Executive Summary

In Philippine leasing, a broker’s/agent’s leasing commission is usually earned upon the successful execution of a lease (and, if agreed, the tenant’s actual turnover or first rental payment). When the tenant later pre-terminates or defaults, the landlord often asks if the broker must refund (claw back) all or part of the commission. There is no automatic clawback under Philippine law. A refund obligation exists only if the engagement contract (authority to lease/brokerage agreement) or the lease itself expressly provides a clear, lawful clawback formula. Absent such a clause, commissions already earned are generally not returnable, though parties can negotiate a goodwill/prorated solution.

This article maps the legal bases, typical contract structures, drafting pitfalls, valid clawback formulas, tenant-fault vs. landlord-fault scenarios, tax treatment, and practical playbooks for landlords and brokers.

I. Legal Anchors

1) Civil Code on Agency & Brokerage

The broker is an agent engaged to cause a meeting of the minds between lessor and lessee.
Commission is earned when the broker produces a ready, willing, and able tenant on the agreed terms, culminating in a consummated lease (or other agreed milestone).
If the principal voluntarily prevents completion (e.g., refuses to sign or prematurely terminates without tenant fault), the agent generally does not forfeit a commission already earned, unless the contract conditions otherwise.

2) Civil Code on Lease

Parties may stipulate pre-termination, cancellation, liquidated damages, mitigation, and replacement-tenant mechanisms.
Penalty/damages clauses must not be iniquitous or unconscionable; courts may reduce excessive penalties. The same fairness lens applies to broker clawbacks.

3) RESA Law & Code of Ethics (R.A. 9646)

Requires that compensation arrangements be in writing, transparent, and free of conflicts of interest.
Licensed real estate service practitioners (RESPs) should disclose how and when commissions are earned, any contingencies, and any clawback terms.

II. When Is Commission “Earned”?

Common market triggers (pick one or combine in writing):

Upon lease signing by both parties.
Upon tenant turnover/possession date.
Upon first rental/payment clearing.
Pro-rata over the fixed term (e.g., monthly accrual).

If the engagement letter is silent, tribunals tend to look at industry custom and conduct (e.g., invoices issued and paid upon signing and turnover). Clawbacks cut against that default and must be express and unequivocal.

III. Are Clawbacks Enforceable?

A) Yes—if clearly stipulated, lawful, and triggered

A valid clause typically states (i) when commission is earned, (ii) objective triggers for clawback (e.g., tenant default/pre-termination within X months), and (iii) a formula (fixed or pro-rata) and timing for refund. It should also address exceptions (e.g., landlord breach, force majeure).

B) No—if absent, ambiguous, or unconscionable

If the engagement has no clawback, an after-the-fact demand is usually unenforceable.
Clauses that require the broker to underwrite all lease risk (e.g., full refund even after long occupancy) are vulnerable to reduction or invalidation as penal/unconscionable.

IV. Fault & Risk Allocation Scenarios

Scenario	Default Effect (subject to contract)
Tenant pre-terminates for convenience within a short “risk window” (e.g., first 6–12 months)	Clawback applies only if stipulated; best practice is pro-rata based on unelapsed term.
Tenant defaults due to force majeure/regulatory closure	Clawback should normally not apply unless expressly kept applicable; many contracts carve out FM events.
Landlord breach (e.g., unfit premises, failure to deliver) causing termination	No clawback; broker’s fee stands if earned; landlord bears risk.
Mutual rescission to restructure	Apply negotiated outcome; often no clawback if broker assists in novation at no extra fee or at a discounted repeat fee.
Broker misrepresentation leading to voidable lease	Landlord may seek refund and damages; E&O insurance (if any) may respond.
Replacement tenant secured by same broker within a grace period	Parties often waive clawback or credit the prior fee against the new commission.

V. Valid & Market-Fair Clawback Formulas

Linear Pro-Rata

Refund = Commission × (Unelapsed Fixed Term ÷ Fixed Term) Example: 12-month lease ends at month 4 → refund 8/12 of the fee.
Short-Window Trigger
- Clawback applies only if termination/default occurs within first X months (e.g., 3–6 months). After that, no refund.
Tiered
- 100% if within first 3 months; 50% if months 4–6; nil thereafter.
Credit-Forward (Replacement Tenant)
- No refund; instead, previously paid commission is credited against commission for a replacement lease within Y months.
Exclusions
- No clawback if termination arises from: landlord breach; force majeure; government order; constructive eviction; or tenant termination for landlord default under the lease.

Avoid double recovery: If the landlord collects liquidated damages from the tenant and a full broker clawback for the same period, tribunals may pare down one of them as excessive.

VI. Interaction with Security Deposits & Damages

Security deposits are primarily for tenant obligations (unpaid rent, damage). They are not automatically earmarked to fund broker refunds unless the lease expressly allows allocation to third-party costs.
If deposits cover unpaid rent for the remaining term, a pro-rata clawback could still be argued (rent loss is mitigated), but this hinges on contract wording.

VII. Tax & Invoicing Considerations

Issuance: Brokers bill the landlord per the engagement milestones (signing/turnover/first rent).
VAT/Percentage Tax: Subject to the practitioner’s registration (VAT or non-VAT/percentage tax) and prevailing rates.
Withholding Tax (EWT): Landlords typically withhold on professional fees/commissions per BIR rules and issue 2307.
Clawback mechanics: If a refund occurs, parties should issue credit notes/official receipt adjustments and handle EWT/VAT reversals or carry-forwards per BIR procedures. Build this into the clause to avoid later disputes.

Tip: State that any refunds are computed on a net-of-tax basis and will be accompanied by the corresponding tax credit/reversal paperwork.

VIII. Drafting Toolkit

A) Sample Clawback Clause (Balanced)

Commission; Earning; Clawback. Lessor shall pay Broker a commission of __% of one (1) year’s base rent (or ₱__) upon [signing/turnover/first rental]. If the lease is pre-terminated due to Tenant default or convenience within the first six (6) months from effectivity, Broker shall refund a pro-rata portion of the commission equal to (unelapsed months ÷ 12). No refund shall be due if termination results from Lessor default, force majeure, or government order, or if Broker secures a replacement tenant on terms acceptable to Lessor within 90 days, in which case the prior commission shall be credited against the new commission. Any refund shall be net of applicable taxes with corresponding credit notes/EWT certificates issued within 15 days.

B) Sample Replacement-Tenant Credit Clause

If Tenant vacates within the first X months for reasons other than Lessor default, and Broker presents a replacement tenant who executes a lease within Y days, no cash refund shall be required; instead, the prior commission shall be credited against the replacement commission.

C) Carve-Out for Landlord Breach/Non-Delivery

No clawback applies if termination is caused by delayed delivery, non-completion, defective premises, or other Lessor breaches acknowledged in writing or adjudicated.

IX. Dispute Playbooks

A) Landlord

Check the engagement letter: Is there a written clawback? What trigger and formula?
Establish cause: Gather lease documents, notices of default, vacancy dates, and rent ledgers.
Offer mitigation path: Invite the broker to re-let; propose credit-forward rather than cash refund.
Avoid overreach: Don’t demand a full refund after long occupancy; propose a tiered/pro-rata solution.

B) Broker/Agent

Point to the earning trigger reached (e.g., signed lease, rent paid).
Test the trigger: Was the pre-termination within the defined window? Was it tenant fault—or landlord breach/force majeure?
Offer a replacement tenant to neutralize clawback.
Document taxes: Align any refund with EWT/VAT reversals; avoid refunding gross when net was received.

X. Worked Examples

Example 1 — Pro-Rata Clawback

Commission: ₱240,000 (based on 12 months).
Tenant leaves at month 5 for convenience; clause = linear pro-rata within first 12 months.
Refund = ₱240,000 × (7/12) = ₱140,000, net of taxes with credit notes/EWT adjustments.

Example 2 — Short-Window Only

Clause: clawback applies only if termination within 4 months.
Tenant leaves at month 6. No refund.

Example 3 — Landlord Breach

Landlord fails to deliver exhaust/fit-out approvals; tenant rescinds at month 1.
Clause excludes landlord default. No clawback; broker may keep the fee.

Example 4 — Replacement Credit

Tenant vacates at month 3; broker re-lets within 60 days.
Prior commission is credited to the new lease commission; no cash changes hands.

XI. Compliance & Ethics Notes (RESA)

Keep the Authority to Lease/Engage in writing, signed by the payor (usually landlord).
Disclose any dual agency or tenant-side fees; avoid conflicts.
Keep clear invoices, ORs, and tax compliance; use escrow or staged billing if risk is high.

XII. FAQs

Is a clawback valid if only in the lease (not in the broker’s engagement)? It’s safer when both documents align. If only in the lease, ensure the broker is a party or acknowledged in the lease memo regarding fees; otherwise, enforceability against the broker can be questioned.

Can we take clawback from the broker’s next deal? Only with written authorization (set-off clause) and compliance with tax documentation.

What if the tenant leaves due to calamity/government closure? Unless the clause keeps clawback in such events, the equitable result is no refund or a reduced one.

Does a renewal create a new commission? Only if expressly agreed (e.g., renewal commission of __%). Use a cap or sunset to avoid open-ended obligations.

Can parties agree that commission accrues monthly with rent? Yes. That structure eliminates clawback issues but increases admin and tax touchpoints.

XIII. Bottom Line

No clause, no clawback. Philippine law does not imply a refund obligation just because a tenant breaks the lease.
If you want clawback protection, draft it: define triggers, windows, formulas, exceptions, and tax handling.
Keep it pro-rata, time-bound, and fair, with carve-outs for landlord fault and force majeure, and consider credit-forward via replacement tenants.
Brokers should protect fee certainty with clear earning milestones and offer mitigation (re-letting) in good faith to preserve relationships.

This article provides general information and is not a substitute for tailored legal advice. For case-specific drafting or disputes, consult a Philippine real estate or contracts lawyer, or your local PRBRES/IBP chapter.