CIVIL LAW: SPECIAL CONTRACTS > CONTRACT OF LEASE

The Contract of Lease, governed by the Philippine Civil Code (Articles 1642 to 1761), is a special contract where one party (lessor) binds themselves to allow another party (lessee) to use and enjoy a thing, or to render some work or service, in exchange for a price or compensation for a specific period of time. Below is a comprehensive discussion of the essential provisions, obligations, rights, and jurisprudence related to leases.

I. GENERAL PRINCIPLES

Definition

Article 1642: A contract of lease is an agreement where the lessor obliges themselves to give the lessee the enjoyment or use of a thing for a price certain and for a specific period.

Essential Characteristics

Consensual – Perfected by mere consent.
Bilateral – Creates reciprocal obligations between lessor and lessee.
Onerous – Involves payment or consideration (rent or price).
Commutative – Considerations are deemed equivalent.
Principal Contract – Exists independently of any other contract.

II. ESSENTIAL REQUISITES

Subject Matter
- May be movable or immovable property.
- Must be specific, determinate, and capable of enjoyment or use.
- Things outside commerce, unlawful property, or those unsuitable for intended use cannot be leased.
Price or Rent
- Must be certain, ascertainable, or capable of being determined.
- Payment can be in money, goods, or services.
- Rent must be paid within the terms of the lease agreement or statutory default periods.
Period or Duration
- Must be definite; perpetual leases are prohibited.
- If no period is agreed upon:
  - For urban property, payment of rent determines implied duration.
  - For rural property, the lease is presumed for one agricultural year.
- Leases exceeding 99 years are void (Article 1643).

III. KINDS OF LEASES

Lease of Things (Articles 1642–1688)
- Covers tangible movable or immovable properties.
- Includes residential, commercial, and agricultural leases.
Lease of Services (Articles 1689–1761)
- Relates to the rendering of work or service (employment, agency, contracts for labor).
Special Laws
- Rent Control Act (RA 9653) governs leases for residential properties under certain rent thresholds.
- Industrial leases may be subject to special economic zone laws.

IV. OBLIGATIONS OF THE PARTIES

A. Obligations of the Lessor

Delivery of Property (Article 1654):
- Deliver the object in a condition suitable for agreed use.
- Maintain the property in habitable/useable condition during the lease term.
- Ensure peaceful possession for the lessee.
Warranty Against Defects (Articles 1654, 1655):
- Lessor is responsible for hidden defects or those making the property unsuitable.
Non-Disturbance:
- Lessor must ensure the lessee's peaceful enjoyment of the property.
Reimbursement for Necessary Repairs (Article 1663):
- Lessee may recover expenses for urgent repairs if the lessor fails to act promptly.

B. Obligations of the Lessee

Payment of Rent (Article 1657):
- Lessee must pay rent in the manner agreed upon.
Use Property Diligently:
- Use the property as intended; unauthorized use constitutes breach.
Return Property (Articles 1665–1666):
- Lessee must return the property in the condition it was received, except for wear and tear.
Repairs:
- Lessee is responsible for ordinary maintenance and repairs due to their negligence.
Sublease or Assignment (Article 1650):
- Subleasing is prohibited unless expressly allowed by the lessor.

V. TERMINATION AND REMEDIES

Grounds for Termination

Expiration of Term (Article 1673):
- Lease ends upon the lapse of the agreed period or statutory period.
Non-Payment of Rent:
- Non-payment allows the lessor to terminate the lease and demand eviction.
Violation of Terms:
- Breach of contract terms (unauthorized sublease, misuse of property) is a ground for rescission.
Loss of Property (Article 1671):
- Lease terminates if the property is lost or destroyed.
Withdrawal by Lessee:
- If the leased property becomes uninhabitable or unsuitable, the lessee may terminate.

Lessor’s Remedies

Judicial Ejectment:
- Eject lessee for failure to pay rent or violation of terms.
Damages:
- Claim compensation for damages resulting from the lessee's breach.
Retention of Improvements:
- Lessor may retain improvements made by the lessee unless otherwise agreed.

Lessee’s Remedies

Rescission:
- Demand rescission for breach of the lessor’s obligations (e.g., failure to deliver, hidden defects).
Reimbursement:
- Claim for necessary expenses (urgent repairs) or damages.

VI. SPECIFIC PROVISIONS FOR URBAN AND RURAL LEASES

Urban Lease

Governed by general rules and Rent Control Act:
- Rent increases are capped under certain conditions.
- Eviction is restricted to specified grounds (e.g., arrears, personal use).

Rural Lease

Special rules for agricultural leases:
- Rights of tenant-farmers are governed by agrarian laws.
- Termination requires notice equivalent to one agricultural year.

VII. JURISPRUDENCE

Peaceful Possession (Article 1654):
- Lessee’s right to undisturbed possession has been consistently upheld. Eviction without judicial authority is unlawful.
Rent as Indispensable Consideration:
- Courts have ruled that non-payment of rent extinguishes the lease and allows the lessor to eject the lessee.
Defects in Leased Property:
- Lessor’s liability for damages due to hidden defects or unsafe conditions has been affirmed (Article 1655).
Improvements:
- Lessee’s rights to remove improvements depend on express agreements; absent such, lessor may retain improvements without compensation.

VIII. PRACTICAL APPLICATIONS

Drafting Lease Agreements:
- Clear stipulations on rent, duration, repairs, subleasing, and termination are crucial.
Enforcement and Litigation:
- Proper documentation of agreements and payments protects both parties.
Special Laws:
- Familiarity with special rent control laws and local ordinances is essential.

By understanding these provisions and principles, practitioners can skillfully navigate disputes, draft comprehensive agreements, and advise clients on their rights and remedies under Philippine lease law.