Rights and Obligations of the Lessor and Lessee | Contract of Lease | SPECIAL CONTRACTS

CIVIL LAW: CONTRACT OF LEASE

Rights and Obligations of the Lessor and Lessee

(Under the Civil Code of the Philippines, Articles 1642–1688)

I. Nature of Lease

A contract of lease is a consensual, bilateral, onerous, and commutative agreement where one party, the lessor, binds himself to give another, the lessee, the enjoyment or use of a thing for a price certain, and for a specified period (Article 1643).

II. Rights and Obligations of the Lessor

A. Rights of the Lessor

  1. Right to Payment of Rent

    • The lessor is entitled to the agreed rent or price stipulated in the contract, which is payable according to the terms agreed upon (Article 1654).

  2. Right to Terminate the Lease

    • The lessor may terminate the lease for:
      • Breach of Obligations: Failure of the lessee to pay rent or comply with contractual terms.
      • Unauthorized Use: If the lessee uses the property for purposes other than those agreed upon (Article 1657).

  3. Right to Recover the Leased Property

    • At the end of the lease, the lessor may demand the return of the property in the condition stipulated, subject to reasonable wear and tear (Article 1678).

  4. Right to Damages

    • The lessor may recover damages from the lessee for breaches of the contract (Article 1170).

B. Obligations of the Lessor

  1. Delivery of the Property

    • The lessor is bound to deliver the property in a condition suitable for the agreed use (Article 1654).

  2. Maintenance and Repairs

    • The lessor must make necessary repairs to keep the property in a condition fit for the intended use unless otherwise stipulated (Article 1654).

  3. Warranty Against Disturbance

    • The lessor warrants that the lessee shall not be disturbed in the lawful use and enjoyment of the property (Article 1656).

  4. Warranty Against Defects

    • The lessor guarantees the lessee against hidden defects in the property that render it unfit for the intended use (Article 1654).

  5. Obligation to Respect the Lease

    • The lessor or any subsequent purchaser of the property must respect the lease if it is duly registered or if the lease has a fixed period and the purchaser is aware of it (Article 1676).

III. Rights and Obligations of the Lessee

A. Rights of the Lessee

  1. Right to Use and Enjoy the Property

    • The lessee has the right to use and enjoy the property for the purpose agreed upon (Article 1654).

  2. Right to Sublease

    • The lessee may sublease the property unless expressly prohibited in the contract (Article 1650).

  3. Right to Compensation for Improvements

    • The lessee may claim compensation for necessary improvements if made with the lessor's consent, provided these improvements are useful and cannot be removed without damage to the property (Article 1678).

  4. Right to Rent Reduction

    • If the use of the property is impaired due to unforeseen circumstances, the lessee may demand a proportionate reduction in rent (Article 1659).

B. Obligations of the Lessee

  1. Payment of Rent

    • The lessee is bound to pay rent in the manner and at the time agreed upon (Article 1657).

  2. Proper Use of the Property

    • The lessee must use the property in a prudent and diligent manner, in accordance with the purpose specified in the contract (Article 1657).

  3. Preservation of the Property

    • The lessee must preserve the property as a diligent father of a family and is liable for any deterioration caused by negligence or unauthorized alterations (Article 1663).

  4. Return of the Property

    • At the expiration of the lease, the lessee must return the property in the condition it was received, subject to reasonable wear and tear (Article 1678).

  5. Prohibition of Unauthorized Use

    • The lessee must not use the property for purposes other than those agreed upon in the contract (Article 1657).

  6. Indemnity for Damages

    • The lessee must indemnify the lessor for damages arising from non-compliance with contractual obligations (Article 1170).

IV. Additional Provisions

Lease of Urban vs. Rural Property

  1. Urban Property (Articles 1657–1658)

    • Includes houses, buildings, or lots for residence or commercial purposes.
    • Lessee may sublease unless expressly prohibited.

  2. Rural Property (Article 1682)

    • Includes agricultural land or properties for cultivation.

Termination of Lease

  1. Expiration of the period or completion of the purpose (Article 1665).
  2. Mutual agreement between lessor and lessee.
  3. Breach of contract by either party.

Improvements

  1. Voluntary Improvements

    • May be removed by the lessee if they do not damage the property (Article 1678).

  2. Necessary Improvements

    • Lessee may claim compensation if made with lessor's consent.

Rent in Case of Loss

  • If part of the property is lost or destroyed, the lessee may seek rent reduction or termination of the lease (Article 1659).

Registration

  • To bind third parties, the lease must be registered with the Registry of Property (Article 1676).

V. Legal Remedies

  1. For Lessor

    • Action for unlawful detainer if lessee refuses to vacate after termination.
    • Recovery of unpaid rent and damages.

  2. For Lessee

    • Action for breach of warranty against disturbance or defects.
    • Demand for compensation for improvements.

Practical Considerations:

  • Always draft clear terms regarding rent, period, purpose, sublease, and improvements.
  • Register the lease to protect against claims by third parties or subsequent owners.

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