Residential Lease Agreement

What is a Residential Lease Agreement?

A Residential Lease Agreement is an agreement for one person (the "Lessee") to rent the property of another (the "Lessor") for residential purposes (e.g house, condominium, or apartment) over a specific period of time in exchange for a payment of rent.

A Residential Lease Agreement identifies basic information about the lease such as the property to be rented, the period of the lease, the security deposits, and the monthly rental payments. It outlines the obligations of both the Lessor and the Lessee during the period of the lease.

What are the different types of Lease Agreements?

There are different types of lease agreements, depending on what will be leased:

• Residential Lease Agreement. This is the document that can be used when a property will be rented and used for residential purposes.
• Commercial Lease Agreement. This is a document that can be used when a property will be rented and used for commercial activity. A Commercial Lease Agreement is different from a Residential Lease Agreement because of the type of real property leased. In the Residential Lease Agreement, it is for residential purposes such as the lease of a house, condominium, or apartment. In a Commercial Agreement, what is leased are commercial properties such as office spaces, and buildings. It is important to distinguish between Commercial and Residential Lease Agreements because a Residential Lease Agreement may be subject to rent control laws while Commercial Lease Agreements are not.
• Rental of Goods Agreement. This is a document that can be used when a property that will be rented and used is personal property like merchandise or electronics.
• Motor Vehicle Lease Agreement. This is a document that can be used when a property that will be rented and used is a motor vehicle.
• Parking Space Rental Agreement. This is a document that can be used when a property that will be rented and used is a parking space.

What is the difference between a Residential Lease Agreement and a Residential Sublease Agreement?

A Residential Sublease Agreement is entered into by a person (the sublessee), to rent a residential property from another person who is in his turn a lessee in the original Lease Agreement. This means there will be 2 separate agreements existing at the same time:

• The Residential Lease Agreement: in which the lessor rents the property to the lessee.
• The Residential Sublease Agreement: in which the lessee (as sublessor) rents the property to the sublessee.

In a Residential Lease Agreement, the lessee is the one renting the property, while in a Residential Sublease Agreement, that same person is the sublessor who rents the property to a sublessee, while the original Residential Lease Agreement continues to exist.

Is it mandatory to have a Residential Lease Agreement?

Yes, because this will lay down the terms and conditions of the lease and will prevent the parties from reneging on the lease agreement. This will also serve as documentation for what was agreed upon by the lessor and the lessee.

What is Advanced Rent in a Residential Lease Agreement?

The advanced rent is usually paid at the signing of the Agreement. It may be applied as rent for any of the months during the lease period, as agreed upon by the parties. If the property is located in a highly urbanized city and the rent is equal to or less than Ten Thousand Philippine Pesos (P10,000.00) or if the property is not located in a highly urbanized city and the rent is equal to or less than Five Thousand Philippines Pesos (P5,000.00), the Lessor cannot demand more than one-month advance rent.

The purpose of this is to ensure that the lessee will timely pay the rent and this amount can be used for those months where the lessee fails to pay rent.

What is a Security Deposit in a Residential Lease Agreement?

The security deposit can be used to settle rent, unpaid electric, telephone, water, or such other utility bills or repair any damage to the property caused by the acts or negligence of the Lessee. If the property is located in a highly urbanized city and the rent is equal to or less than Ten Thousand Philippine Pesos (P10,000.00) or if the property is not located in a highly urbanized city and the rent is equal to or less than Five Thousand Philippines Pesos (P5,000.00), the Lessor cannot demand more than two months security deposit which must be kept in a bank under the Lessor's account name during the entire duration of the lease.

If at the end of the lease, the rent and utility bills are paid and there is no damage to the property, the security deposit should be returned to the lessee.

What must a Residential Lease Agreement contain?

A Residential Lease Agreement contains the following information:

• The details of the property that will be rented,
• The period or duration of the lease,
• The rental fee and other fees for the lease,
• The purpose or use of the property,
• Applicable policies (for example: whether guests can stay overnight, the number of residents in the leased property & rules concerning pets).

What is not allowed in a Residential Lease Agreement?

If the property is located in the National Capital Region or highly urbanized cities and the total monthly rent ranges from P1.00 to P10,000.00, or if the property is located in other areas and the monthly rent ranges from P1.00 to P5,000.00, then the lessor cannot raise the rent more than the amount of 4% of the original amount of rent from January 1 to December 31, 2024,

Further, the lease cannot simply be terminated due to the change of the ownership of the property such as by sale, donation, or inheritance.

What are the prerequisites of a Residential Lease Agreement?

The lessee must have checked the premises of the property to be leased before signing the Residential Lease Agreement, and if possible, he should verify first whether the lessor is the owner of the property or at least is authorized to set the property for lease before the Register of Deeds of the city or municipality where the property to be leased is located.

What has to be done once the Residential Lease Agreement is ready?

Once the document is completed, at least two original copies of the document should be printed and all of the attachments (referred to in the next question) described in the document should be attached. The Lessor and the Lessee, or their authorized representatives, should read, and then sign all the copies of the document and each should keep an original copy.

After this, the document may be notarized. If the parties would want to notarize the Lease Agreement, the document also includes an Acknowledgment portion, in which case, at least three original copies should be printed. Notarization of the document converts the document from a private document to a public document so that it becomes admissible in court without the need for further proof of its authenticity. To notarize the document, the parties must go to a notary public to acknowledge that they have signed the Lease Agreement freely and voluntarily. They should also present a valid I.D. issued by an official agency bearing their photograph and signature such as a driver's license or a passport, among others.

Once notarized, the Lessor and the Lessee should each keep at least one copy of the notarized document.

Which documents should be attached to the Residential Lease Agreement?

The following should be attached to the document, if applicable:

• A copy of the transfer certificate of title concerning the property leased if it is an apartment, house, or building,
• A copy of the condominium certificate of title if the property leased is a condominium,
• A copy of the authorization that shows that a representative can act on behalf of the lessor,
  • The representative of the lessor must have a Partner's certificate if the lessor is a partnership, or a Secretary's certificate if the lessor is a corporation.
• A copy of the authorization that shows that a representative can act on behalf of the lessee.
  • The representative of the lessee must have a Special Power of Attorney if he will appoint someone else to sign the Residential Lease Agreement for him.

Is it necessary to notarize the Residential Lease Agreement for it to be valid?

No, however, notarization of the document converts the document from a private document to a public document so that it becomes admissible in court without the need for further proof of its authenticity, meaning, the document will be presumed to be validly written and signed once it is shown to court in case a dispute is brought before it.

Is it necessary to register the Residential Lease Agreement?

No, however, registration of the Residential Lease Agreement before the Register of Deeds in the place where the property is located serves as a protection for the lessee in case there is a change in ownership over the property. If there is a change in ownership, the new lessor who is the new owner cannot terminate the lease.

Is it necessary to have witnesses for the Residential Lease Agreement?

No, however, witnesses can testify as to how the Residential Lease Agreement was entered into by the parties in case a dispute is brought to a court of law concerning the lease.

What are the costs involved in the finalization of the Residential Lease Agreement?

If the Residential Lease Agreement is notarized, a certain percentage of the rent may be asked as a fee by the notary public. This is usually at 1%.

Which laws are applicable to Residential Lease Agreements?

The Civil Code of the Philippines governs the law on contracts and leases. Additionally, Republic Act No. 9653 (the "Rent Control Act") as extended by the National Human Settlements Board Resolution No. 2021-02, governs lease contracts that fall under the following conditions:

• The property is located in the National Capital Region or highly urbanized cities and the total monthly rent ranges from One Peso (P1.00) to Ten Thousand Pesos (P10,000.00)
• The property is located in other areas and the monthly rent ranges from One Peso (P1.00) to Five Thousand Pesos (P5,000.00).

The National Human Settlements Board (NHSB) has approved a 4 percent increase cap for monthly residential rental rates of P10,000 and below, effective January 1 to December 31, 2024 (NHSB Resolution No. 2023-03).

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