[Letter Seeking Legal Advice]

Dear Attorney,

I hope this letter finds you well. I am writing to seek clarity regarding the financial responsibilities associated with the execution of a deed of sale for real property in the Philippines. Specifically, I am uncertain about who bears the obligation of paying for the preparation, notarization, and related costs of the deed of sale.

As I prepare to engage in a property transaction, I wish to fully understand the legal framework, standard practices, and any statutory requirements or implications surrounding this matter. Your expert guidance on this issue would be immensely helpful.

Sincerely,
A Property Buyer

Comprehensive Discussion on the Payment of the Deed of Sale in Property Transactions

In the Philippine legal framework, the preparation and execution of a deed of sale are integral steps in transferring ownership of real property from the seller to the buyer. The deed of sale is a critical document that evidences the transfer of rights over the property. However, determining who bears the cost of preparing, notarizing, and processing this document requires an understanding of relevant laws, standard practices, and contractual agreements. Below is an exhaustive discussion of this issue, analyzed through statutory provisions, jurisprudence, and practical considerations.

1. Legal Basis: The Civil Code of the Philippines

The obligations and expenses related to contracts, including deeds of sale, are primarily governed by the Civil Code of the Philippines. Article 1487 of the Civil Code underscores the mutual obligations of the seller and buyer, with the seller typically bearing the cost of delivering the property in good condition and ensuring the execution of a valid deed of sale. Meanwhile, the buyer assumes responsibility for payment of the purchase price and certain ancillary expenses.

Relevant Articles:

Article 1487: “The seller is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale.”
Article 1488: “The buyer is obliged to pay the price of the thing sold at the time and place stipulated in the contract.”

From these provisions, it is clear that the division of responsibilities can be subject to agreement between the parties.

2. Customary Practices in Property Transactions

In practice, the allocation of expenses related to the deed of sale often depends on local customs and negotiations between the buyer and seller. The following conventions are commonly observed:

Seller's Responsibilities:
- Ensuring the property is free from encumbrances.
- Delivering the property title.
- Preparing the initial draft of the deed of sale.
- Paying for the capital gains tax (if applicable) and real estate agent’s commission.
Buyer's Responsibilities:
- Paying the purchase price.
- Covering the cost of documentary stamp tax, registration fees, and transfer tax.
- Bearing the expense of notarization and legal consultation fees (if explicitly agreed upon).

However, deviations from these practices are common, as agreements between the parties can alter the distribution of costs.

3. Notarization of the Deed of Sale: A Shared Responsibility

A deed of sale must be notarized to be legally binding and admissible in court. The Notarial Law mandates that notarized documents be executed in the presence of a notary public, who certifies the document's authenticity.

The cost of notarization, often amounting to a percentage of the property's selling price, is typically negotiated. Standard practice assigns this responsibility to the buyer, but some agreements stipulate cost-sharing between the parties.

4. Taxes and Fees Related to the Deed of Sale

The execution of a deed of sale triggers several tax liabilities and fees, which are allocated as follows:

A. Capital Gains Tax

Who Pays: The seller.
Amount: 6% of the selling price or zonal value, whichever is higher.

B. Documentary Stamp Tax

Who Pays: Usually the buyer.
Amount: 1.5% of the selling price or zonal value, whichever is higher.

C. Transfer Tax

Who Pays: Typically the buyer.
Amount: Rate varies by local government unit (LGU), ranging from 0.5% to 0.75% of the selling price or zonal value.

D. Registration Fees

Who Pays: The buyer.
Amount: Based on the property's value, as per a schedule provided by the Register of Deeds.

5. Key Legal Considerations and Contractual Autonomy

The Principle of Freedom to Contract (Article 1306 of the Civil Code) allows the parties to stipulate terms in their agreement, including the allocation of costs. This principle enables flexibility, and it is not uncommon for buyers to negotiate for the seller to shoulder the notarization fees, especially in high-value transactions.

Example Scenario: Negotiated Agreements

In high-value property sales, the buyer and seller may agree to split the costs of notarization and deed preparation evenly.
Developers often absorb the deed preparation costs in bulk sales or pre-selling agreements to attract buyers.

6. Jurisprudence on Payment of Deed of Sale Costs

While the Supreme Court has not issued rulings directly addressing who should pay for the deed of sale's preparation and notarization, related jurisprudence emphasizes the importance of adhering to contractual terms. Courts generally uphold agreements on cost allocation, provided these terms are not contrary to law, morals, or public policy.

Relevant Case Law:

Heirs of San Andres v. Rodriguez (G.R. No. 170123): Highlighted the seller's obligation to execute a valid deed of sale.
Spouses Villanueva v. CA (G.R. No. 132955): Reinforced the enforceability of contractual stipulations.

7. Practical Recommendations for Buyers and Sellers

To avoid disputes, the following practices are recommended:

Draft a Clear Agreement: The contract to sell or deed of sale should explicitly specify who pays for deed preparation, notarization, and associated costs.
Consult a Lawyer: Legal counsel ensures that obligations are clearly delineated and comply with the law.
Negotiate Terms: Both parties should negotiate cost-sharing arrangements to their mutual satisfaction.

8. Final Thoughts

The question of who pays for the deed of sale in property transactions in the Philippines is governed by a combination of statutory laws, customary practices, and contractual agreements. While sellers typically bear the cost of drafting the deed, buyers often pay for notarization and registration fees unless otherwise stipulated. To avoid misunderstandings, both parties should engage in transparent negotiations and document all agreements in writing.

By understanding these nuances, both buyers and sellers can ensure a smooth transaction process and minimize potential legal disputes.

This legal article serves as a general guide. For specific cases, consult with a qualified attorney to address your unique circumstances.