I. Legal Framework

Landlord–tenant relations in the Philippines are mainly governed by:

The Civil Code of the Philippines – general rules on lease of things (including apartments, houses, commercial spaces).
Special rent-control laws – most recently the Rent Control Act of 2009 and its extensions, which apply to residential units below certain rent ceilings.
Local ordinances – some cities or municipalities may have complementary regulations (e.g., business permits for lessors, condominium rules).
The lease contract itself – as long as its terms don’t violate law, morals, or public policy, the contract will usually be enforced.

Everything about rent defaults and deposit usage sits at the intersection of these four.

II. Lease, Rent, Deposits, and Advance Rentals: Basic Concepts

1. Lease and rent

A lease is a contract where the landlord (lessor) gives the tenant (lessee) the use and enjoyment of a property for a certain period in exchange for rent.

Key points:

Rent is usually paid monthly, in advance (e.g., every 1st or 5th of the month).
Due dates, payment modes, and penalties for delay are usually spelled out in the contract.
Rent may be increased subject to:
- Rent control laws (for covered residential units), and
- Contractual and statutory notice requirements.

2. Security deposit vs. advance rent

In practice, landlords often ask for:

Security deposit – a sum held to answer for:
- unpaid utilities,
- physical damage beyond normal wear and tear,
- unpaid rent and other charges, if the contract allows.
Advance rent – rent paid ahead of the period it covers (e.g., “1 month advance”), sometimes informally treated as the “last month’s rent.”

Under rent-control rules for covered residential units:

Total deposit is generally capped (commonly not more than two months’ deposit plus one month advance – though specific caps and coverage change with amendments and extensions).
The deposit must be returned after the lease ends, minus lawful deductions for unpaid obligations.

Even outside rent-control coverage (e.g., high-end or purely commercial leases), the basic logic is the same: deposit is not a gift; it remains the tenant’s money held as security and must be accounted for.

III. What Counts as Rent Default?

A rent default happens when the tenant fails to pay rent on the agreed date and manner.

In civil-law terms, a tenant usually becomes in delay (mora) when:

The obligation to pay is due and demandable; and
There is a demand – written, oral, or implied (though for court purposes, written demand is strongly preferred).

Typical default situations:

Tenant pays nothing on due date.
Tenant repeatedly pays late despite warnings.
Tenant pays only partial rent, contrary to the contract.
Tenant issues bounced checks for rent.

Most contracts define default more strictly, for example:

“Failure to pay rent on or before the 5th day of the month constitutes default without need of further demand.”

Courts will generally respect that, but in practice landlords still send a written demand to pay or vacate as part of the legal process for ejectment.

IV. Landlord Rights When the Tenant Defaults in Rent

When the tenant fails to pay rent, the landlord has several options under the Civil Code and special laws.

1. Right to demand payment

The first and simplest right: demand payment of the unpaid rent and any contractual penalties.

This can be done informally (calls, messages) or formally (written demand letter).
Smart practice: send a written demand with:
- The months unpaid,
- Total amount due,
- Deadline to pay, and
- Consequence (e.g., “or we will file an ejectment case”).

2. Right to charge interest and penalties (if agreed)

If the contract provides for:

Late payment charges (e.g., fixed fee or percentage per month),
Interest on unpaid rent,

then the landlord may collect these as long as:

They are not unconscionably high, and
They are clearly stipulated in the contract.

If no interest is stipulated, the court may award legal interest on the unpaid amount from the time the tenant falls in default (subject to prevailing rules and jurisprudence).

3. Right to terminate the lease

Non-payment of rent is generally a substantial breach that allows the landlord to:

Rescind (terminate) the lease, and
Demand that the tenant vacate the premises.

Many contracts have an express clause:

“Non-payment of rent for two consecutive months shall be a ground for termination of this lease and eviction of the lessee.”

Even without such a clause, courts have consistently treated sustained non-payment as valid ground to terminate.

4. Right to file an ejectment (unlawful detainer) case

If the tenant refuses to leave despite demand, the landlord may file an unlawful detainer case (a type of ejectment case) with the Metropolitan/ Municipal Trial Court.

Basic roadmap:

Demand letter – “Pay or vacate” within a certain time (commonly 5–15 days).
If the parties live in the same city/municipality, they may first have to go through Barangay conciliation (Lupong Tagapamayapa), unless an exception applies.
If the tenant still refuses to pay or vacate, landlord files:
- Unlawful detainer (if the tenant’s original entry was lawful but he now refuses to leave after lease termination).
The case is governed by the Rules on Summary Procedure, meaning:
- No full-blown trial with many motions; designed to be faster.
The court can award:
- Possession of the property back to the landlord,
- Unpaid rents plus interest,
- Reasonable compensation for use and occupation (if no agreed rent applies for the overstay period),
- Possibly attorney’s fees and costs.

This is the proper legal way to evict a non-paying tenant; self-help eviction (lock-outs, padlock changes, cutting water or electricity) can create more problems for the landlord than they solve.

5. Right to sue for unpaid rent (even without eviction issues)

If the tenant has already left the premises but unpaid rent remains, the landlord can:

File a collection of sum of money case or a small claims case (depending on amount),
Without needing an ejectment action, since possession is no longer in issue.

V. What Landlords Cannot Do (Even in Case of Default)

Even if the tenant is clearly in default, the landlord must respect certain legal limits:

No self-help eviction
- Changing locks, throwing out belongings, or preventing entry without a court order can expose the landlord to:
  - Civil liability (damages),
  - Criminal charges (e.g., unjust vexation, grave coercion, malicious mischief, theft, etc., depending on acts).
No illegal disconnection of utilities
- Arbitrarily cutting water or electricity (especially if included in the rent or the account is in the landlord’s name) is risky and may be treated as harassment or coercion, aside from possible violations of utility regulations.
No unauthorized disposal of tenant’s belongings
- The landlord generally cannot just sell or dispose of a tenant’s personal property to pay himself the rent, unless:
  - The tenant expressly agreed in a contract with proper safeguards, and
  - Even then, such clauses may be strictly construed by courts.
No unagreed interest/penalties
- Interest or penalty charges must have a contractual or legal basis.
No abuse of deposit rules
- Using the deposit for purposes not allowed by the contract or law, or refusing to return it without legitimate basis, can result in liability.

VI. Legal Nature and Proper Use of Security Deposits

1. Legal characterization

A security deposit is generally viewed as:

The tenant’s money held by the landlord as security for performance of obligations, not as income outright.
The landlord is expected to return it at the end of the lease, minus legitimate deductions supported by proof.

For residential units covered by rent control:

The law usually:
- Caps the amount of deposit,
- Requires return of deposit within a specified period (commonly around 1 month) after end of lease, subject to legitimate deductions.

2. Valid uses of the deposit

A landlord may typically apply the deposit to:

Unpaid utilities (electricity, water, association dues, internet, etc.),
Damage to the property beyond ordinary wear and tear (broken fixtures, holes in walls, missing items, etc.),
Unpaid rent or penalties, if the contract allows the deposit to secure these as well.

Best practice:

The lease contract should clearly state what the deposit may be used for, e.g.:

“The security deposit shall answer for unpaid utilities, damage to the premises beyond normal wear and tear, and any unpaid rent or charges of the lessee under this contract.”

3. Ordinary wear and tear vs. damage

Landlord can only charge the deposit for damage beyond normal wear and tear, e.g.:

Broken windows, doors, or locks,
Major stains, burns, or holes in flooring / walls,
Missing appliances or fixtures that were originally provided.

Cannot normally charge for:

Faded paint due to time,
Minor scuff marks,
Slightly worn flooring over many years.

Courts look at reasonableness; overcharging against the deposit can be questioned.

4. Timing and procedure for using the deposit

Typical process at end of lease:

Tenant vacates and turns over keys.
Landlord inspects unit:
- Checks condition (with photos, inventory).
- Checks if all bills and dues are paid.
Landlord prepares statement of account:
- Rent unpaid (if any),
- Utilities unpaid (with bills),
- Repairs (with quotations or receipts).
Landlord applies deposit to these items.
If any balance remains, landlord returns it to the tenant within a reasonable period (or as specified in law/contract).
If deposit is insufficient, landlord can still pursue the tenant for the deficiency.

5. Can the tenant insist on using the deposit as “last month’s rent”?

General rule: No – not automatically. Unless the contract specifies that the deposit will serve as the last month’s rent, the tenant must continue paying rent up to the end, and the deposit is settled only after the landlord has checked for other obligations (bills, damages).

Common practical variation:

Many leases provide:
- Security deposit (for damages/utilities), and
- Advance rent, explicitly designated as “applicable to the last month.”
In that setup, the tenant can validly say:
- “I will not pay the last month since it’s already covered by the advance rental,”
- BUT the security deposit still cannot be freely used as rent unless agreed.

If the tenant unilaterally stops paying rent and claims “just use my deposit,” the landlord may still treat that as rent default and proceed with legal remedies, subject to the contract wording.

VII. Practical Issues Around Deposit Use During Ongoing Default

1. May the landlord apply the deposit to unpaid rent during the lease?

This depends largely on the contract and the landlord’s strategy:

If the contract clearly says the deposit secures unpaid rent, landlord may apply it to unpaid rent after giving written notice, and demand that the tenant replenish the deposit within a certain time.
However, some landlords prefer not to apply the deposit immediately, because:
- Once used, there is no more security left for damage or utilities.

Risks:

If landlord applies the deposit mid-lease and the tenant simply continues not paying and later disappears with unpaid utilities and damage, the landlord may be left with nothing as security.
If the landlord does not apply it and instead demands full rent, the tenant may later argue that landlord should have applied the deposit—but legally, the landlord is generally allowed to insist on payment as agreed.

2. Documentation and transparency

To avoid disputes, landlords should:

Keep receipts and records of:
- Bank deposits,
- Repairs,
- Utility bills,
- Communications with the tenant.
Provide the tenant with a clear breakdown whenever the deposit is used or forfeited.
Use written agreements for any mid-lease application of the deposit (e.g., “We agree that your security deposit of ₱___ will be applied to your unpaid rent for June, and you will replenish it by ___”).

VIII. Tenant Protections and Limitations on Landlord Rights

Even though landlords have strong remedies against non-paying tenants, the law recognizes tenant protections, including:

Rent control limitations (for covered residential units) on:
- Maximum annual rent increase,
- Amount of deposits and advance rent,
- Restrictions against arbitrary eviction.
Due process in eviction:
- Tenants cannot be physically thrown out without court processes.
- Even when the tenant is clearly in default, the landlord must still go through lawful procedures.
Protection against harassment:
- Harassing acts (threats, intimidation, cutting utilities) can subject landlord to criminal and civil liabilities.
Right to recovery of wrongly withheld deposits:
- If the landlord refuses to return deposit without valid basis, tenant may:
  - Send a demand letter,
  - File a complaint (e.g., small claims or regular civil case) to recover the amount plus damages.

IX. Sample Scenarios (Philippine Context)

Scenario 1: Tenant stops paying rent but refuses to leave, saying “use the deposit”

Contract says:
- “Security deposit shall answer for unpaid utilities and damage to the premises.”
Tenant has not paid for three months, still staying, refuses to vacate.

Landlord rights:

Treat as rent default.
Send demand to pay or vacate (preferably in writing).
If tenant still refuses:
- Initiate Barangay conciliation (if required).
- File unlawful detainer in court.
Landlord may keep the deposit and apply it later to damages/utilities/unpaid rent after the tenant leaves and obligations are tallied.
Landlord is not forced to accept “deposit as rent” if the contract doesn’t say so.

Scenario 2: Tenant has left but still owes two months’ rent and damaged fixtures

Tenant already moved out quietly.
Unit inspection shows:
- Two months’ unpaid rent,
- Broken door lock and damaged wall,
- Unpaid electricity bill.

Landlord rights:

Apply security deposit to:
- Unpaid rent,
- Damage repair cost,
- Unpaid utilities.
If deposit is insufficient:
- Demand payment of the remaining balance.
- File a small claims case or civil case for collection if the tenant refuses.

Scenario 3: Landlord refuses to return deposit despite unit being in good condition and all bills paid

Tenant fully paid all rent, utilities, and maintained unit properly.
Landlord still refuses to return deposit, citing vague “possible future charges.”

Legal consequences:

The deposit is no longer needed as security once lease is over and obligations are settled.
Landlord may be liable to:
- Return the deposit,
- Pay interest and possibly damages if tenant sues.

X. Drafting and Management Tips for Landlords (Philippine Setting)

To reduce conflict and protect your rights:

Use a written lease contract, even for small residential units.
Clearly define:
- Rent amount, due date, and mode of payment;
- Late payment penalties and interest;
- When the tenant is in default;
- Grounds and procedure for termination and eviction;
- Purpose and allowed uses of security deposit;
- Whether any advance rent is applicable to a specific month (e.g., last month).
Follow rent-control limits if your unit is covered:
- Maximum allowed deposits and advance,
- Notice requirements for rent increases.
Document everything:
- Photos/inventory of unit at move-in and move-out,
- Receipts for utilities and repairs,
- Written demands and replies.
Avoid self-help eviction:
- Always go through proper legal channels for ejectment.
Return deposits promptly:
- After reasonable inspection and settlement of bills,
- With a clear statement of deductions, if any.

XI. Final Notes

Philippine law generally supports landlords in collecting rent and regaining possession from non-paying tenants—but only through proper legal procedures.
Security deposits are powerful tools, but they must be used within the boundaries of the contract and the law.
Because rent-control coverage, legal interest rates, and implementing rules may change over time, and specific facts matter greatly in landlord–tenant disputes, it is wise to:
- Consult a Philippine lawyer or the local Barangay legal assistance desk for concrete cases,
- Review the most recent rent-control law or extension applicable to your property type and rent level.

This overview gives the main principles and typical applications, but actual disputes should be evaluated on their specific facts and the exact wording of the lease.