In the Philippine real estate industry, the License to Sell (LTS) is the most critical document a developer must obtain before offering any subdivision lot or condominium unit to the public. Under Presidential Decree No. 957 (P.D. 957), also known as The Subdivision and Condominium Buyers' Protective Decree, the absence of this license is a serious violation that grants buyers specific legal remedies and subjects developers to heavy penalties.
1. The Legal Requirement: Section 5 of P.D. 957
The law is explicit: no owner or developer shall sell any subdivision lot or condominium unit without a license to sell registered with the government.
Currently, the regulatory and quasi-judicial body overseeing these transactions is the Department of Human Settlements and Urban Development (DHSUD), which took over the functions of the now-defunct Housing and Land Use Regulatory Board (HLURB).
What Constitutes a "Sale"?
Under the law, a sale includes:
- Every disposition or attempt to dispose of a subdivision lot or condominium unit for value.
- A contract to sell, an option to purchase, or a purchase and sale.
- Any advertisement or offer to sell, even if the project is not yet constructed.
2. Consequences of Selling Without an LTS
When a developer sells properties without an LTS, they face three distinct types of liabilities:
A. Administrative Liability
The DHSUD has the authority to:
- Issue a Cease and Desist Order (CDO) to stop further sales and marketing.
- Impose administrative fines (typically per violation/per unit sold).
- Suspend or revoke the registration of the project.
B. Criminal Liability
Under Section 39 of P.D. 957, any person who violates the provisions of the decree may be subject to:
- A fine of not more than P20,000.00.
- Imprisonment of not more than ten (10) years.
- In cases of corporations, the penalty is imposed on the President, Manager, or the responsible officer.
C. Civil Liability (Buyer's Remedies)
Contrary to popular belief, a contract entered into without an LTS is not automatically void. The Supreme Court has ruled that the lack of an LTS does not invalidate the contract to sell; rather, it makes the developer liable for penalties. This protects the buyer, as it prevents the developer from using their own lack of license as an excuse to cancel a contract if the land value increases.
However, the buyer has the right to:
- Rescission of Contract: The buyer may ask for the cancellation of the contract.
- Full Refund: Demand a refund of the total amount paid (including amortization interests but excluding delinquency interests), plus legal interest.
3. How to File a Case Against the Developer
If you have discovered that your developer is selling without an LTS, the following steps are generally taken:
Step 1: Verification
Before filing, verify the status of the project through the DHSUD Website or by visiting the Regional Office having jurisdiction over the project location. Request a Certification of Non-Availability of License to Sell.
Step 2: Formal Demand
Send a formal Demand Letter to the developer. State that because the project lacks an LTS, you are demanding:
- The immediate processing of the LTS; or
- A full refund of all payments made.
Step 3: Filing the Verified Complaint
If the developer fails to comply, you must file a Verified Complaint with the DHSUD Regional Adjudicator. The complaint should include:
- Names and addresses of the parties.
- Statement of facts (date of purchase, amount paid).
- The specific violation (absence of LTS).
- The prayer (e.g., refund, damages, or administrative fine against the developer).
4. Summary of Rights and Penalties
| Feature | Details under P.D. 957 / R.A. 11201 |
|---|---|
| Primary Regulator | Department of Human Settlements and Urban Development (DHSUD) |
| Buyer's Main Remedy | Rescission of contract and 100% refund of payments |
| Status of Contract | Valid and enforceable (Developer cannot escape obligations) |
| Penalty for Developer | Fines, Imprisonment (up to 10 years), and CDO |
| Interest on Refund | Legal interest usually applies from the time of demand |
5. Important Jurisprudence
The Philippine Supreme Court has consistently held in various cases (e.g., Sps. Co Chien vs. Diez) that the "License to Sell" requirement is a police power measure intended to protect the public from fraudulent real estate practices.
Key Takeaway: The lack of an LTS is a "malum prohibitum" act. The mere fact that the developer sold the lot without the license is enough to trigger the penalties under P.D. 957, regardless of whether the developer intended to defraud the buyer or not.
Non-Forfeiture of Payments
If a buyer stops payment because they discovered the lack of an LTS, the developer cannot forfeit the previous payments. Under Section 23 of P.D. 957, no installment payment shall be forfeited in favor of the owner or developer when the buyer desists from further payment due to the failure of the developer to develop the project or for violations of the law (including the lack of an LTS).