Cancelling a Condominium Purchase Contract under Presidential Decree No. 957 (Philippines)
(A comprehensive doctrinal and practical guide — updated to 17 April 2025)
1. Why PD 957 Matters
Presidential Decree No. 957 (the “Subdivision and Condominium Buyers’ Protective Decree”), issued on 12 July 1976, remains the core statute safeguarding buyers of subdivision lots and condominium units. While Republic Act No. 6552 (“Maceda Law”) supplies a general safety net for all real‑estate installment sales, PD 957 imposes stricter, industry‑specific protections and creates a dedicated regulator—formerly the Housing and Land Use Regulatory Board (HLURB), now the Department of Human Settlements and Urban Development (DHSUD)‑HLURB Adjudication Commission (“DHAC”).
Contract cancellation—whether invoked by a disappointed buyer or by a developer dealing with a defaulting buyer—is one of those protections. PD 957’s cancellation rules interact with the Civil Code on rescission (Art. 1191), the Maceda Law, and DHAC procedural issuances, so understanding the mosaic is critical.
2. Transactions Covered
| Covered | Not covered |
|---|---|
| Reservation agreements, contracts to sell, contracts of sale, or deeds of absolute sale of residential condominium units (pre‑selling or ready‑for‑occupancy) | Purely commercial/office condominiums (unless developer voluntarily subjects project to PD 957) |
| Parking slots sold as appurtenant to a dwelling unit | Bulk sales between corporate entities unaccompanied by retail marketing to end‑users |
3. Cancellation by the Buyer
3.1 Statutory Grounds
PD 957 lets a buyer unilaterally cancel and demand refund (with interest) if the developer:
- Fails to deliver the unit, common areas, or amenities within the time stated in the license to sell (Sec. 20).
- Makes material changes in plans or specifications without the buyer’s written consent (Sec. 18).
- Mortgages the project or unit after sale without the buyer’s written conformity (Sec. 22).
- Delivers a unit encumbered by liens or with a defective title (Sec. 25).
- Commits any other fraud or misrepresentation in advertisements or contracts (Sec. 19, 26).
Practical tip: The buyer need not prove substantial breach under Art. 1191; a statutory violation is enough.
3.2 Procedure (Administrative Track)
| Step | What Happens |
|---|---|
| ① Written demand on developer | Optional but advisable; gives chance to cure and tolls interest. |
| ② Complaint before DHAC | Arbitration is mandated within DHAC (“Pleadings, Mediation, Adjudication”). |
| ③ Reliefs | – Rescission/cancellation of contract – Full refund of all payments + legal interest (6% p.a. by jurisprudence) – Damages/attorney’s fees – Administrative fines/cease‑and‑desist against the developer |
| ④ Decision & Appeal | DHAC decision → Office of the Secretary, DHSUD → Court of Appeals → Supreme Court. |
| ⑤ Execution | Sheriff may garnish developer assets or annotate rescission on the CCT. |
There is no prescriptive period in PD 957; DHAC and case law apply the 10‑year limit for written contracts, counted from discovery of the cause of action.
4. Cancellation by the Developer/Seller
Developers often try to rescind when buyers stop paying. PD 957, the Civil Code, and the Maceda Law together set the minimum due‑process steps:
- Notice of default giving the buyer a 60‑day grace period (PD 957 Sec. 23, DHAC Rules §15).
- Second notice of cancellation and demand for surrender if the default is not cured.
- Maceda Law refund if the buyer has already paid the equivalent of at least two (2) years of installments
* 50 % of total payments must be refunded;
* Plus 5 % per year of payments beyond the 5th year, up to 90 %;
* Refund is a condition precedent to valid cancellation. - Filing with DHAC to approve and annotate the cancellation.
Failure to observe any step renders the cancellation void, exposing the developer to damages and administrative sanctions.
5. How Refunds Are Computed
| Scenario | Refund Base | Interest | Deductions Allowed |
|---|---|---|---|
| Buyer‑initiated (developer breach) | All cash outlays (reservation fees, amortizations, bank charges, association dues paid in advance) | 6 % per annum from date of payment until refund | None, unless buyer enjoyed physical use of the unit (reasonable rent may be offset). |
| Developer‑initiated (buyer default, Maceda) | Percentages under R.A. 6552 | None, unless contract stipulates; developer must refund before cancellation takes effect | Processing fee (≤ ₱10 000) if stipulated. |
Interest rate follows Bangko Sentral ng Pilipinas Circular 799 (at present, 6 % p.a.) per Supreme Court rule (Nacar v. Gallery Frames, G.R. No. 189871, 13 Aug 2013).
6. Jurisdictional Fine Points
- DHAC has original and exclusive jurisdiction over contract disputes, cancellations, and broker/salesman liability.
- Regular courts retain jurisdiction over criminal aspects (e.g., PD 957 Sec. 38 penal clauses) and over actions against banks that foreclose on mortgaged projects.
- Arbitration clauses in the contract do not oust DHAC (Lex specialis; Spouses De Jesus v. GFA Real Estate, G.R. No. 195815, 25 Feb 2015).
7. Interaction with Other Laws
| Law | How It Interacts With Cancellation |
|---|---|
| RA 6552 (Maceda) | Supplies the refund formula when the developer cancels for buyer default; PD 957 overrides where it is more favorable to buyers (Sec. 3‑b, PD 957). |
| Civil Code (Art. 1191) | Subsidiary basis for rescission when neither PD 957 nor Maceda squarely applies (e.g., cash sales). |
| Condominium Act (RA 4726) | Registration and annotation of the rescission on the master and derivative CCTs are done under RA 4726 procedures. |
| Tax Code | Cancelled sales may qualify for VAT and Documentary Stamp Tax refund within two (2) years from payment (NIRC §204; BIR Ruling DA‑238‑2023). |
8. Leading Supreme Court Decisions
| Case | G.R. No. / Date | Key Take‑away |
|---|---|---|
| Sy v. CA | 124669 / 29 Dec 1998 | PD 957 protects even cash buyers; developer must return full price upon breach. |
| F.F. Cruz & Co. v. CA | 94500 / 10 Dec 1993 | DHAC (then HLURB) has exclusive jurisdiction over buyer’s complaint for refund. |
| Spouses De Jesus v. GFA Real Estate | 195815 / 25 Feb 2015 | Arbitration clause cannot defeat HLURB/DHAC jurisdiction. |
| UnionBank v. Spouses Yu | 238344 / 1 Aug 2022 | Bank that forecloses a PD 957 project without buyer consent is liable for damages and specific performance. |
| Shangri‑La Properties v. HLURB | 159938 / 20 Jan 2021 | HLURB may order cancellation and refund even after project completion if amenities are missing. |
9. Checklist for Practitioners
For Buyers
- Keep all official receipts; attach them to the DHAC complaint.
- Send a notarized demand letter; demand specific performance and/or rescission with refund.
- File within 10 years from discovery of violation to avoid prescription issues.
- Be prepared to mediate; DHAC mediation success rate hovers at ~60 %.
For Developers
- Docket Notice of Default and Certificate of Compliance with Maceda before filing for cancellation.
- Set aside a refundable escrow for buyer’s payments; DHAC often orders immediate release.
- Never re‑sell a unit under contested cancellation; it risks multiple sales and criminal exposure.
10. Tax and Documentary Consequences
- DST & Capital Gains Tax on the original sale may be claimed as tax credit or refund once DHAC cancellation attains finality.
- VAT previously declared may be adjusted in the succeeding quarter’s return (Sec. 110B, NIRC).
- Local transfer taxes are typically non‑refundable; negotiate with the LGU if cancellation occurs within the same quarter.
11. Criminal Liability
Under Sec. 38, PD 957, any developer officer or agent who knowingly violates the Decree (e.g., refuses to refund after a final DHAC order) faces ₱20 000–₱50 000 fine and/or 5–10 years’ imprisonment. DHAC’s Legal Services may endorse the case to provincial or city prosecutors.
12. Frequently Asked Questions
| Question | Quick Answer |
|---|---|
| Can I stop paying while the DHAC case is pending? | Yes. Sec. 23 allows suspension of amortizations once a complaint is filed for non‑development. |
| Does bank financing change anything? | No; PD 957 binds the bank. If the loan is approved but the contract is later cancelled, the bank must release the buyer from liability. |
| Is a reservation agreement cancellable the same way? | Yes—if the project is covered by PD 957. Even the ₱20–₱50 000 reservation fee is refundable upon statutory breach. |
| Does the buyer have to vacate immediately after developer’s cancellation? | Only after DHAC issues a final writ of possession in favor of the developer; self‑help eviction is illegal. |
13. Conclusion
PD 957’s cancellation regime is designed to keep both sides honest: buyers can reclaim their money when promised condos never materialize, and developers can recover inventory when buyers genuinely default—but only after strict due process and statutory refunds. Mastery of these rules, together with strategic use of DHAC’s quasi‑judicial machinery, is indispensable for lawyers, in‑house counsel, and property professionals navigating the Philippine condominium market in 2025 and beyond.
This article is for informational purposes only and does not constitute legal advice. Consult a qualified Philippine real‑estate lawyer for advice on specific circumstances.