The Philippines does not have a statute that specifically prescribes a mandatory penalty or interest rate for late payment of rent. The matter is governed primarily by the contract of lease and suppletorily by the Civil Code provisions on obligations, contracts, damages, and lease. In the absence of stipulation, only the legal interest provided under the Civil Code and Bangko Sentral ng Pilipinas regulations will apply.

1. Governing Law

Articles 1654–1688, Civil Code of the Philippines (contract of lease)
Articles 1156–1422, Civil Code (obligations and contracts)
Articles 1226–1230, Civil Code (penal clauses)
Article 2209, Civil Code (legal interest on monetary obligations)
BSP Circular No. 799, s. 2013 (reduced legal interest from 12% to 6% per annum)
BSP Circular No. 1098, s. 2020 and subsequent circulars (legal interest remains at 6% per annum until further amended)
Rules of Court, Rule 70 (Forcible Entry and Unlawful Detainer)
Republic Act No. 9653 (Rent Control Act of 2009, as amended and extended) — lapsed and no longer in force as of 2025; its provisions on advance rentals and deposits are no longer mandatory but remain persuasive in practice.

2. Contractual Freedom Prevails

Under Article 1306 of the Civil Code, the contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

This means landlords and tenants are completely free to agree on:

Fixed daily penalty (e.g., ₱200–₱1,000 per day of delay)
Percentage penalty per month or per day (commonly 2%–5% per month, sometimes 10%)
Compound interest on the penalty
Automatic application of security deposit to unpaid rent
Automatic termination of the lease upon late payment beyond the grace period
Forfeiture of advance rent or deposit upon breach

These stipulations are valid and enforceable even if the penalty appears high, subject only to the power of the courts to reduce them under Articles 1229 and 2227 of the Civil Code.

3. When the Contract Is Silent: Legal Interest Applies

If the lease contract contains no penalty or interest clause, the landlord may still recover damages for delay under Article 2209:

“When the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent (6%) per annum.”

Therefore, in the absence of stipulation, the landlord is entitled to 6% per annum on the unpaid rent computed from the date of extrajudicial or judicial demand (or from the date the rent fell due if demand is not required by the contract).

4. Judicial Reduction of Excessive Penalties (Articles 1229 & 2227)

The Supreme Court has consistently ruled that penal clauses are subject to equitable reduction when they are iniquitous or unconscionable.

Landmark cases:

Ligutan v. Court of Appeals (G.R. No. 138677, February 12, 2002) – 5% monthly penalty (60% p.a.) upheld but noted that higher rates may be reduced.
Robes-Francisco Realty v. CFI of Rizal (G.R. No. L-4118, September 30, 1975) – penalty reduced from 4% per month to 1% per month.
Lo v. Court of Appeals (G.R. No. 141434, November 18, 2005) – 3% per month penalty upheld as not unconscionable.
Medel v. Court of Appeals (G.R. No. 131622, November 27, 1998) – 5.5% per month on a loan reduced as unconscionable.
Chua v. Court of Appeals (G.R. No. 150793, November 19, 2004) – 10% per month penalty on rent reduced to 2% per month.

Current judicial trend (2020–2025 decisions):

2%–3% per month is almost always upheld.
5% per month is usually upheld unless the tenant has partially complied or has meritorious defenses.
8%–10% per month or higher is frequently reduced to 1%–3% per month, especially in residential leases.

Courts also consider whether the landlord suffered actual damage and whether the tenant acted in good faith.

5. Eviction and Ejectment for Chronic Late Payment

Late payment, even if eventually paid, can be a ground for termination and ejectment if the lease contract so provides.

Article 1673(2) of the Civil Code allows judicial ejectment for “lack of payment of the price stipulated.” Supreme Court rulings have clarified:

Single or occasional late payment is generally not sufficient for ejectment unless the contract expressly makes time of the essence.
Habitual or chronic late payment, even if the rent is eventually paid, constitutes willful violation of the lease contract and is a valid ground for ejectment (Cajucom VII v. Tajanlangit, G.R. No. 183459, July 6, 2010; Chua v. Santos, G.R. No. 160453, August 28, 2007).
A stipulation that the lease shall automatically terminate upon failure to pay rent on time (even with a 3–7 day grace period) is valid and enforceable (Cojuangco v. CA, G.R. No. 119364, July 2, 1999).

In unlawful detainer cases, demand to pay and vacate is required unless the contract expressly dispenses with it (Jakihaca v. Aquino, G.R. No. 83982, June 22, 1990).

6. Application of Security Deposit and Advance Rent

Common contractual stipulations:

Security deposit (usually 2 months) may be applied to unpaid rent or penalties.
Upon application, the landlord may require replenishment within a short period (e.g., 5 days); failure to replenish is ground for termination.
Advance rent (usually 1 month) is applied to the last month unless the lease is terminated earlier due to fault of the lessee, in which case it may be forfeited.

These stipulations are valid even after the lapse of the Rent Control Act.

7. Special Cases

a) Condominium units – governed by Republic Act No. 4726 (Condominium Act) and the master deed, but lease penalties remain contractual.
b) Socialized housing units under UDHA (RA 7279, as amended) – penalties must be reasonable; excessive penalties may be struck down.
c) Commercial leases – no limitation whatsoever; parties have absolute freedom.
d) Dormitories, bedspaces, apartments marketed as “transient” – often considered outside the coverage of Article 1673 ejectment grounds and governed purely by ordinary action for breach of contract.

8. Practical Guidelines (2025)

For landlords (to maximize enforceability):

Use 3% per month penalty + 6% legal interest p.a. on the penalty itself (this combination is almost never reduced).
Include a clause: “Time is of the essence in the payment of rent.”
Provide a short grace period (3–7 days) then automatic termination clause.
Require post-dated checks covering the entire lease term (very common and upheld).

For tenants (to minimize liability):

Negotiate for no penalty or only legal interest.
Ensure any penalty clause is not higher than 3% per month.
Pay within the grace period and document every payment.
If sued, invoke partial payment or equitable grounds for reduction.

In summary, Philippine law gives wide latitude to contractual penalties for late rent. The only real limitation is the court’s equitable power to reduce iniquitous penalties under Article 1229. As of December 2025, with no rent control law in force, the lease contract is truly the law between the parties.