Dear Attorney,

I hope this letter finds you well. I am writing to seek your legal guidance on an important matter concerning the purchase of real property in the Philippines. My primary concern revolves around the question of who should pay for the preparation and notarization of the Deed of Absolute Sale, as well as the expenses incurred for transferring the title from the seller’s name to the buyer’s name. Is it the buyer or the seller who is legally obligated to shoulder these costs? I would be most grateful for any clarification you can provide on this matter.

Thank you very much, and I look forward to your advice.

Sincerely,
A Concerned Homebuyer

A Meticulous Legal Article on the Allocation of Costs for the Deed of Sale and Transfer of Title Under Philippine Law

In the Philippines, real estate transactions are governed by a comprehensive network of statutes, administrative regulations, and jurisprudential rulings. The question of who pays for the Deed of Absolute Sale (“Deed of Sale”) and the associated costs for transferring the title from the seller’s name to the buyer’s name is one of the most common concerns raised by parties involved in a property sale. Although there are customary practices and contractual norms, the ultimate resolution almost always depends on the specific stipulations in the contract of sale between the buyer and seller. In this article, we shall dissect the key points of law, the relevant statutes, the prevailing customs, and the practical considerations that surround this all-important question.

I. Overview of Property Transactions in the Philippines

A real estate transaction in the Philippines typically begins when a prospective buyer and a seller agree on the sale price and other essential terms. In the simplest sense, the process includes:

Negotiation and Agreement on Purchase Price
This is where both parties discuss and conclude the purchase price, payment method, down payment (if any), and other salient conditions such as the timeline for transferring title and default provisions should either party renege on the agreement.
Preparation and Signing of the Deed of Sale
Once both parties settle on the contract’s terms, a notarial document called the “Deed of Absolute Sale” is prepared. Under Philippine law, in order for a sale of real property to be valid and enforceable, it must be memorialized in a public instrument (i.e., notarized). The Deed of Sale articulates the identities of the buyer and seller, the description of the property, the purchase price, and other relevant provisions.
Payment of Taxes and Fees
This typically includes the payment of the Capital Gains Tax (CGT) or Creditable Withholding Tax (CWT), the Documentary Stamp Tax (DST), the Transfer Tax, and other ancillary fees.
Transfer of Title
Once taxes are paid and the Deed of Sale is notarized, the buyer can proceed to the concerned Registry of Deeds to facilitate the title transfer. The new Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT) is issued in the name of the buyer.
Issuance of New Tax Declaration
Following the release of the new title, the buyer is generally advised to update the property’s tax declaration at the local assessor’s office to reflect the transfer.

II. Legal Framework Governing Costs and Obligations

The allocation of expenses in a property sale in the Philippines is not strictly mandated by law in a universal or uniform manner. Instead, it largely depends on:

Contractual Agreement:
Articles 1305 to 1317 of the Civil Code of the Philippines emphasize the autonomy of contracting parties—meaning both parties are free to agree on how costs and expenses will be allocated. Courts generally respect such contractual stipulations as long as they do not violate law, morals, or public policy.
Customary Practices:
In the absence of explicit agreements, common practice in the Philippines is for the seller to pay for the Capital Gains Tax (or CWT, in some cases), while the buyer typically pays for the Transfer Tax and the registration fees to the Registry of Deeds. As for the Documentary Stamp Tax, it can be subject to negotiation, though it is often shouldered by the seller or shared by both parties depending on the agreement.
BIR Regulations:
The Bureau of Internal Revenue (BIR) issues guidelines on the manner of payment of taxes, such as the CGT. While these regulations clearly impose on the seller the obligation to pay the CGT (if it is indeed a capital asset being sold), the question of who actually bears the expense may be transferred via contract to the buyer, even though the BIR recognizes the seller as the party upon whom the tax is legally imposed.
Local Government Code:
The Local Government Code of 1991 (Republic Act No. 7160) generally provides for the transfer tax and real property taxes at the local level. These charges are usually computed as a percentage of the property’s assessed or fair market value, and the payment of such typically falls on the buyer unless stipulated otherwise.
Notarial Law:
The notarial fee for the Deed of Sale is not fixed by a universal schedule, but most notarial offices use a guideline or matrix based on the property’s value. The obligation to shoulder notarial fees is often negotiable but may be assigned by custom or explicit agreement.

III. The Deed of Absolute Sale: Content, Notarization, and Cost Allocation

A. Nature and Purpose of the Deed of Sale

A Deed of Absolute Sale (sometimes referred to simply as a “Deed of Sale”) is the primary contract demonstrating that the ownership of a specific real property has passed from the seller to the buyer, in exchange for a certain amount of money or other consideration. Its notarization is crucial for the following reasons:

Public Instrument:
Article 1358 of the Civil Code requires that acts and contracts involving the creation, transmission, modification, or extinguishment of real rights over immovable property must appear in a public instrument. Notarization converts a private document into a public document, giving it probative value and presumption of authenticity.
Registration Purposes:
The Register of Deeds will only accept a notarized deed for registration. If the document is not notarized, it cannot be entered into the official public registry and thus cannot effect a valid transfer of title.

B. Who Customarily Pays for the Deed of Sale Preparation and Notarization?

By convention (i.e., commonly observed practice in real estate transactions):

Seller: May assume the burden of preparing the deed (through a lawyer or a notary public) and paying the associated notarial fees. Some sellers prefer to handle this portion to ensure that the document is properly drafted and that their interests are accurately represented.
Buyer: In other scenarios, the buyer might be more comfortable choosing their own counsel to draft the deed, especially if the buyer has specific terms they wish to ensure are properly reflected in the document. In such cases, the buyer might shoulder the costs.

Ultimately, absent a clear contract provision, these costs can be negotiated. Some transactions explicitly state: “All expenses relating to the execution, notarization, and registration of the Deed of Sale shall be borne by Party X.” If no such clause exists, the parties rely on custom or a fair apportionment.

IV. Transfer of Title: Filing, Registration Fees, and Other Charges

A. Documentary Stamp Tax (DST)

The DST is levied on the documents, instruments, or loan agreements that reflect transactions in the Philippines. For real property sales, the DST rate is calculated based on the property’s selling price or fair market value, whichever is higher.

Who Usually Pays: Traditionally, the seller pays the DST (or shares it with the buyer) based on the purchase price, though by law, DST can be imposed on either party if contractually agreed.

B. Capital Gains Tax (CGT) or Creditable Withholding Tax (CWT)

The usual scenario is that an individual seller pays a Capital Gains Tax of 6% on the property’s gross selling price or fair market value, whichever is higher, when disposing of a capital asset. However, in some situations (e.g., the seller is engaged in real estate business), a Creditable Withholding Tax can be imposed.

Who Usually Pays: Legally, the CGT is imposed on the seller. Nonetheless, contracts sometimes specify that the buyer will bear the CGT, effectively raising the net price the seller receives. The BIR, however, still recognizes the seller as the taxpayer who must file the return. Practical effect is that the buyer might pay on behalf of the seller if so stipulated in the contract.

C. Transfer Tax

The Local Government Code authorizes provinces and cities to impose a transfer tax, typically computed at a certain percentage of the property value. This tax is paid at the local treasurer’s office in the jurisdiction where the property is located. The rate can vary, but it usually hovers around 0.5% to 0.75%, depending on the local government unit.

Who Usually Pays: Customarily, the transfer tax is shouldered by the buyer since it is the buyer’s interest to have the property transferred to their name. However, once again, if the contract states otherwise, the parties can deviate from this practice.

D. Registration Fees

The Land Registration Authority (LRA) releases a schedule of registration fees, which typically depends on the property’s value. This fee is paid to the Registry of Deeds.

Who Usually Pays: Typically, the buyer pays for registration fees since the buyer stands to benefit from the issuance of a new certificate of title in their name.

V. Legal Bases and Key References

Civil Code Provisions
- Article 1306 (Autonomy of Contracts): Parties may establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
- Article 1358: Requires that acts involving real property rights should appear in a public instrument.
National Internal Revenue Code (NIRC)
- Sections on Capital Gains Tax and Documentary Stamp Tax: These sections detail the tax liabilities arising from the sale of real property in the Philippines.
Local Government Code (RA 7160)
- Provides for the imposition of Transfer Taxes by local government units and outlines real property taxation at the provincial, city, or municipal level.
BIR Revenue Regulations
- Various Revenue Regulations (e.g., RR No. 6-2001, RR No. 12-2018, etc.) clarify the imposition of CGT/CWT and DST in real estate transactions.
Jurisprudence
- The Supreme Court has reiterated in various rulings the principle that the payment of taxes can be contractually transferred, but the statutory incidence typically remains the responsibility of the seller (in the case of capital gains tax).

VI. Common Contractual Stipulations and Negotiations

In many real estate transactions, the following standard clause may appear:

“The SELLER shall be responsible for the payment of the capital gains tax, real estate broker’s commission, and any unpaid real property taxes. The BUYER shall be responsible for the documentary stamp tax, transfer tax, and registration fees necessary to effect the transfer of title. Any other fees not specified herein shall be borne as agreed upon by both parties, or as mandated by law.”

Alternatively, some sellers might propose shifting the CGT or DST to the buyer. Buyers, especially those who intend to purchase for investment, might agree to assume such costs if it results in a lower total purchase price. It’s always wise for both parties to have clarity on the breakdown of taxes and fees to avoid confusion or disputes later.

VII. Potential Penalties and Risks if Costs Are Not Paid Properly

Delay in Registration
If either party fails to pay their respective obligations in a timely manner, the Registry of Deeds will not proceed with the issuance of a new certificate of title, thereby delaying or preventing the buyer from acquiring full legal ownership.
BIR Surcharges and Penalties
Late payment of taxes (CGT, DST) could result in the imposition of interest, surcharges, and penalties, thus increasing the overall transaction cost.
Legal Disputes
Failure to specify who pays which expense may lead to conflict, resulting in civil suits for breach of contract or specific performance, possibly culminating in further delays or even rescission of the sale.
Personal Liability
Though a contract might designate the buyer as payer of CGT, the BIR can still go after the seller (who remains the taxpayer on record) for unpaid taxes. This can lead to confusion and potential liability if not properly handled.

VIII. Practical Tips and Recommendations

Put It in Writing:
Parties should ensure that their Deed of Sale clearly spells out who is responsible for which expenses. This includes not only major taxes but also incidental costs (like notarial fees, registration fees, and documentary stamps).
Engage Professionals Early:
Consulting a seasoned lawyer, broker, or tax professional early in the process can help identify and minimize potential pitfalls related to taxes and fees.
Secure Tax Clearances:
Before proceeding to sign any final agreement, it’s prudent for buyers to confirm that the property has no outstanding real property taxes or other liens.
Negotiate Fairly:
Given that there is no absolute rule under the law on cost allocation, each party should negotiate in good faith. Sellers may try to shift more of the tax burden to the buyer, and buyers may counter by seeking a lower purchase price in exchange.
Monitor Timelines:
The BIR provides strict deadlines for filing and paying CGT and DST (usually thirty (30) days from the date of notarization for CGT and five (5) days from the close of the month after the notarization for DST, though regulations can be updated). Failing to pay on time can lead to penalties and interest.
Keep Receipts and Documents:
Proper record-keeping is essential. Retain all official receipts, notarized documents, and proof of payment in case of future disputes or audits.

IX. Sample Breakdown of Fees in a Typical Transaction

While recognizing that actual fees will depend on the negotiated terms, here is a hypothetical breakdown consistent with common practice:

Seller’s Usual Responsibilities
- Capital Gains Tax: 6% of the higher of the selling price or fair market value
- Unpaid Real Property Taxes (if any)
- Broker’s Commission (if applicable)
- Part or all of Documentary Stamp Tax (depending on negotiation)
Buyer’s Usual Responsibilities
- Transfer Tax: A percentage of the property’s value, paid to the local treasurer
- Registration Fee: Based on the schedule set by the LRA
- Notarial Fee for the Deed of Sale (depending on negotiation)
- Part or all of Documentary Stamp Tax (depending on negotiation)

X. Conclusion

In Philippine real estate transactions, there is no single, absolute rule that dictates which party must bear the costs of the Deed of Sale and the subsequent title transfer. Generally, under Article 1306 of the Civil Code, parties have the freedom to decide how they will apportion these costs. However, common industry practice assigns certain obligations to the seller and others to the buyer. Sellers typically cover the capital gains tax, while buyers usually shoulder the transfer tax and registration fees. Beyond that, the allocation of documentary stamp tax and notarial fees can be a matter of negotiation, though there is a long-standing tradition of splitting some of these costs or relying on customary norms.

To avoid confusion and prevent legal disputes, it is paramount that both buyer and seller explicitly agree on their respective financial obligations in a written instrument such as the Deed of Absolute Sale. When in doubt, each party should consult competent legal counsel, a reliable real estate broker, and a tax professional to ensure that their interests are protected and that the transaction proceeds in a clear, fair, and orderly manner. By being proactive and informed about the intricacies of Philippine property law, parties can navigate the complexities of real estate transactions with greater confidence and security.

Disclaimer: The above discussion is for general informational purposes only and does not constitute legal advice. No attorney-client relationship is created by this article. Parties to a real estate transaction are advised to consult a qualified legal professional to address their specific circumstances.