Are Developers Required to Pay HOA Dues on Unsold Lots? A Philippine Property Law Guide

Introduction

In the Philippine real estate sector, subdivision developments often involve the creation of homeowners' associations (HOAs) to manage common areas, enforce community rules, and ensure the upkeep of shared facilities. A common question arises regarding the financial responsibilities of property developers, particularly whether they must pay HOA dues or assessments on lots that remain unsold. This issue intersects with property ownership rights, contractual obligations, and statutory mandates aimed at protecting buyers and maintaining community viability.

Under Philippine law, developers are typically the initial owners of all lots in a subdivision project. As lots are sold, ownership transfers to buyers, who then become members of the HOA. However, for unsold lots, the developer retains title and, consequently, certain obligations. This guide explores the legal basis for requiring developers to pay HOA dues on such lots, drawing from key statutes, regulatory frameworks, and interpretive principles. It addresses definitions, obligations, potential exemptions, enforcement mechanisms, and practical considerations in the Philippine context.

Legal Framework Governing HOAs and Developer Obligations

The primary laws regulating subdivisions, condominiums, and HOAs in the Philippines include:

Presidential Decree No. 957 (PD 957): The Subdivision and Condominium Buyers' Protective Decree

Enacted in 1976, PD 957 mandates that developers of subdivisions and condominiums organize an HOA or condominium corporation upon reaching a certain threshold of sales (typically when 20% of the lots or units are sold). The decree requires developers to provide for the maintenance of roads, parks, and other common areas until turnover to the HOA. Section 31 of PD 957 emphasizes the developer's duty to ensure the association's formation and operational sustainability, implying financial support where necessary. While it does not explicitly address dues on unsold lots, it establishes the developer's role as a steward of the project, including bearing costs for unsold portions to prevent burdening early buyers.

Republic Act No. 4726 (RA 4726): The Condominium Act

This 1966 law applies primarily to condominiums but has parallels for subdivisions with shared facilities. It requires the formation of a condominium corporation where unit owners, including the developer for unsold units, share in the expenses for common areas proportionally. Article IV, Section 20, stipulates that all unit owners must contribute to maintenance fees based on their interest in the common areas. By analogy, this principle extends to subdivision lots, reinforcing that developers, as owners, cannot evade shared financial responsibilities.

Republic Act No. 9904 (RA 9904): Magna Carta for Homeowners and Homeowners' Associations

Promulgated in 2010, RA 9904 is the cornerstone legislation for HOAs. It defines the rights, duties, and governance of associations, ensuring equitable treatment among members. Key provisions include:

Section 3 (Definitions): A "homeowner" is broadly defined to include the registered owner of a subdivision lot or condominium unit. This encompasses developers who hold title to unsold lots, as they are the legal owners until conveyance.
Section 10 (Rights and Powers of the Association): HOAs have the authority to levy and collect reasonable assessments, dues, and fees from members to fund operations, maintenance, and improvements.
Section 11 (Rights of Every Homeowner): Members, including developers, have rights such as access to association records and participation in meetings.
Section 12 (Duties and Responsibilities of Homeowners): Every homeowner must pay membership fees, dues, and special assessments promptly. Failure to do so can result in penalties, liens, or legal action.

RA 9904 does not provide explicit exemptions for developers, underscoring that all owners—regardless of their status as developers—are liable for dues.

Batas Pambansa Blg. 68 (Corporation Code of the Philippines)

HOAs are registered as non-stock, non-profit corporations with the Securities and Exchange Commission (SEC). Under Section 91, members are required to adhere to bylaws, which typically include provisions for dues. Developers often draft initial bylaws but cannot unilaterally exempt themselves without violating fiduciary duties or equality principles.

Role of the Department of Human Settlements and Urban Development (DHSUD)

Formerly the Housing and Land Use Regulatory Board (HLURB), the DHSUD oversees subdivision approvals and HOA registrations. Its guidelines, such as Board Resolution No. 922 (Series of 2013) on HOA bylaws, mandate that assessments be applied uniformly to all lot owners, including developers for unsold lots. DHSUD rules prohibit discriminatory provisions that favor developers, ensuring that unsold lots contribute to avoid subsidization by paying homeowners.

Status of Developers as HOA Members for Unsold Lots

Developers automatically become HOA members by virtue of owning unsold lots. Registration of the master deed or deed of restrictions with the Register of Deeds incorporates these lots into the association's purview. As owners, developers enjoy voting rights proportional to their holdings (often controlling the board initially) but must reciprocate by fulfilling financial obligations.

The rationale is equity: Unsold lots benefit from HOA-maintained infrastructure, such as security, lighting, and roads, which enhance their marketability. Exempting developers would shift the burden to sold-lot owners, potentially leading to underfunded associations and disputes. This aligns with the Civil Code of the Philippines (RA 386), particularly Articles 1159 (obligations from law) and 1191 (reciprocity in contracts), where ownership implies corresponding duties.

Are Developers Required to Pay Dues? Analysis of Obligations

Yes, developers are generally required to pay HOA dues on unsold lots, absent a valid exemption. Here's a detailed breakdown:

Basis for Liability

Ownership as Trigger: As registered owners, developers fall under the "homeowner" definition in RA 9904. Dues are assessed based on lot area, value, or a flat rate, applied uniformly.
Proportional Contribution: In subdivisions, dues cover maintenance of common areas. PD 957 requires developers to maintain these until turnover (typically when 70% of lots are sold and paid for), but ongoing dues apply post-organization.
No Automatic Exemption: Neither PD 957 nor RA 9904 grants developers immunity. Any bylaw exemption must be approved by members and DHSUD, and self-serving clauses inserted by developers are often invalidated as contrary to public policy.

Potential Exceptions and Limitations

Contractual Provisions: Developers may include clauses in deeds of sale or restrictions exempting unsold lots from dues until sold. However, such provisions are scrutinized for fairness. If challenged, courts may void them under Article 1306 of the Civil Code, which prohibits stipulations contrary to law, morals, or public order.
Temporary Waivers: During the development phase, developers might negotiate waivers with the HOA board (which they control initially). But once control shifts (e.g., after turnover), the association can enforce dues retroactively if bylaws allow.
Abandoned or Incomplete Projects: In cases of developer insolvency, unsold lots may revert to government or be auctioned, with dues becoming liens under RA 9904, Section 20.
Condominium-Specific Rules: Under RA 4726, developers must pay for unsold units from the date of project completion, as per the master deed.

Enforcement Mechanisms

Association Actions: HOAs can impose interest, suspend privileges, or file collection suits. Section 20 of RA 9904 allows liens on properties for unpaid dues, enforceable via foreclosure.
Administrative Remedies: Aggrieved parties can file complaints with DHSUD for violations, leading to fines (up to PHP 100,000) or revocation of developer licenses.
Judicial Recourse: Courts can compel payment, as seen in analogous cases involving property disputes.

Relevant Case Law and Jurisprudence

Philippine courts have addressed similar issues, emphasizing equity and statutory compliance:

Sta. Lucia Realty & Development, Inc. v. Cabrigas (G.R. No. 134895, 2003): The Supreme Court ruled that developers cannot unilaterally alter deed restrictions to evade obligations, implying that financial duties like dues must be honored.
Republic v. Spouses Tan (G.R. No. 191448, 2013): Involving HOA governance, the Court affirmed that all owners, including initial developers, are bound by association rules without discrimination.
HLURB/DHSUD Decisions: Numerous arbitral awards require developers to pay back dues on unsold lots, viewing non-payment as unjust enrichment (Civil Code, Article 22). For instance, in complaints filed by HOAs, developers have been ordered to contribute proportionally to avoid project deterioration.

These cases illustrate that while developers may delay payment through control of the HOA, ultimate liability persists upon challenge.

Practical Implications for Developers and Homeowners

For developers:

Budgeting for dues on unsold lots is essential, especially in slow-selling markets. Non-payment risks legal battles, reputational damage, and DHSUD sanctions.
Strategic planning involves accelerating sales or reserving funds for assessments.

For homeowners:

Vigilance in HOA elections and bylaw reviews can prevent developer favoritism.
Early buyers should verify deed restrictions and insist on transparent financial reporting.

In mixed-use developments or those with commercial lots, dues may vary, but the principle of ownership-based liability holds.

Conclusion

In the Philippines, developers are required to pay HOA dues on unsold lots as they qualify as homeowners under RA 9904 and related laws. This obligation ensures the financial health of associations and protects buyers from disproportionate burdens. While contractual attempts at exemption exist, they are limited by statutory mandates and judicial oversight. Developers should comply proactively to foster sustainable communities, and HOAs must enforce rules equitably. For specific scenarios, consulting legal experts or DHSUD is advisable to navigate nuances in project documents and local ordinances.