Negotiation

Period of offering and counter-offering

Perfection

The time the offer is accepted (Meeting of the Minds)

Consummation

Period when the owner & tenant perform their obligations

Termination

Period when obligations are fulfilled or pre-terminated

Elements

Description

Consent

Consent refers to the agreement of the parties to enter into a contract. This agreement must be genuine, free from any vices of consent, such as error, fraud, or undue influence.

Consent means that both the owner and the tenant agree to the terms of the lease such as duration, rental amount, and other conditions of the lease.

Object

The object of the contract is the subject matter or the thing being agreed upon. It must be lawful, possible, and within the commerce of men.

The property being leased (Leased Premises). It must be a lawful, specific, and determinable thing that the lessee will have the right to use temporarily. The owner retains ownership of the property but grants the tenant the right to its use for a specified period.

Cause

The cause is the reason or purpose behind entering into the contract. It must be lawful and should provide mutual benefit to both parties.

For the owner, the cause is usually the payment of rent by the lessee. For the tenant, the cause is gaining temporary access and use of the property. 

Natural Persons

Definition

An individual human being

Qualification

18 years old & above, sound mental capacity, emancipated minors

Limited Capacity

Minors, old age, with mental disability, and/or insolvency that requires legal guardian

Juridical Persons

Definition

Entities that have legal personality distinct from the individuals such as corporations.

Qualification

In accordance with their nature and the purposes for which they were created and shall be subject to the provisions of the laws, charters, and/or regulations governing such organizations.

Limited Capacity

Limited within the scope of their powers as defined by their charter, articles of incorporation, or other governing documents.

OWNER

TENANT

Delivering the property in a condition fit for its intended use and is habitable.

Pay rent on time.

Making necessary repairs to keep the property suitable for use.

Use the property for agreed purposes.

Ensuring the lessee’s peaceful possession throughout the lease period.

Maintain the premises, returning them in proper condition.

ADVANCE RENT

SECURITY DEPOSIT

Used for payment of rent 

(non-refundable)

Used for liquidating damages (refundable net of deductions)

Owner cannot evict the tenant within a paid duration.

Normal wear and tear are not lawful deductions.

The amount is agreed upon by the tenant and owner.

Returned within one month (Unless forfeited due to certain causes)

Type of Improvement

Consent by Owner

Cost Shouldered By

Necessary Improvements

Not Required

Owner

Useful Improvements

Required

Tenant (Owner may be required)

Ornamental Improvements

Required

Tenant

Definition

Made by the lessee to preserve or maintain the property, often due to urgent need or to prevent the property from deteriorating. 

Shouldered by

Advanced by the tenant but subject to reimbursement from the owner.

Limits

If the damage is due to the tenant's fault or negligence or his guests/relatives. Doesn’t need the owner's consent.

Definition

Those that enhance the value of the leased property or increase its convenience, but they are not essential for its preservation.

Shouldered by

Shouldered by the tenant. 

Limits

Owner may be required to pay but if not, the tenant may remove the improvement upon termination. Requires owner’s consent.

Definition

Aesthetic additions made by the lessee to personalize the space or make it more attractive. These do not necessarily add functional value or are required for the property’s use.

Shouldered by

Shouldered by the tenant. 

Limits

Owner is not required to pay. Tenants may remove the improvement upon termination. If not removed, it will be forfeited in favor of the owner. Requires owner’s consent.

Stage

Cost by

Description

Initial

Owner

Ensuring the property complies with health and sanitation standards when it is handed over to the tenant.

Subsequent

Tenant

Use the property as a diligent “father of a family,” implying they must maintain the cleanliness and orderliness of the property during the lease. Failing to do so may result in consequences, including termination of the lease.

Repairs

Cost by

Description

Necessary or Major

Owner

Major or necessary repairs to keep the property in suitable condition for the agreed purpose.

Minor

Tenant

Repairs caused by normal wear and tear or ordinary use of the property.

Damaged by

Cost by

Description

Force Majeure

Owner

Damages resulting from force majeure (Acts of God) such as natural disasters.

Tenant, his guests and/or relatives

Tenant

Damages resulting from their own fault or negligence. This can include things like accidental breakage of fixtures or causing structural damage through improper use.

Subleasing

Assignment of Lease

Definition

The tenant leases the property to another person (AirBNB).

The tenant assigns the lease to another person (Pasalo Lease).

Condition

Allowed unless prohibited in the lease contract.

Requires owner’ consent.

If not stipulated

Allowed

Not Allowed

Sale / Transfer

Mortgage

New Owner’s Option

Evict the tenant if not stipulated in the contract & not registered.

-

In case of Foreclosure

-

Evict the tenant if not stipulated in the contract & not registered.

Due to Inhabitable Condition

The lessee may terminate the lease if the lessor fails to maintain the property in a habitable or usable condition. Security Deposits are refunded.

Due to Non-Performance of Obligation

The lessor or lessee may terminate the lease if the other party breaches key terms. Security Deposits are not refunded if due to the tenant's default.

Tacitly Renewed

Upon the expiration, the tenant must vacate and return the property to the owner. If the tenant continues to occupy the property with the owner’s consent, the lease is considered tacitly renewed, subject to the same terms but without a fixed period (Open Contract).

Implied Lease Renewal

If the tenant continues using the property for more than 15 days after the lease expires without objection from the owner, a tacit renewal or implied new lease occurs. This renewed lease operates on a month-to-month basis for residential leases or year-to-year for rural leases unless stated otherwise

Definition

If a tenant abandons the property without notice, the owner may consider it a breach of contract. The owner has the right to terminate the lease and may claim damages for any unpaid rent or costs associated with the abandonment.

Implied Lease Renewal

If the tenant leaves behind useful improvements that cannot be removed without damaging the property, the owner may choose to retain them. The owner is not obligated to reimburse the tenant for these improvements, as abandonment generally results in forfeiting claims to any property left behind.

Return of Premises

The tenant is required to return the leased property in the same condition it was received, except for deterioration caused by normal wear and tear or as a result of the property’s intended use.

Useful Improvements

If the tenant has made useful improvements that cannot be removed without damaging the property, the lessor may choose to keep these improvements without paying the lessee. Alternatively, if the improvements are removable, the lessee may take them when leaving, provided this does not cause harm to the property.

Expiration of Term

Lease ends when the agreed-upon term lapses.

Mutual Agreement

Both parties agree to terminate the lease contract before the end of its terms.

Death of a Party

Obligations are inherited by the heirs unless the performance of the party is personal in nature.

Loss of Property

Property is destroyed or becomes uninhabitable due to force majeure.

Expropriation

The action by the government or an authority of taking property from its owner for public use or benefit.

Breach or Non-Payment

Owner may terminate if the tenant fails to pay rent or breach essential terms of the contract.

Abandonment

Tenant abandons the property without intent to return.

Annulment

Lease is voidable and can be annulled due to fraud, incapacity or other grounds for annulment.

Defect

Remedy

Rescissible Contracts

Rescission within time limit

Voidable Contracts

Annulment within four years

Unenforceable Contracts

Ratification

Void Contracts

None

Definition

A contract may be rescissible if it causes harm to creditors, violates certain laws protecting the rights of others, or damages the interests of a minor or incapacitated individual.

Example

If an owner leases out property that is subject to a legal claim from other heirs, this could prejudice the other heirs’ right to payment, making the lease contract rescissible.

Remedy

The aggrieved party can file an action for rescission to cancel the contract and restore both parties to their original positions. Rescission must be executed within four years of the discovery of the cause for rescission.

Definition

Voidable contract might occur if one party was forced or deceived into agreeing, or if one party was a minor or legally incapacitated without appropriate representation.

Example

If a lessee is a minor who enters into a lease contract without the consent of a guardian, the contract is voidable because the lessee lacks the legal capacity to consent.

Remedy

The injured party can seek annulment of the contract by filing a case in court. If the contract is annulled, both parties are restored to their positions before the contract. This action must be filed within four years from the discovery of the defect in consent or from the time the defect ceased.

Definition

This often involves contracts that must be in writing to be enforceable, such as a lease for a term longer than one year, which must be in written form according to the Statute of Frauds.

Example

If a verbal lease agreement is made for a term longer than one year, it is considered unenforceable under the Statute of Frauds because it lacks the required written form.

Remedy

Unenforceable contracts can sometimes be ratified by fulfilling the required formalities, such as reducing the contract to writing. If the parties proceed as if there is a contract and provide written evidence, it may be recognized and enforced.

Definition

A void contract might occur if the lease is for an illegal purpose (e.g., leasing property for illegal activities) or involves an object outside commerce.

Example

A lease contract is void if the property is intended to be used for illegal activities, such as operating an unlicensed gambling establishment, or if the lessor lacks the legal right to lease the property (e.g., leasing property they do not own).

Remedy

Since void contracts are considered non-existent, they cannot be ratified or enforced. The parties have no rights or obligations under a void contract, and any performance rendered must be returned as much as possible.