Legal Limits on Utility Charges by Commercial Lessors in the Philippines (Electricity, Water, Internet & Other Common Services)
1. Statutory & Regulatory Framework
| Source | Key Provisions | Practical Effect on Commercial Lessors |
|---|---|---|
| Civil Code of the Philippines (Arts. 1654, 1657–1659, 1306, 19–21) | • Lessee must pay charges expressly stipulated in the lease. • Any stipulation “contrary to law, morals, good customs, public order, or public policy” is void. |
Parties are generally free to fix how electricity, water, chilled-water A/C, etc. will be billed, but a clause that allows the lessor to over-recover beyond actual cost may be attacked as (i) a void stipulation, (ii) abuse of rights, or (iii) unjust enrichment. |
| Republic Act (R.A.) 9136 – EPIRA & Energy Regulatory Commission (ERC) Rules | • Only a duly franchised Distribution Utility (DU) or an Entity with ERC authority may sell electricity for profit. • ERC Resolution 21-2010 (“Rules for Building Wiring and Sub-metering”), ERC Resolution 9-2013 & later circulars allow sub-metering inside buildings provided: – the landlord/condo corp. is not acting as a public utility; – the rate to end-users shall not exceed the applicable DU tariff (generation + transmission + distribution + systems loss + taxes, etc.) plus only an ERC-approved administrative fee.* |
A commercial lessor may pass on Meralco (or other DU) charges on a peso-for-peso basis. Any mark-up, ‘loss factor,’ or hidden surcharge beyond the ERC-approved admin fee is illegal and constitutes “unauthorized sale of electricity.” Violation exposes the lessor to ERC fines (₱50 k–₱50 M per day under R.A. 9136) and criminal prosecution. |
| Water Sector Laws – PD 198 (Local Water District Law), PD 1067 (Water Code), MWSS Concession Contracts, LWUA & LGU ordinances | Concessionaires/water districts may allow sub-metering inside buildings. Pass-through pricing is mandatory: the lessor may charge only the exact tariff per cubic metre plus the fixed metering/maintenance charge listed on the utility bill. Profiteering violates the Consumer Act, local water ordinances and, in Metro Manila, MWSS Regulatory Office Circulars. | |
| R.A. 7394 – Consumer Act (Art. 52) & R.A. 7581 – Price Act | Declares it unlawful to sell or offer any consumer product or service at an “unconscionably excessive price.” Utility reselling is considered a service. DTI may impose administrative fines & file criminal complaints. | |
| R.A. 10667 – Philippine Competition Act | If a dominant landlord ties access to premises with the purchase of “captive” utilities at above-market rates, this can be an abuse of dominant position (Sec. 15). PCC may levy up to ₱100 M or 23 % of gross Philippine revenues. | |
| BIR Regulations (e.g., RR 16-2005, RR 4-2021) | • Passing-through utility cost is not VAT-able if the landlord merely “re-invoices” the exact amount (no margin, proper documentation). • If a mark-up is added (even a handling fee), the entire charge becomes part of the vatable gross rental income of the lessor. |
|
| Local Government Code & LGU Ordinances | Some cities (e.g., Makati, Taguig, Cebu) require disclosure of “schedule of common area charges” in the Mayor’s Permit renewal. Over-recovery is ground for permit suspension. |
* ERC’s allowable administrative fee is usually ₱1.00–₱1.50 / kWh for metering and billing services, but it must be explicitly stated in the contract and separately identified on the tenant’s statement of account.
2. Leading Jurisprudence
| Case | Gist & Ruling | Take-away |
|---|---|---|
| Lepanto Condominium Corp. v. Mercury Drug, G.R. No. 199010 (19 Oct 2016) | Condo corp. billed commercial unit at higher kWh rate than Meralco. SC struck down the differential, holding that the association may only re-invoice actual Meralco charges; otherwise it becomes an unlicensed public utility. | Principle applies a fortiori to commercial landlords. |
| Founders Realty Corp. v. Gotesco Investments, CA-G.R. CV 84223 (2011) | Lease clause imposed “10 % service fee” on top of water & electricity. CA voided the clause as in fraudem legis (contrary to ERC & MWSS rules). | Any fixed-percentage mark-up is vulnerable. |
| Village East v. EPSON, ERC Case No. 2015-051 (4 Sept 2017) | Industrial park collected “systems loss factor.” ERC ordered refund with interest and imposed a ₱3 M fine. | Even sophisticated industrial parks cannot invent extra line items. |
(In the few published ERC decisions, fines have ranged from ₱300 k to ₱50 M, plus refund/interest.)
3. Electricity: Detailed Compliance Checklist for Lessors
- Sub-meter Accuracy – Calibrated and sealed by DU-accredited technicians; recalibration every 5 years.
- Copy of DU Bill – Attach to tenant’s statement each month.
- Billing Transparency – Show DU tariff components (Gen, Trans, Dist, SL, FIT-All, Universal, VAT).
- Admin Fee – If any, quote as a peso amount (not a %) and cite ERC Resolution in the contract.
- Separate OR – Issue one official receipt for rent/VAT and another for re-invoiced utilities to avoid misclassification as income.
- No Cross-Subsidy – Common-area consumption (lifts, escalators, façade lighting) must be billed to the lessor’s own account, not divided among tenants.
- Prompt Refund/True-Up – Over-collections must be credited in the next cycle or refunded in cash.
4. Water & Sewerage
| Requirement | Authority | Practical Notes |
|---|---|---|
| Pass-through tariff only | MWSS RO Manual, LWUA Circular 15 | Meter multiplier must equal 1.000; no “leakage factor.” |
| Sub-meter installation & testing | ISO 4064 / Utility Service Code | Cost is usually borne by tenant; ownership transfers to landlord upon installation. |
| VAT & Local Taxes | BIR; LGU | Water charges not vatable when merely re-invoiced; environmental and sewerage fees must match concessionaire’s bill. |
5. Internet, Telephone & Cable TV
These services are not regulated “public utilities” under EPIRA or water laws; landlords may bundle connectivity in rent. However, unreasonable tying (e.g., forcing use of the lessor’s overpriced ISP) can fall foul of:
- the Philippine Competition Act (abuse of dominance), and
- the Consumer Act (false advertising/unfair contract terms).
Best practice: let tenants contract directly with licensed PTEs (PLDT, Globe, Converge) or at least offer pass-through rates.
6. Enforcement & Tenant Remedies
| Forum | Relief Available |
|---|---|
| Energy Regulatory Commission | Administrative fines, cease-and-desist, refund order, criminal referral to DOJ. |
| MWSS/LWUA or LGU Water Board | Refund order, surcharge caps, permit suspension. |
| Department of Trade & Industry | Price Act complaints; penalties up to ₱2 M + imprisonment. |
| Philippine Competition Commission | Prohibition, divestiture, penalties up to ₱100 M, treble damages for private complainant. |
| Regular Courts / Arbitration | Contract rescission, damages, injunction, specific performance. |
Note: ERC and PCC require an initial written complaint; both agencies actively entertain individual tenant petitions and may act motu proprio if public interest is shown.
7. Drafting Tips for Lease Contracts
- Dedicated “Utilities Annex.” Spell out the exact formula: “Tenant shall pay the precise Meralco tariff in the same billing cycle, plus an administrative fee of ₱1.00 /kWh as allowed under ERC Resolution 21-2010.”
- Audit Rights. Allow inspection of master meter, calibration certificates, utility invoices.
- Survival Clause. Make the obligation to refund over-collections survive termination of lease.
- Dispute Clause. Provide for referral to ERC/MWSS technical arbitration before court action.
- VAT Wording. Distinguish between vatable rent and non-vatable pass-through utilities to avoid BIR assessments.
8. Penalties for Non-Compliance (Illustrative)
| Violation | Primary Law | Max Monetary Fine | Possible Imprisonment |
|---|---|---|---|
| Unauthorized sale/over-billing of electricity | EPIRA §46; ERC Rules | ₱50 M per day | 3–6 years (criminal) |
| Profiteering in utilities | Price Act §15 | ₱2 M | 5–15 years |
| Abuse of dominant position | PCA §29 | 23 % of gross PH turnover | N/A (administrative) |
| Tax evasion (mis-classifying utility mark-up) | NIRC §254 | 100 % of tax + ₱50 k–₱10 M | 2–6 years |
9. Practical “Do’s & Don’ts” for Commercial Landlords
| Do | Don’t |
|---|---|
| Re-invoice exactly what appears on the DU/water bill. | Add a “loss factor,” “maintenance surcharge,” or % mark-up. |
| Show tenants the original utility invoice monthly. | Hide the master bill or deny audit requests. |
| Obtain ERC/MWSS approval for any admin fee. | Assume a fixed peso or % fee is automatically lawful. |
| Use DU-calibrated submeters and keep maintenance logs. | Share one sub-meter among several tenants. |
| Issue a separate OR for pass-through utilities. | Lump utilities into rent and then reclassify as “other income.” |
10. Conclusion
The Philippine regime on utility charges by commercial lessors boils down to a single principle: “cost = cost.” Electricity and water must flow through the landlord’s books without profit unless the Energy Regulatory Commission or the relevant water regulator has expressly approved a service fee. Any excess charge risks multi-agency sanctions—ERC fines, DTI profiteering cases, PCC antitrust probes, BIR tax assessments, civil damages, even criminal liability.
Accordingly, prudent lessors keep utility billing totally transparent, segregate it from rental income, and reflect only verifiable pass-through amounts in their lease agreements. Tenants, for their part, should insist on audit rights and make full use of the ERC, MWSS/LWUA, PCC and the courts when over-billing occurs. With these safeguards in place, the allocation of utility costs remains fair, lawful, and ultimately beneficial to a well-regulated Philippine commercial real-estate market.