Contract of Lease

Sublease and Assignment of Lease | Contract of Lease | SPECIAL CONTRACTS

CIVIL LAW

VII. SPECIAL CONTRACTS
B. Contract of Lease
2. Sublease and Assignment of Lease

I. Legal Basis

The rules governing sublease and assignment of lease in the Philippines are primarily found under the Civil Code of the Philippines (Republic Act No. 386), particularly in Articles 1646 to 1657, as well as in jurisprudence interpreting these provisions.

II. Definitions

  1. Lease (Article 1642): A lease is a contract where one party, the lessor, binds themselves to allow another party, the lessee, to use and enjoy a thing for a price certain, for a specified or determinable period.

  2. Sublease:

    • A sublease occurs when the lessee (original tenant) leases the property or a portion thereof to another party, called the sublessee, without surrendering their own leasehold rights to the lessor.
    • The lessee retains privity of contract with the lessor and continues to be primarily liable under the main lease contract.

  3. Assignment of Lease:

    • An assignment of lease is the transfer by the lessee of all their leasehold rights to a third party, the assignee.
    • It results in the termination of the privity of contract between the original lessee and the lessor, and establishes privity of contract between the lessor and the assignee.

III. Key Distinctions Between Sublease and Assignment of Lease

Aspect Sublease Assignment of Lease
Definition Lessee rents the property or a portion to a sublessee. Lessee transfers the entirety of their rights under the lease.
Privity of Contract Privity remains between lessor and original lessee. Privity is created between lessor and assignee.
Liability to Lessor Lessee remains liable to lessor for the lease terms. Assignee assumes all liabilities under the lease.
Scope Can involve only a part of the leasehold rights. Involves the entirety of the leasehold rights.
Consent Requirement Consent of lessor is required unless explicitly allowed in the contract. Consent of lessor is typically mandatory.

IV. Rules and Legal Requirements

A. Consent of the Lessor

  1. Article 1650: The lessee cannot assign the lease nor sublease the thing leased without the express consent of the lessor, unless there is a stipulation to the contrary.
  2. Implication of No Consent:
    • Any sublease or assignment made without the lessor’s consent is considered voidable.
    • The lessor has the right to rescind the lease contract and eject the lessee or sublessee.

B. Obligations of the Lessee in a Sublease

  1. The original lessee remains bound to the lessor for all obligations under the lease contract.
  2. The sublessee has no direct contractual relationship with the lessor, except in cases where the lessor consents to such direct arrangement.

C. Obligations of the Assignee in an Assignment

  1. The assignee steps into the shoes of the lessee and assumes all rights and obligations under the lease.
  2. The original lessee is discharged from liability only upon the consent of the lessor to the assignment.

V. Rights and Obligations of the Parties

A. Rights of the Lessor

  1. Approval of Sublease or Assignment:
    • The lessor may impose conditions or deny consent unless a stipulation in the lease contract provides otherwise.
  2. Direct Action:
    • In cases of non-payment of rent or violation of lease terms, the lessor retains the right to act against the lessee.

B. Obligations of the Lessee (Article 1654)

  1. Pay the rent agreed upon.
  2. Use the property only for the stipulated purpose.
  3. Make ordinary repairs needed due to wear and tear.

C. Rights of the Sublessee

  1. To use the property in accordance with the sublease contract.
  2. Sublessee’s rights are dependent on the lessee’s compliance with the main lease.

D. Rights of the Assignee

  1. To use and enjoy the property under the same terms as the original lessee.
  2. Assumes all obligations under the lease.

VI. Termination of Sublease and Assignment

  1. Expiration of Main Lease:
    • The sublease or assignment is extinguished upon the termination of the original lease contract.
  2. Violation of Lease Terms:
    • Any breach by the lessee, sublessee, or assignee may result in the termination of the contract by the lessor.

VII. Jurisprudence

  1. Samson v. Court of Appeals, G.R. No. 108245 (1995):

    • Clarified that the absence of lessor’s consent to a sublease renders it voidable, not void.

  2. Tan v. Court of Appeals, G.R. No. 126119 (1998):

    • The lessee remains liable for the acts of the sublessee under the principle of privity of contract with the lessor.

  3. Almeda v. Court of Appeals, G.R. No. 154365 (2005):

    • Affirmed that assignment of lease requires the lessor's express approval to extinguish liability of the original lessee.

VIII. Practical Implications

  1. Lessor’s Protection: Lessors are safeguarded against unauthorized transfers of leasehold rights that may lead to potential financial or property misuse issues.
  2. Lessee’s Responsibility: Lessees must ensure compliance with lease terms to avoid liability, even in the presence of subleases or assignments.
  3. Drafting Contracts: Lease contracts must explicitly stipulate provisions regarding subleasing and assignment to prevent disputes.

This detailed analysis ensures a complete understanding of subleases and assignments in the context of Philippine civil law.

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.

Contract of Lease | SPECIAL CONTRACTS

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

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

II. ESSENTIAL REQUISITES

  1. 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.

  2. 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.

  3. 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

  1. Lease of Things (Articles 1642–1688)

    • Covers tangible movable or immovable properties.
    • Includes residential, commercial, and agricultural leases.

  2. Lease of Services (Articles 1689–1761)

    • Relates to the rendering of work or service (employment, agency, contracts for labor).

  3. 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

  1. 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.

  2. Warranty Against Defects (Articles 1654, 1655):

    • Lessor is responsible for hidden defects or those making the property unsuitable.

  3. Non-Disturbance:

    • Lessor must ensure the lessee's peaceful enjoyment of the property.

  4. 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

  1. Payment of Rent (Article 1657):

    • Lessee must pay rent in the manner agreed upon.

  2. Use Property Diligently:

    • Use the property as intended; unauthorized use constitutes breach.

  3. Return Property (Articles 1665–1666):

    • Lessee must return the property in the condition it was received, except for wear and tear.

  4. Repairs:

    • Lessee is responsible for ordinary maintenance and repairs due to their negligence.

  5. Sublease or Assignment (Article 1650):

    • Subleasing is prohibited unless expressly allowed by the lessor.

V. TERMINATION AND REMEDIES

Grounds for Termination

  1. Expiration of Term (Article 1673):

    • Lease ends upon the lapse of the agreed period or statutory period.

  2. Non-Payment of Rent:

    • Non-payment allows the lessor to terminate the lease and demand eviction.

  3. Violation of Terms:

    • Breach of contract terms (unauthorized sublease, misuse of property) is a ground for rescission.

  4. Loss of Property (Article 1671):

    • Lease terminates if the property is lost or destroyed.

  5. Withdrawal by Lessee:

    • If the leased property becomes uninhabitable or unsuitable, the lessee may terminate.

Lessor’s Remedies

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

Lessee’s Remedies

  1. Rescission:
    • Demand rescission for breach of the lessor’s obligations (e.g., failure to deliver, hidden defects).
  2. 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

  1. Peaceful Possession (Article 1654):

    • Lessee’s right to undisturbed possession has been consistently upheld. Eviction without judicial authority is unlawful.

  2. Rent as Indispensable Consideration:

    • Courts have ruled that non-payment of rent extinguishes the lease and allows the lessor to eject the lessee.

  3. Defects in Leased Property:

    • Lessor’s liability for damages due to hidden defects or unsafe conditions has been affirmed (Article 1655).

  4. Improvements:

    • Lessee’s rights to remove improvements depend on express agreements; absent such, lessor may retain improvements without compensation.

VIII. PRACTICAL APPLICATIONS

  1. Drafting Lease Agreements:

    • Clear stipulations on rent, duration, repairs, subleasing, and termination are crucial.

  2. Enforcement and Litigation:

    • Proper documentation of agreements and payments protects both parties.

  3. 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.

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