• Buy land only from developer with license to sell

    Persida Acosta

    Persida Acosta

    Dear PAO,
    I bought a subdivision lot somewhere in Caloocan City (Metro Manila). I found out that the developer did not have a license to sell when we executed the contract to sell, as it was still pending with the Housing and Land Use Regulatory Board. Is the contract to sell valid? I have been paying my monthly amortization for more than 3 years already. If I fail to continue paying, can I still recover the full amount I paid in case the contract is canceled?

    Dear Enrico,
    The law is clear. A subdivision developer, before it transacts business of selling its subdivision lots, must have a License to Sell. This is mandated by Section 5 of Presidential Decree (PD) 957 or the Subdivision and Condominium Buyer’s Protective Decree, which provides:

    “SECTION 5. License to sell. – Such owner or dealer to whom has been issued a registration certificate shall not, however, be authorized to sell any subdivision lot or condominium unit in the registered project unless he shall have first obtained a license to sell the project within two weeks from the registration of such project. xxx”

    Although the said law penalizes the developer for selling subdivision lots without a license to sell, nothing is stated in the said law declaring a contract to sell null and void if executed by a developer who lacks the said license to sell. Thus, if the requisites of a valid contract are present when you executed the Contract to Sell with the subdivision developer mentioned in your letter, then the same is valid. In the case of Moldex Realty, Inc. vs. Flora A. Saberon (G.R. No.176289, April 8, 2013) the Supreme Court held:

    “In Spouses Co Chien v. Sta. Lucia Realty and Development Corporation, Inc. this court has already ruled that the lack of a certificate of registration and a license to sell on the part of a subdivision developer does not result [in]the nullification or invalidation of the contract to sell it entered into with a buyer. The contract to sell remains valid and subsisting. In the said case, the court upheld the validity of the contract to sell notwithstanding violations by the developer of the provisions of PD 957. We held that nothing in PD 957 provides for the nullity of a contract validly entered into in cases of violation of any of its provisions such as the lack of a license to sell. xxx”

    With regard to your second question, your failure to pay your monthly amortization may result in the rescission of the contract to sell you entered into with the said subdivision developer. In case the said contract is canceled, Republic Act 6552 or the Realty Installment Buyer Act will apply insofar as the payments you have made are concerned. Pursuant to the said law, the buyer of a real estate, among others, shall be entitled to at least half of what he has paid on installment basis, if he has been paying for at least two years. Section 3 of the said law provides:

    “Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:

    “(a) xxx

    “(b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty percent of the total payments made, and, after five years of installments, an additional five percent every year but not to exceed ninety percent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancelation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.

    “Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made.”

    Since you have already paid your monthly amortization for at least three (3) years, in the event that your contract is canceled due to your failure to pay, you are entitled to at least fifty (50) percent of what you have already paid to the subdivision developer.

    Again, we find it necessary to mention that this opinion is solely based on the facts you have narrated and our appreciation of the same. The opinion may vary when the facts are changed or elaborated.

    We hope that we were able to enlighten you with our opinion.

    Editor’s note: Dear PAO is a daily column of the Public Attorney’s Office. Questions for Chief Acosta may be sent to dearpao@manilatimes.net


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    1. Dear PAO,

      is the promotion thru flyers or leaflets of the housing program of Pag-IBIG would tantamount to the violation of Sec 19 of PD 957?? please help

    2. Dear Pao,

      While the contract may not be rescinded based on violation of PD 957 (lack of authority to sell), however, can the buyer have it annulled because the contract is voidable (vitiated consent)? In other words, can the buyer say that had he knew the seller’s lack of authority to sell, he would not have given his consent to the contract. There was fraud in procuring the buyer’s consent.

      If the buyer cannot file a civil action for annulment of the contract, does it mean to say that the only remedies left are criminal case for estafa and administrative case for unsound business practice?

      Thank you in advance! God bless.