Residential Lease Agreement

What is a Residential Lease Agreement?

A Residential Lease Agreement is an agreement for one person (the "Lessee") to rent the property of another (the "Lessor") for residential purposes (e.g house, condominium, or apartment) over a specific period of time in exchange for a payment of rent.

A Residential Lease Agreement identifies basic information about the lease such as the property to be rented, the period of the lease, the security deposits, and the monthly rental payments. It outlines the obligations of both the Lessor and the Lessee during the period of the lease.

What are the different types of Lease Agreements?

There are different types of lease agreements, depending on what will be leased:

• Residential Lease Agreement. This is the document that can be used when a property will be rented and used for residential purposes.
• Commercial Lease Agreement. This is a document that can be used when a property will be rented and used for commercial activity or business purposes. A Commercial Lease Agreement is different from a Residential Lease Agreement because of the type of real property leased. In the Residential Lease Agreement, it is for residential purposes such as the lease of a house, condominium, or apartment. In a Commercial Agreement, what is leased are commercial properties such as office spaces, and buildings. It is important to distinguish between Commercial and Residential Lease Agreements because a Residential Lease Agreement may be subject to rent control laws while Commercial Lease Agreements are not.
• Rental of Goods Agreement. This is a document that can be used when a property that will be rented and used is personal property like merchandise or electronics.
• Motor Vehicle Lease Agreement. This is a document that can be used when a property that will be rented and used is a motor vehicle.
• Parking Space Rental Agreement. This is a document that can be used when a property that will be rented and used is a parking space.

What is the difference between a Residential Lease Agreement and a Residential Sublease Agreement?

A Residential Sublease Agreement is entered into by a person (the sublessee), to rent a residential property from another person who is in his turn a lessee in the original Lease Agreement. This means there will be 2 separate agreements existing at the same time:

• The Residential Lease Agreement: in which the lessor rents the property to the lessee.
• The Residential Sublease Agreement: in which the lessee (as sublessor) rents the property to the sublessee.

In a Residential Lease Agreement, the lessee is the one renting the property from the lessor (the owner), while in a Residential Sublease Agreement, the lessee also acts as a lessor (thus called a sublessor) who rents the property to a sublessee, while renting the property from the owner.

Is it necessary to have the Agreement?

Yes, because this will lay down the terms and conditions of the lease and will prevent the parties from reneging on the Agreement. This will also serve as documentation for what was agreed upon by the lessor and the lessee. This is important because if there is no written Residential Lease Agreement, the lessor can ask the lessee to leave the property.

What is Advanced Rent in a Lease Agreement?

The advanced rent is usually paid at the signing of the Agreement. It may be applied as rent for any of the months during the lease period, as agreed upon by the parties. If the property is located in a highly urbanized city and the rent is equal to or less than Ten Thousand Philippine Pesos (P10,000.00) or if the property is not located in a highly urbanized city and the rent is equal to or less than Five Thousand Philippines Pesos (P5,000.00), the Lessor cannot demand more than one-month advance rent.

The purpose of this is to ensure that the lessee will timely pay the rent and this amount can be used for those months where the lessee fails to pay rent.

What is a Security Deposit in a Lease Agreement?

The security deposit can be used to settle rent, unpaid electric, telephone, water, or such other utility bills or repair any damage to the property caused by the acts or negligence of the Lessee. If the property is located in a highly urbanized city and the rent is equal to or less than Ten Thousand Philippine Pesos (P10,000.00) or if the property is not located in a highly urbanized city and the rent is equal to or less than Five Thousand Philippines Pesos (P5,000.00), the Lessor cannot demand more than two months security deposit which must be kept in a bank under the Lessor's account name during the entire duration of the lease.

If at the end of the lease, the rent and utility bills are paid and there is no damage to the property, the security deposit should be returned to the lessee.

What is not allowed to be done in the Agreement?

If the property is located in the National Capital Region or highly urbanized cities and the total monthly rent ranges from P1.00 to P10,000.00, or if the property is located in other areas and the monthly rent ranges from P1.00 to P5,000.00, then the lessor cannot:

• Raise the rent by more than the amount of 4% of the original amount of rent from January 1 to December 31, 2024,
• Ask for an advance rent equivalent to more than 1 month's rent and a security deposit equivalent to more than 2 month's rent, and
• The lease cannot simply be terminated due to the change of the ownership of the property such as by sale, donation, or inheritance.

To check the list of highly urbanized cities in the Philippines, the website of the Department of Interior and Local Government may be checked.

What are the prerequisites of the Agreement?

The lessee must ensure that the following are accomplished:

• The lessee must have checked the premises of the property to be leased before signing the Agreement, and
• If possible, the lessee should verify first in the Register of Deeds of the city or municipality where the property to be leased is located to determine if the lessor is the owner of the property or at least is authorized to set the property for lease. This can be done by going to the relevant Register of Deeds in person and asking the officers located therein.

What has to be done once the Agreement is ready?

Once the document is completed, at least two original copies of the document should be printed and all of the attachments described in the document should be attached. The Lessor and the Lessee, or their authorized representatives, should read, and then sign all the copies of the document and each should keep an original copy. After this, the document may be notarized.

Which documents should be attached to the Agreement?

The following should be attached to the document, if applicable:

• A copy of the transfer certificate of title concerning the property leased if it is an apartment or house,
• A copy of the condominium certificate of title if the property leased is a condominium.

Note that copies of the said documents can be obtained from the lessor himself or from the website of the Land Registration Authority.

Is it necessary to notarize the Agreement for it to be valid?

No, it isn't necessary to notarize the Agreement. However, notarization will make the existence of the Lease Agreement easier to prove in case a dispute concerning the same is brought to court. Further, notarization makes the Agreement a public document, which forces other persons who are not parties to the Lease Agreement to respect the terms and conditions in the Agreement.

Is it necessary to register the Agreement?

It isn't necessary to register the Agreement. However, registration of the Agreement before the Register of Deeds in the place where the property is located serves as a protection for the lessee in case there is a change in ownership over the property. If there is a change in ownership, the new owner cannot terminate the lease.

What are the costs involved in the finalization of the Agreement?

Some notaries public may charge based on the percentage of the amount of rental fee involved, which is usually ay 1% e.g. if the amount of rental fee is PHP 100,000.00, then the notary public may charge PHP1000.00.

Further, if the Agreement will be registered, the Register of Deeds will ask for registration fees which may vary depending on the total amount involved and on the location of the property.

What must the Agreement contain?

The Agreement contains the following information:

• The details of the property that will be rented,
• The period or duration of the lease,
• The rental fee and other fees for the lease,
• The purpose or use of the property,
• Applicable policies (for example: whether guests can stay overnight, the number of residents in the leased property & rules concerning pets).

Which laws are applicable to Residential Lease Agreements?

The Civil Code of the Philippines governs the law on contracts and leases. Additionally, Republic Act No. 9653 (the "Rent Control Act") as extended by the National Human Settlements Board Resolution No. 2021-02, governs lease contracts that fall under the following conditions:

• The property is located in the National Capital Region or highly urbanized cities and the total monthly rent ranges from One Peso (P1.00) to Ten Thousand Pesos (P10,000.00)
• The property is located in other areas and the monthly rent ranges from One Peso (P1.00) to Five Thousand Pesos (P5,000.00).

The National Human Settlements Board (NHSB) has approved a 4 percent increase cap for monthly residential rental rates of P10,000 and below, effective January 1 to December 31, 2024 (NHSB Resolution No. 2023-03).

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