Overview

In Philippine real estate practice, buyers often pay a reservation fee to “hold” a unit, then make equity payments (usually down payments in installments) before moving to bank financing or full turnover. If the buyer later cancels—or the sale collapses for some reason—the key question is: how much of what was paid must be refunded, by whom, and under what law?

The answer depends on:

What kind of property and seller (subdivision lot, condo unit, house-and-lot; developer vs individual owner).
Payment structure (installment vs straight cash; length of payments).
Who is at fault (buyer default vs developer breach vs mutual cancellation).
The contract wording (reservation agreement, contract to sell, deed of sale).
Which law applies (primarily R.A. 6552 “Maceda Law”, P.D. 957, Civil Code, and DHSUD rules).

This article walks through the major legal rules, typical scenarios, refund computations, and enforcement options.

1. Legal Framework

A. Maceda Law (R.A. 6552) — “Realty Installment Buyer Protection Act”

Core idea: Protects buyers of real property on installment, especially against harsh forfeiture when they default.

Applies when:

The buyer purchases residential real estate (house-and-lot, condo, residential lot) on installment.
The seller is a developer, owner, or realty company (not limited to big developers).
Payments are not purely rent; there is a sale intent.

Does NOT apply to:

Pure cash sales (full price payable in a short, lump manner).
Commercial/industrial property.
Certain agricultural land transactions.
Situations that are effectively lease with option to buy, if truly not a sale on installment.

Key protections:

Grace period before cancellation.
Refund of a “cash surrender value” after cancellation once a threshold of payments is met.
Formal notice requirements to cancel.

We’ll detail these below because they are the main authority for refunds after equity payments.

B. P.D. 957 — Subdivision and Condominium Buyers’ Protective Decree

Core idea: Protects buyers from developer misconduct and project failure.

Applies when:

The seller is a subdivision or condominium developer selling units/lots to the public.

Important refund-related rights:

If the developer fails to deliver, violates licenses, or commits substantial breach, buyers can demand:
- Refund of all payments, often with interest and damages.
- Rescission of the contract.
Stronger than Maceda Law when developer fault is established.

C. Civil Code (Obligations and Contracts)

For topics not squarely covered by Maceda or PD 957, the Civil Code governs:

Earnest money vs reservation fee treatment.
Rescission (Articles 1191 and related).
Contracts to sell vs contracts of sale.
Unjust enrichment / solutio indebiti (refund when payments have no valid basis to retain).

D. DHSUD (formerly HLURB) Rules and Jurisdiction

The Department of Human Settlements and Urban Development (DHSUD) handles most buyer–developer disputes in subdivisions/condos, including:

Refund claims
Rescission/cancellation
Delivery delays
License violations

2. Reservation Fee vs Earnest Money vs Equity Payments

A. Reservation Fee

What it is in practice: A small amount paid to “reserve” a unit. Developers often say it is “non-refundable.”

Legal reality:

A reservation fee is typically not automatically equivalent to earnest money unless the contract says so.
It is often treated as consideration for an option or a preparatory agreement.
If the sale does not proceed because the buyer backs out without lawful basis, the contract may allow forfeiture.
But if the sale fails due to developer fault or invalid/abusive terms, the buyer may recover it.

So, reservation fees can be forfeited, but not in every case.

B. Earnest Money

Under the Civil Code, earnest money is part of the purchase price and proof of a perfected sale. If the sale is rescinded due to seller breach, earnest money is returnable and may support damages.

Many developers label a payment “reservation fee” but later treat it like earnest money. Courts look at substance over label:

If it was credited to price and sale was already perfected, it may be earnest money.

C. Equity / Down Payment Installments

These are purchase price payments. Once you start paying equity in installments, Maceda Law usually kicks in (if residential).

3. Cancellation Scenarios and Refund Rights

Scenario 1: Buyer Cancels / Buyer Defaults (No Developer Fault)

This is the most common case: buyer stops paying, wants to cancel, or cannot secure financing.

A. If buyer has paid LESS THAN 2 YEARS of installments

Under Maceda Law:

Buyer is entitled to a grace period of at least 60 days from due date to pay missed installments without penalty.
If still unpaid after grace period, seller may cancel only after a notarized notice of cancellation.

Refund right:

No cash surrender value refund is required by Maceda Law when payments are under 2 years.
However, refund may still be possible if:
- Contract provides it.
- Forfeiture is unconscionable (rare, fact-specific).
- Seller violated notice requirements (see below).

Reservation fee: usually forfeited if contract says so and buyer has no legal excuse.

B. If buyer has paid AT LEAST 2 YEARS of installments

Buyer gets:

Grace period: 1 month per year paid (can be used only once every 5 years).
If cancellation proceeds, buyer gets cash surrender value refund:

Minimum refund:

50% of total payments made
Plus 5% per year after the 5th year, capped at 90%.

“Total payments made” generally include:

Equity installments
Down payments credited to price
Sometimes amortizations already paid

Reservation fee treatment:

If credited to price, it forms part of “total payments.”
If clearly separate and labeled non-refundable option fee, seller will argue forfeiture; outcomes depend on contract structure.

Notice requirement (very important)

Even when the buyer is at fault, Maceda Law requires:

Notarized notice of cancellation or demand for rescission, and
Cancellation effective only after 30 days from buyer’s receipt of notice.

If the seller cancels without proper notarized notice, the cancellation is defective and buyer can argue:

Contract still subsists, or
Refund should not be forfeited.

Scenario 2: Buyer Cancels Because Developer Breached (Delay, Non-Delivery, Defects, Misrepresentation)

Here, Maceda Law is not the main remedy; P.D. 957 + Civil Code rescission are stronger.

Typical developer breaches:

Failure to complete project
Failure to deliver on promised date
Lack of license to sell
Major deviations from approved plans
Material misrepresentations

Buyer’s rights:

Rescind the contract.
Demand refund of all payments (reservation + equity + other charges).
Possible interest, penalties, damages, and attorney’s fees.

In many DHSUD cases, buyers recover near-total refunds when breach is proven.

Scenario 3: Mutual Cancellation / “Voluntary” Cancellation Program

Sometimes both sides agree to cancel (often via a developer’s internal “buyback” or refund schedule).

Your rights depend on:

What you sign. If you sign a quitclaim accepting a smaller refund, that’s usually binding unless vitiated by fraud, mistake, or coercion.
If Maceda applies, you cannot waive minimum statutory protections ahead of time. Any waiver of Maceda rights is generally void.

Scenario 4: Buyer Paid “Full Equity” but Sale Still Not Completed

“Full equity payment” usually means the buyer finished the down payment but has not yet paid the balance via bank loan or turnover.

If the buyer cancels at this stage:

Still an installment sale in most cases.
Maceda still applies if residential and payments were in installments.

Refund depends on how long you’ve been paying:

<2 data-preserve-html-node="true" years: no statutory refund, but check contract and notice rules.
≥2 years: cash surrender value refund.

If the developer refuses financing release or delays loan takeout due to their documents, the buyer may claim developer fault, pushing the case into PD 957 rescission with fuller refund.

Scenario 5: Developer Treats Sale as a “Contract to Sell”

Developers often use a Contract to Sell (CTS) where ownership transfers only after full payment.

Effect:

Developer can cancel for non-payment more easily than in a deed of sale—but Maceda notice and refund rules still apply if the buyer qualifies.

Courts repeatedly hold that Maceda Law overrides CTS forfeiture clauses in residential installment sales.

4. Practical Refund Computation Under Maceda

Step 1: Determine if Maceda applies

Residential?
Installment payments?
Seller is developer/owner? If yes → proceed.

Step 2: Count total paid installments

Include all price-credited payments (reservation if credited).

Step 3: Identify payment duration

<2 data-preserve-html-node="true" years → no mandatory refund, only grace + notice.
≥2 years → compute cash surrender value.

Example (simple)

Buyer paid for 3 years.
Total payments: ₱900,000.
Refund floor: 50% = ₱450,000.

If buyer paid for 7 years:

Total payments: ₱1,400,000.
Refund: 50% + (5% × 2 years after 5th year) = 60%.
Refund = ₱840,000.

5. Common Contract Clauses vs Buyer Rights

“Reservation Fee is Non-Refundable”

Often enforceable if buyer backs out without lawful cause.
Not enforceable if:
- The developer is in breach,
- The fee was actually part of the price,
- The term is unconscionable in context.

“All payments shall be forfeited upon default”

Invalid where Maceda applies.
Seller must still follow grace period, notarized notice, and refund rules.

“Buyer waives Maceda rights”

Waiver is generally void because Maceda is a protective law.

6. Where and How to Enforce Refund Rights

A. File with DHSUD (for developer sales)

Best for:

Condo/subdivision projects
Developer delays
License/plan issues
Refund enforcement

Reliefs available:

Refund orders
Rescission
Penalties/interest
Damages

B. Regular Courts

Best for:

Sales by private individuals not under PD 957
Complex rescission/damages cases
When property is not PD 957-covered but Maceda/Civil Code applies

C. Evidence you should gather

Reservation agreement / official receipt
CTS / deed / purchase agreement
Statement of account
Payment receipts
Demand letters / notices received
Marketing materials (for misrepresentation claims)
Turnover/delivery schedules

7. Special Notes and Edge Cases

A. Bank Financing Failure

If the buyer cannot obtain a bank loan:

Usually treated as buyer-side risk, unless the contract makes financing a condition precedent.
Refund rights revert to Maceda/Civil Code framework.

B. “Assumption of Balance” or Resale to Another Buyer

Some developers allow:

Transfer to another buyer
Assignment fees This may minimize losses compared to cancellation.

C. Taxes / Miscellaneous Charges

Refund of documentary stamp tax, transfer fees, association dues, move-in fees depends on:

Whether they were price-credited,
Whether service was actually rendered,
Contract terms,
Equity of the situation (unjust enrichment).

D. If developer is insolvent

Refund claims become harder. You may need:

DHSUD judgment, then
Collection in court or through rehabilitation/liquidation proceedings.

8. Key Takeaways

Reservation fees can be forfeited, but not if the developer is at fault or the fee is really part of the price.
After paying equity in installments, buyers in residential projects are usually protected by Maceda Law.
<2 data-preserve-html-node="true" years paid: no mandatory refund, but seller must give grace period and notarized cancellation notice.
≥2 years paid: buyer is entitled to a minimum refund of 50% of total payments, increasing with longer payment history.
If the developer breaches, buyers may rescind under P.D. 957 and recover all payments, often with damages.
Notarized notice + 30-day period are required for valid cancellation by the seller.
The right forum for most developer disputes is DHSUD.

If you want, tell me your exact payment timeline (months/years paid), what documents you signed (reservation agreement, CTS, etc.), and why the cancellation happened. I can map your facts to the rules above and estimate the refund range you’re legally entitled to.