Dear Attorney,

I am writing to seek your legal advice regarding my housing purchase. In 2016, I reserved a house by paying a reservation fee of ₱10,000. Subsequently, I completed the down payment of ₱320,000 in 2018, payable over two years. The agreement included a provision stating that 10% of the down payment would be for construction and 20% would be required for move-in. However, the developer did not commence construction, even before the pandemic delayed many projects. Eventually, I decided to cancel my purchase in 2023.

Upon cancellation, the developer informed me that I would only be refunded ₱70,000, despite having paid ₱320,000. The total price of the unit was ₱1,357,995.01. I would like to understand whether this refund amount is fair and compliant with the law, and if I am entitled to a larger refund.

Thank you for your guidance.

Sincerely,
A Concerned Buyer

Comprehensive Legal Guide on Refunds for Cancelled Housing Purchases in the Philippines

The situation described touches on several aspects of Philippine laws governing real estate transactions, particularly under Presidential Decree No. 957 (PD 957), known as the "Subdivision and Condominium Buyers' Protective Decree," and its implementing rules and regulations. It also involves issues of contract law, obligations, and remedies under the Civil Code of the Philippines.

This legal article will delve into all the relevant considerations.

1. Presidential Decree No. 957: Buyer Protections

PD 957 governs the sale of subdivision lots and condominium units to protect buyers from fraudulent practices. It mandates certain obligations for developers and provides remedies for buyers in cases of non-performance or cancellation. Two key sections apply to the case:

Section 23: Non-Forfeiture of Payments

Under Section 23, if a buyer decides to cancel their purchase, developers cannot forfeit all payments made by the buyer. Specifically, the buyer is entitled to a refund of the total payments made, less a maximum deduction of 50% of the total payments. This deduction is meant to cover administrative expenses. However, if the buyer has paid more than two years’ worth of installments, additional payments beyond the 50% deduction may be refunded.

Example

If a buyer paid ₱320,000 and cancels, the developer can deduct up to 50% (₱160,000). The buyer should then receive a refund of ₱160,000.

Developers that fail to comply with this provision may be held liable for violating PD 957.

2. Applicability of the Maceda Law (RA 6552)

The Maceda Law, also known as the Realty Installment Buyer Protection Act, supplements PD 957 and applies to buyers who have paid at least two years of installments. Under this law:

Buyers who cancel their contract are entitled to a refund of at least 50% of their total payments made.
If the buyer has paid beyond two years, they are entitled to an additional refund of 5% per year beyond the second year.

Application to Your Case

Since you paid your installments over two years (2016–2018) and canceled in 2023, the Maceda Law would entitle you to a refund of at least 50%, plus an additional 5% for each subsequent year.

3. Contractual Terms and Construction Delays

Contracts often include specific provisions regarding the timeline for construction and delivery of the property. When the developer fails to perform as agreed, the buyer has grounds for cancellation and refund under the Civil Code, particularly Articles 1191 and 1167:

Article 1191: Rescission for Breach of Obligation

When one party fails to comply with their obligations, the other party may:

Rescind the contract.
Seek reimbursement or damages.

In this case, the developer’s failure to construct the property breaches their contractual obligation.

Article 1167: Delay in Obligations

If a developer delays or refuses to construct the property, the buyer may demand:

Specific performance (forcing the developer to complete construction), or
Refund and damages.

The developer's delay prior to and during the pandemic strengthens your claim for a full or substantial refund, especially as the project was not delivered as promised.

4. What to Do if Refund Is Unfair

If you believe the refund of ₱70,000 is inadequate, consider the following steps:

Step 1: File a Complaint with the HLURB (now DHSUD)

The Housing and Land Use Regulatory Board (HLURB), now integrated into the Department of Human Settlements and Urban Development (DHSUD), handles complaints involving real estate transactions. You can file a complaint for:

Non-compliance with PD 957.
Violation of contractual obligations.

HLURB/DHSUD can mediate, impose penalties on developers, and order them to refund buyers appropriately.

Step 2: Pursue Legal Action

If DHSUD mediation fails, you can elevate your case to the proper courts. You may:

File a civil case for rescission under the Civil Code.
Include a demand for moral and exemplary damages if the developer acted in bad faith.

Step 3: Arbitration or Settlement

Developers often prefer arbitration to avoid litigation. Negotiating through legal counsel may result in a fairer refund.

5. Assessing the Developer’s Offer

Based on the details you provided:

You paid ₱320,000 in down payment.
The developer offered only ₱70,000 as a refund.

Under PD 957 and the Maceda Law, this refund appears inadequate. Assuming a deduction of 50% of your payments (₱160,000), you should receive at least ₱160,000 or more, depending on how long beyond the two years you paid installments.

6. Calculating a Fair Refund

To calculate a fair refund under the Maceda Law:

Determine the 50% minimum refund:
- ₱320,000 × 50% = ₱160,000.
Add 5% for each year beyond two years:
- (2023 – 2018 = 5 years beyond two years)
- 5% × ₱320,000 × 3 years = ₱48,000.
Total refund = ₱160,000 + ₱48,000 = ₱208,000.

This calculation suggests your refund should be closer to ₱208,000.

7. Potential Legal Issues for Developers

Failure to Construct

Under PD 957, developers must deliver projects as promised. Failure to construct could result in:

Cancellation of their license to sell.
Monetary penalties and suspension.

Unjust Deduction of Refunds

If the developer retains excessive deductions, they may be liable for breach of PD 957 and the Civil Code.

8. Summary of Buyer’s Rights

As a buyer, you have the right to:

Cancel your purchase due to non-performance.
Receive a refund under PD 957 and the Maceda Law.
Seek damages for delays or non-compliance.
File a complaint with DHSUD or pursue legal action.

Conclusion

Your refund appears unfair based on PD 957 and the Maceda Law. You should demand a proper calculation of your refund, considering deductions should not exceed 50% of your payments and should include adjustments for the time you paid beyond two years. If the developer refuses, you may file a complaint with DHSUD or take legal action.

Seeking assistance from a lawyer experienced in real estate law is advisable to ensure you receive the compensation you are entitled to.