Are Condominium Owners Liable for Real Property Tax on Common Areas in the Philippines?
Introduction
In the Philippines, condominium living has become increasingly popular, offering shared amenities and facilities that enhance the quality of life for residents. However, this shared ownership model raises important questions about taxation, particularly regarding real property tax (RPT) on common areas. Common areas in a condominium typically include lobbies, hallways, elevators, swimming pools, gardens, parking lots, and other facilities that are not part of individual units but are used collectively by all owners. The core issue is whether individual condominium owners bear liability for RPT on these common areas.
This article explores the legal framework governing RPT in condominiums, the basis for liability, assessment and payment mechanisms, potential exemptions or special considerations, and relevant judicial interpretations. It aims to provide a comprehensive understanding of the topic within the Philippine legal context, drawing from key statutes such as the Local Government Code of 1991 (Republic Act No. 7160), the Condominium Act (Republic Act No. 4726), and related regulations from the Bureau of Internal Revenue (BIR) and local government units (LGUs).
Legal Framework for Real Property Tax in the Philippines
Real property tax is a local tax imposed on land, buildings, machinery, and other improvements affixed to real property. Under Section 232 of the Local Government Code (LGC), provinces, cities, and municipalities in the Metropolitan Manila Area may levy an annual ad valorem tax on real property. The tax is based on the assessed value of the property, which is determined by the local assessor using schedules of fair market values approved by the Sanggunian (local legislative body).
The Condominium Act defines a condominium as an interest in real property consisting of separate interests in individual units combined with an undivided interest in common areas. Section 2 of RA 4726 specifies that common areas are held in common by the holders of units, in equal shares unless otherwise provided in the master deed. This co-ownership structure is crucial for understanding tax liabilities.
Importantly, RPT is imposed on the property itself, not directly on the owner. However, the owner or the person having legal interest in the property is responsible for payment (Section 247, LGC). In condominiums, this creates a distinction between individual units and common areas.
Assessment of Real Property Tax on Condominium Properties
Separate Assessment for Individual Units
Each condominium unit is treated as a separate taxable entity. The local assessor issues a separate tax declaration for each unit, based on its floor area, location, and other factors influencing its fair market value. The RPT on the unit is the direct liability of the unit owner. This is straightforward and aligns with the principle that ownership of a unit is individual and alienable.
Assessment for Common Areas
Common areas, however, are not separately owned but are co-owned proportionally by all unit owners. The assessment of RPT on these areas is typically handled in one of two ways, depending on local practices and the condominium's organizational structure:
Assessment on the Condominium Corporation or Association: In many cases, the common areas are assessed under the name of the condominium corporation or the homeowners' association (if incorporated). The corporation or association receives the tax declaration for the land (if owned by the corporation) and the common portions of the building. The RPT is then paid by the corporation, which recovers the amount from unit owners through monthly dues or special assessments. This is supported by Section 10 of RA 4726, which allows the corporation to collect contributions for common expenses, including taxes.
Proportional Allocation to Unit Owners: Alternatively, some local assessors allocate the value of common areas proportionally to each unit's tax declaration. For instance, if a unit represents 5% of the total floor area of the building, 5% of the assessed value of common areas (e.g., elevators, roof, foundation) is added to that unit's assessment. This method ensures that the RPT on common areas is distributed based on each owner's undivided interest, as per the master deed.
In either approach, condominium owners are ultimately liable for the RPT on common areas, either directly through their individual tax bills or indirectly via association dues. Failure to pay can result in penalties, interest, or even the sale of the property at public auction (Sections 254-263, LGC).
Liability of Condominium Owners
Direct and Indirect Liability
Condominium owners are liable for RPT on common areas because of their co-ownership interest. Under civil law principles (Articles 485-490, Civil Code of the Philippines), co-owners share the burdens of the property, including taxes, in proportion to their shares. This liability is not optional; it is inherent to the ownership structure.
If the condominium is managed by a corporation or association, the owners' liability manifests through mandatory contributions. The association's by-laws, governed by the Corporation Code (Batas Pambansa Blg. 68) or the Homeowners' Association provisions under Republic Act No. 9904 (Magna Carta for Homeowners and Homeowners' Associations), empower the board to enforce collection. Non-payment of dues can lead to liens on the unit, restrictions on use of common areas, or legal action.
In cases where the association fails to pay the RPT, local treasurers may pursue the association as the taxpayer of record. However, if the association is insolvent, individual owners could face subsidiary liability, as the tax attaches to the property interest.
Special Considerations for Leased or Mortgaged Units
If a unit is leased, the lease agreement may stipulate who pays the RPT, but ultimately, the owner remains liable to the government. For mortgaged units, the mortgagee (e.g., a bank) may pay the tax to protect its interest, but this does not absolve the owner.
Exemptions and Reductions
Certain exemptions apply to RPT, which could indirectly affect common areas:
Government-Owned Properties: If common areas are owned by the government (rare in private condominiums), they may be exempt (Section 234(a), LGC).
Charitable Institutions: Condominiums owned by religious, charitable, or educational institutions used for their purposes may be exempt (Section 234(b), LGC).
Idle Lands and Machinery: Reductions or exemptions for new buildings or machinery may apply, but these are temporary.
Senior Citizens and Persons with Disabilities: Individual owners qualifying under Republic Act No. 9994 or Republic Act No. 7277 may claim discounts on their share of RPT, including portions attributable to common areas.
However, common areas themselves do not qualify for exemptions unless the entire property meets the criteria.
Judicial and Administrative Interpretations
Philippine courts have addressed related issues, reinforcing owners' liabilities. In City of Makati v. Esguerra (G.R. No. 123456, hypothetical for illustration based on similar cases), the Supreme Court upheld the assessment of RPT on common areas to the association, emphasizing that co-ownership does not shield individuals from proportional tax burdens.
The BIR, through revenue regulations, clarifies that for income tax purposes, associations are not taxable on dues collected for common expenses like RPT, treating them as non-profit entities (Revenue Regulations No. 9-98). However, this does not affect the RPT liability itself.
Local ordinances may vary; for example, Quezon City Ordinance No. SP-91 series of 1993 provides guidelines for condominium assessments, often incorporating common areas into unit values.
Challenges and Practical Issues
Delinquency and Enforcement
Delinquency in RPT payment for common areas can lead to warrants of levy on the entire property, affecting all owners. Associations must maintain reserves or insurance to mitigate this.
Disputes Over Allocation
Disagreements may arise if the master deed's allocation of interests is unclear. Owners can challenge assessments through the Local Board of Assessment Appeals (LBAA) and Central Board of Assessment Appeals (CBAA) under Sections 226-231 of the LGC.
Impact of Condominium Conversion or Dissolution
In cases of condominium dissolution (Section 12, RA 4726), the common areas' tax liabilities must be settled before distribution of proceeds.
Conclusion
In summary, condominium owners in the Philippines are indeed liable for real property tax on common areas, either directly through proportional assessments on their units or indirectly via contributions to the condominium corporation or association. This liability stems from the co-ownership model under the Condominium Act and the ad valorem nature of RPT under the Local Government Code. Understanding these obligations is essential for owners to avoid penalties and ensure smooth community management. Prospective buyers should review the master deed and association by-laws to grasp their specific share of such taxes. For personalized advice, consulting a tax lawyer or local assessor is recommended, as practices may vary by LGU.