In the Philippines, the relationship between lessors and lessees is governed by a combination of the Civil Code and special laws designed to protect tenants from onerous financial requirements. The primary legislation governing residential leases is Republic Act No. 9653, otherwise known as the Rent Control Act of 2009.
One of the most critical protections offered by this Act concerns the limitations placed on the collection of advance rentals and security deposits. These regulations ensure that housing remains accessible and prevents landlords from imposing prohibitive upfront costs.
1. Scope of Application
The Rent Control Act does not apply to all properties. It specifically covers residential units in the National Capital Region (NCR) and other highly urbanized cities where the monthly rent does not exceed PHP 10,000, and in all other areas where the rent does not exceed PHP 5,000 (as adjusted by the National Economic and Development Authority and the Housing and Urban Development Coordinating Council).
For units falling under these thresholds, the following rules regarding deposits and advances are mandatory and cannot be waived by contract.
2. The "One-Month Advance, Two-Month Deposit" Rule
Under Section 7 of R.A. No. 9653, the lessor is strictly prohibited from demanding more than the following upfront payments:
- Advance Rent: Limited to a maximum of one (1) month.
- Security Deposit: Limited to a maximum of two (2) months.
Any demand for a "three-month deposit" or "two-month advance" for a covered unit is a direct violation of the law.
3. Regulation of the Security Deposit
The security deposit is not a "bonus" for the landlord; it is held in trust to ensure the tenant's compliance with the lease obligations. The law provides specific mandates on how this money must be handled:
Bank Deposit and Interest: The security deposit must be kept in a bank under the lessor's name. Any interest earned by that deposit must be returned to the lessee at the expiration of the lease contract.
Purpose of the Deposit: The deposit is strictly reserved to cover:
Unpaid utility bills (electricity, water, telephone).
Repair of damages caused by the tenant to the residential unit.
Any other unpaid obligations stipulated in the lease contract.
Refund Period: If the tenant vacates the property and there are no outstanding bills or damages, the full deposit (plus interest) must be returned. While the Act does not specify an exact number of days for the refund, it is generally understood to be within a reasonable period (typically 30 days) after the tenant surrenders the keys.
4. Usage of Advance Rent
The one-month advance rent collected at the start of the lease is typically applied to the last month of the lease term. Unlike the security deposit, the advance rent is intended to cover the actual cost of occupancy and does not earn interest for the tenant.
5. Prohibited Practices
Landlords are legally barred from the following actions under the Act:
- Excessive Upfront Fees: Demanding "reservation fees" that, when added to the deposit, exceed the legal limits.
- Automatic Forfeiture: Inserting clauses in a contract that state the security deposit is "non-refundable" regardless of the condition of the unit.
- Refusal to Liquidate: Failing to provide receipts or proof of unpaid utility bills when deducting from the security deposit.
6. Penalties for Violations
Violations of the Rent Control Act, including the over-collection of deposits or advances, carry significant legal consequences under Section 13:
| Type of Penalty | Description |
|---|---|
| Fine | A fine of not less than PHP 25,000 nor more than PHP 50,000. |
| Imprisonment | Imprisonment of not less than one (1) month and one (1) day nor more than six (6) months. |
| Combined | The court may impose both a fine and imprisonment at its discretion. |
Summary of Key Provisions
Note: For residential units covered by R.A. 9653, the total upfront cash outlay required from a tenant should not exceed the equivalent of three months' rent (one month advance and two months deposit). Any interest accrued on the deposit belongs to the tenant, and the deposit itself cannot be used for ordinary "wear and tear" repairs, which remain the responsibility of the lessor.