of lease or Musataha fees.

Frequency: Every five years from the date of commencement of commercial operation or production of the project.
Purpose: This constitutes a mechanism to achieve financial balance between the parties to the contractual relationship.
Context: This ensures fairness in light of economic variables that may occur during the long duration of the contract.

Provisions for Rental and Musataha Fees Based on the Nature of Investment Projects

Both regulations discussed previously adopted an approach based on distinguishing between investment projects according to their nature and location when determining the percentages of rental and Musataha fees.

The primary objective is to encourage specific types of investments and direct them towards priority sectors for the national economy.

I. Rental and Musataha Fees Under Regulation No. (6) of 2017

Regulation No. (6) of 2017, in Article (5), detailed the percentages of rental and Musataha fees for lands allocated to investment projects based on the nature of each project.

1. Residential Projects and Multi-Purpose Residential Cities

Fee Calculation: The regulation set the rental or Musataha fee at 7% of the estimated rental value (which is calculated as 10% of the real value of the land).
Public Utility Obligation: The investor is obliged to return lands allocated for public benefit (such as parks and streets) to the relevant government entities free of charge within sixty days from the date of project completion.
Exceptions: The regulation exempted lands allocated for non-profit public services within residential complexes, such as police stations, fire stations, and places of worship.

2. Industrial and Service Projects

Industrial Projects: For projects established in areas designated for industrial investment, the fee is set at 2%.
- This same percentage applies to electrical and oil projects, and others located outside municipal boundaries executed under BOOT, BOT, or similar formulas.
Service Projects: For institutions such as health and educational facilities, the fee is set at 5%.

3. Tourism and Recreational Projects

The fee for these projects is set at 10%.

4. Commercial Projects

For projects such as commercial centers (malls) and hotels, the regulation adopted a Graduated Percentage System:
- First 15 Years: 10% (from the date of commercial operation).
- After 15 Years: The fee shifts to 3% of the land value.

Distribution and Due Dates (Article 7)

Revenue Allocation: Sale, lease, or Musataha fees revert to the General Treasury.
- 50% is reallocated to the entity owning the land.
- The Remainder goes to the budget of government entities responsible for providing external infrastructure services or public facilities within the project.
Maturity Date: Fees become due from the date of commencement of commercial operation or production.
Obligation: The investor is bound to complete the project within the period specified in the contract.

II. Rental and Musataha Fees Under Regulation No. (12) of 2025

Regulation No. (12) of 2025 introduced fundamental amendments to the fee system, adopting a Dual Criterion for determining fees based on:

The nature of the project.
Its location relative to the Basic Master Plan of cities.

1. Investment Projects Inside the Basic Master Plan

Article (5/First) determined the annual fees as follows:

4% of the real value of the land for Commercial Projects.
3% for Recreational, Service, Agricultural, or Non-polluting Industrial Projects.

2. Investment Projects Outside the Basic Master Plan

1% of the real value of the land for Industrial or Agricultural Projects.
2% for Recreational, Service, or Commercial Projects.

3. New Provisions for Land Ownership

One of the most prominent updates in the new regulation is the detailed organization of land ownership:

Residential Projects:
- Inside Master Plan: Lands are owned upon payment of 90% of the real land value, paid in stages linked to completion rates.
- Outside Master Plan: Lands are owned without a fee (free of charge), provided that the land value is not calculated within the cost of the housing unit sold to the citizen.
Industrial Projects:
- Ownership percentages vary, ranging from 1% (for projects inside industrial, economic, and development cities outside the Master Plan) to 30% (for industrial projects located outside the Master Plan).

Distribution and Transitional Provisions

Revenue Allocation (Article 7/First): The new regulation changed the standard:
- Fees revert to the Federal General Treasury if the land-owning entity is centrally funded.
- Fees revert to the Owner Entity if it is self-funded.
Phased Maturity: If a project is executed in phases, the due date is calculated from the start of commercial operation for each phase separately.
Acquired Rights (Article 9):
- The regulation addressed existing projects by deciding that fees determined under the regulation in force at the time of licensing shall continue to apply.
- This embodies the legislator's respect for the principle of Acquired Rights and the stability of legal positions.

Conclusion

It is evident from the foregoing that the Right of Musataha in Iraqi legislation constitutes an advanced model of original Real Rights (Rights in Rem) of a temporal nature.

The Legal Nature of Musataha

It is based on the concept of empowering the Musatahil (holder of the right) to erect a building or facilities on another person's land, characterized by:

Independence of Ownership: The ownership of the improvements (buildings) is distinct from the ownership of the land (the neck of the land).
Parallel Ownerships: This leads to two parallel ownerships separated by the surface of the land:
- Upper Ownership: Belonging to the Musatahil (investor).
- Lower Ownership: Belonging to the land owner.

The legislator ensured this right is surrounded by in rem protection, allowing it to be traced and asserted against all parties. It is explicitly transferable, disposable, mortgageable, inheritable, and does not cease with the removal of the building before the end of its term.

The Centrality of Registration

The texts highlighted that Musataha—as a Real Estate Right—is not valid unless its Formal Pillar is completed:

Registration in the Real Estate Registration Department.
Registration is not merely documentation; it is the tool that transforms the relationship from the scope of a Personal Obligation to the scope of a Real Right enforceable against third parties.

Judicial applications show a practical trend that non-registration weakens the Musatahil's position against third parties. In disputes, unregistered relationships are often classified as a "Special Contract" or long-term lease, potentially invoking the theory of "Conversion of Contract." This reinforces the centrality of registration in stabilizing real estate transactions and maintaining confidence in the registry.

Are you navigating complex land regulations and looking for a trusted law firm in Iraq? Contact Osama Tuma for Legal Services and Advisory today for expert guidance on Musataha contracts to secure your investment rights and ensure full legal compliance.