Concept of Lease

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Contract of lease of things, work, and service – The contract of lease may be of things, work, or service.[1]

Lease of things – In a contract of lease of things, one of the contracting parties binds himself “to give to another the enjoyment or use of a thing for a price certain, and for a period which may be definite or indefinite.”[2] A lease of things cannot be for more than 99 years.[3]

Same; Lease of goods – Generally, consumable goods cannot be the subject matter of a lease except if they are merely to be exhibited or when they are accessory to an industrial establishment.[4]

Lease of work or service – In a contract of lease of work or service, one the contracting parties binds himself “to execute a piece of work or to render to the other some service for a price certain, but the relation of principal and agent does not exist between them.”[5]

Lease of things

Lease of Rural and Urban Lands

Persons qualified to enter contract of lease – All persons qualified to enter a contract may execute a lease except those who are disqualified to purchase as they are prohibited from becoming lessees.[6]

When proper authority required to record lease – To record a lease with the Registry of Deeds, the following persons are required to secure proper authority: (a) the husband with respect to the wife’s paraphernal real estate; (b) the father or guardian as to the property of the minor or ward; and (c) the manager without special power.[7]

Recorded lease binding on third persons – All lease agreement involving real estate may be recorded with the Registry of Deeds in order to bind third persons.[8]

Assignment of lease by lessee requires consent of lessor – The lessee can only assign the lease if it is with the consent of the lessor except if there is a contrary stipulation.[9]

Sub-lease allowed by default – The lessee is allowed to sublet the leased property, in whole or in part, if there is no express prohibition to that effect and without prejudice to his responsibility for the performance of the contract toward the lessor.[10]

Best Legal Practices

  • Obtain consent of lessor in assignment – To make a valid transfer of a lease, the Deed of Assignment should reflect therein the consent of the lessor.
  • Expressly prohibit sublease – As sub-lease is allowed by default, the lessor who wants to prohibit the lessee from sub-leasing the leased property should make sure that such prohibition is expressly and categorically stated in the contract.

Same; Sub-lessee obligated to sub-lessor and lessor – The sub-lessee is obligated to the sub-lessor and lessor for all acts which refer to the use and preservation of the thing leased in the manner stipulated between the lessor and the lessee.[11]

Same; Liability of sub-lessee – The sub-lessee is subsidiarily liable to the lessor for any rent due from the lessee only to extent of the rent due from him in accordance with the terms of the sublease, at the time of the extra-judicial demand by the lessor.[12] For advance payments of rent by the sub-lessee, it is considered to have been made if such payments were effected in accordance with the custom of the place in relation to the lessor’s claim.[13]

Warranty on sales applicable to lease – The warranties provided for under the law on sale is applicable to the contract of lease.[14] If the return of the price is required,the reduction is to be made in proportion to the time during which the lessee enjoyed the thing.[15]

Special provisions for the lease of rural lands

Lessee’s right of reduction on rent – The lessee has the right of reduction on rent in case of the loss of more than ½ of the fruits through extraordinary and unforeseen fortuitous events[16] except as otherwise stipulated.[17]

Same; Exceptions – However, the lessee does not have a right to a reduction of the rent: (a)on account of the sterility of the land leased; (b) by reason of the loss of fruits due to ordinary fortuitous events; or (c) if the fruits are lost after they have been separated from their stalk, root, or trunk. [18]

Rules when lease period of urban land not fixed – If the lease of piece of rural land has not been fixed, it is understood to have beenfor all the time necessary for the gathering of the fruits which the whole estate leased may yield in one year, or which it may yield once, even if it takes at least two years to attain such purpose.[19] This period is not applicable if the lessor has initiated a judicial ejectment against the lessee.[20]

Outgoing lessee to allow incoming lessee or lessor to use premises for preparation of next year’s labor – The outgoing lessee is required to allow the incoming lessee or the lessor the use of the premises and other means necessary for the preparatory labor for the following year; and, reciprocally, the incoming lessee or the lessor is under obligation to permit the outgoing lessee to do whatever may be necessary for the gathering or harvesting and utilization of the fruits, all in accordance with the custom of the place.[21]

Special provisions for the lease of urban lands

Default standard on repairs depends on custom of the place – If there is no stipulation, the default standard for the lessor’s liability as to repairs on urban property depends on the custom of the place.[22] When in doubt, repairs are chargeable against the lessor.[23]

Rules when lease period of urban land not fixed – If the lease period has not been fixed, it is understood to be: (a) from year to year, if the rent agreed upon is annual; (b) from month to month, if it is monthly; (c) from week to week, if the rent is weekly; and (d) from day to day, if the rent is to be paid daily.[24] These periods do not apply in cases where the lessor filed a case for judicial ejectment.[25]

Lease of furniture in leased property same duration of lease – Furniture leased along with the house (whole or in part), which is used as a dwelling for a family, or a store or industrial establishment, is considered leased for the duration of the lease of the premises.[26]

[1] CIVIL CODE. Article 1642.

[2] Ibid. Article 1643.

[3] Ibid.

[4] Ibid. Article 1645.

[5] CIVIL CODE. Article 1644.

[6] Ibid. Article 1646, cf. Article 1490 and 1491. “Article 1490. The husband and the wife cannot sell property to each other, except… (1) When a separation of property was agreed upon in the marriage settlements; or … (2) When there has been a judicial separation of property under article 191” (Civil Code). “Article 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another:… (1) The guardian, the property of the person or persons who may be under his guardianship;… (2) Agents, the property whose administration or sale may have been intrusted to them, unless the consent of the principal has been given;… (3) Executors and administrators, the property of the estate under administration;… (4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale;… (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession;… (6) Any others specially disqualified by law” (Civil Code).

[7] Ibid. Article 1647.

[8] Ibid. Article 1648.

[9] Ibid. Article 1649.

[10] Ibid. Article 1650.

[11] Ibid. Article 1651.

[12] Ibid. Paragraph 1, Article 1652.

[13] Ibid. Paragraph 2, Article 1652.

[14] Ibid. Paragraph 1, Article 1653.

[15] Ibid. Paragraph 2, Article 1653.

[16] “Extraordinary fortuitous events are understood to be: fire, war, pestilence, unusual flood, locusts, earthquake, or others which are uncommon, and which the contracting parties could not have reasonably foreseen.” (Paragraph 2, Article 1680, Civil Code)

[17] CIVIL CODE. Paragraph 1, Article 1680.

[18] Ibid., cf. Article 1681.

[19] CIVIL CODE. Article 1682.

[20] Ibid. Article 1675.

[21] Ibid. Article 1683.

[22] Ibid. Article 1686.

[23] Ibid.

[24] CIVIL CODE. Article 1687. “However, even though a monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month.” (Ibid).

[25] Ibid. Article 1675.

[26] Ibid. Article 1688.

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