Naming, Construction, and Lease Contracts in the Philippines: A Comprehensive Guide

Philippine law overview for entrepreneurs, property owners, contractors, and counsel drafting or reviewing contracts in the construction and real-estate leasing space.

1) Foundations of Philippine Contract Law

Governing law: The Civil Code of the Philippines (obligations & contracts; lease of things; lease of services), special statutes (e.g., Contractors’ License Law, National Building Code, Fire Code, Environmental laws), and local ordinances.
Freedom of contract: Parties may stipulate terms not contrary to law, morals, good customs, public order, or public policy.
Form: Most contracts are consensual (valid upon agreement), but written, notarized contracts are standard for enforceability, registration, and evidentiary weight as public documents.
Statute of Frauds: Agreements not to be performed within one year (e.g., multi-year leases, long-term construction frameworks) must be in writing to be enforceable.
Capacity & authority: Verify legal capacity (age, corporate existence) and authority (board resolutions, secretary’s certificates, special powers of attorney).
Registration: Not required for validity, but annotation/registration (Registry of Deeds for real property interests; LGU permits; DENR/PEZA/BPEM if applicable) protects against third persons.

2) “Naming” in Contracts: Getting Parties and Titles Right

Precision in names, capacities, and signatories prevents voidability and execution issues.

2.1 Contract Titles (best practice)

Use clear, specific titles:
- “Construction Contract (Design–Bid–Build)”
- “Design–Build Agreement”
- “EPC Contract”
- “Commercial Space Lease Agreement”
- “Residential Lease Agreement”
- “Long-Term Lease (Investor’s Lease Act)”
Add descriptors (project name, location, phase, date) to avoid confusion across related documents.

2.2 Party Naming Blocks

Include, in the very first paragraph or a definitions schedule:

Exact registered name (as per SEC/DTI/CDA); trade names as “doing business under the name and style of…”
Entity type (corporation, OPC, partnership, sole proprietorship, cooperative, JV/consortium); country of incorporation for foreign parties
Principal office address and tax ID
Registration/License numbers: e.g., PCAB license for contractors, PEZA locator ID, Ecozone developer registration, etc.
Authorized signatory and basis of authority (board resolution/SPA; for JVs, JV Agreement & appointment of representative)
Counterparty definitions: “Owner/Employer,” “Contractor,” “Subcontractor,” “Lessor,” “Lessee,” “Guarantor/Surety,” “Lender,” “Operator,” “Property Manager.”
Project identifiers: project title, site address, land title (TCT/CCT) numbers for property-linked agreements.

2.3 Signature Blocks & Notarization

Signature block mirrors the naming block (entity name in caps; signatory name and title).
Acknowledgment must comply with the 2004 Rules on Notarial Practice (competent evidence of identity; personally appeared; signatory authority).
For corporate seals, indicate if used or dispensed with. Attach Secretary’s Certificate or SPA.

3) Construction Contracts in the Philippines

3.1 Contracting Models

Design–Bid–Build (DBB): Separate designer and builder; typically fixed price or unit price.
Design–Build (DB): Single point for design and construction; often GMP or lump sum.
EPC/EPCM: Turnkey delivery vs. construction management advisory.
Cost-Plus (with/without GMP): Reimbursable costs plus fee; requires robust audit rights.
Public projects: Governed by procurement laws and agency manuals; specific forms and securities apply.
PPP/Joint Ventures: Governed by PPP/JV guidelines and special laws.

3.2 Key Legal/Regulatory Touchpoints

PCAB licensing (Contractors’ License Law): Prime contractors and many specialty trades need appropriate category/classification.
Building & occupancy permits (National Building Code), Fire Code clearances.
OSH compliance in construction sites (safety program, safety officers, PPE, toolbox meetings).
Environmental: ECC/permits where required (emissions, wastewater, tree cutting, quarrying).
Labor: Labor standards, subcontracting rules, and site employment practices.
Warranties & defects: Civil Code liability of builders/architects/engineers for defects—long-tail liability for ruin due to defects in construction or ground. Contractual defect-liability periods (DLP) typically 12–24 months, without prejudice to statutory liability.
CIAC arbitration: Construction disputes often go to CIAC, a specialized arbitral forum; contracts routinely include CIAC or other arbitration clauses.

3.3 Price and Payment Structures

Lump Sum/Fixed Price vs. Unit Price vs. Cost-Plus/GMP
Progress Billing against measured work; retention held until acceptance (commonly 5–10%) with partial release upon milestones; performance security via surety/bank guarantee/cash.
Advance Payment (often against an advance payment bond).
Variations/Change Orders: clear triggers, pricing rules (schedule of rates), approval thresholds, and time impact.
Price escalation clauses tied to indices; force majeure/exceptional events relief.
Taxes & EWT/VAT: State clearly whether prices are inclusive or exclusive of VAT and other indirect taxes; identify withholding obligations at prevailing rates.

3.4 Scope, Standards, and Risk Allocation

Technical documents hierarchy: drawings, specs, scope narratives, bill of quantities—state order of precedence.
Completion deadlines and liquidated damages (LDs) for delay; LDs should be a genuine pre-estimate and not penal.
Quality management: inspections, tests, independent testing labs, non-conformance and remedial works procedure.
Design liability (for DB/EPC): fitness for purpose vs. reasonable skill and care; intellectual property and license to use design.
Site risks: subsurface conditions (geotechnical), utilities relocation, access/permits, unforeseen conditions, archaeological finds.
Insurance:
- Contractor’s All-Risk (CAR)/ERE
- Third-Party Liability
- Professional Indemnity (if design responsibility)
- Workmen’s Compensation/Employer’s Liability
- Marine cargo/Transit for imported equipment
Security packages: performance bonds (often a % of contract price), warranty bonds during DLP, parent guarantees, escrow.
Suspension & termination: for cause (e.g., non-payment, insolvency, safety breaches) and for convenience (with equitable cost recovery).
Turnover & acceptance: punchlist, substantial vs. final completion, testing & commissioning, as-built drawings, O&M manuals, training, warranties assignment.

3.5 Subcontracts and Supply Agreements

Flow-down key obligations (safety, schedule, quality, IP, confidentiality, dispute resolution).
Pay-when-paid clauses are common but regulate to avoid unreasonable withholding.
Title & risk in materials: define transfer points; protection for off-site materials (warehouse receipts, insurance).
Supplier warranties and spares; long-lead items strategies.

3.6 Dispute Resolution Pathway

Tiered clauses: site resolution → senior management negotiation → mediation → arbitration (CIAC/ICC/PDRCI); emergency relief/DRBs for complex builds.
Governing law & venue: Philippine law; seat/place of arbitration stated; service of process mechanics.

4) Lease Contracts in the Philippines

4.1 Types and Duration

Residential lease vs. commercial/industrial lease vs. ground lease/long-term lease.
Term: fixed term (e.g., 1–5 years) with options to renew or extend; holdover rules and mesne profits.
Long-term leases to foreign investors are possible under special laws (subject to term limits and conditions).

4.2 Essential Clauses

Premises description (exact area, floor/lot plan, TCT/CCT references, common areas).
Use clause and compliance with zoning, building, and fire codes; exclusivity/radius restrictions for retail.
Rent & escalation: base rent, service charges/CAM, association dues; escalation formula (index-based or fixed %).
Security deposit & advances: amount, permitted drawdowns, replenishment, treatment upon assignment, interest (if any).
Taxes: who bears real property tax, VAT (commonly on commercial rent), local business taxes, and withholding tax on rentals (state the prevailing rates without fixing numbers in the clause).
Utilities & metering: sub-metering; allocation for water, power, chilled water.
Fit-out/alterations: Lessor approvals, fit-out guidelines, restoration obligations, ownership of improvements (movables vs. immovables by incorporation or destination).
Repairs & maintenance: structural vs. non-structural allocation; statutory compliance and planned shutdown rules.
Insurance:
- Lessor: building/structures
- Lessee: tenant’s improvements, contents, public liability; waiver of subrogation; mutual co-insurance covenants.
Assignment & sublease: often needs lessor consent; specify standards (not unreasonably withheld), profit-share on subrent, continuing liability.
Default & remedies: non-payment, unlawful use, nuisance, unauthorized assignment; grace periods, interest & penalties, re-entry/expulsion consistent with due process.
Early termination: casualty/force majeure, expropriation, change of law, co-tenancy failure in malls.
Surrender: de-fit standards, keys/access returns, final meter readings, refund of deposits less lawful deductions.

4.3 Statutory Considerations (high-level)

Civil Code on lease (obligations of lessor and lessee; warranty against hidden defects; quiet enjoyment).
Rent control (where applicable for qualifying residential units) may cap deposits, limit increases, and regulate eviction grounds; always check the current coverage thresholds, localities, and caps.
Registration & annotation: Leases exceeding one (1) year may be registered/annotated on the title to bind third persons; notarization and documentary stamp taxes (DST) apply.
Ejectment: Forholdover or breach, lessors may file unlawful detainer cases (often with barangay conciliation as a pre-condition for disputes among residents of the same city/municipality).
Foreign involvement: Foreigners cannot own land but may lease; condominium interests are subject to nationality caps—leasing of units is generally allowed.

4.4 Commercial Center/Mall Leases (special notes)

Turnover condition and delivery dates
Percentage rent on top of base rent, sales reporting, audit rights
Operating hours, co-tenancy/footfall clauses, marketing fund contributions
Kick-out rights if sales thresholds unmet (negotiate fairness standards)

5) Taxes, Fees, and Costs (overview)

Rates and thresholds change; draft neutral language allocating responsibility and confirming gross-up or tax-inclusive treatment.

VAT: Commonly applies to commercial leases and many construction services; residential leases may be exempt or zero-rated subject to evolving thresholds and conditions.
Expanded Withholding Tax (EWT): Philippine payors often withhold a portion of construction payments or rentals; specify how creditable withholding will be handled and require BIR 2307 certificates.
Documentary Stamp Tax (DST): Payable on leases and certain surety/loan instruments; allocate responsibility and timelines.
Local Business Taxes and Permits: Clarify who secures/maintains permits and bears corresponding fees (e.g., signages, fire safety).
Registration & annotation fees for long-term leases or memoranda of lease.

6) Compliance, Permits, and Site Control (builds & operations)

Before construction: landowner consent, building permit, excavation permit, traffic management plan, neighbor notifications/settlements for shared walls/easements.
During construction: Construction Safety and Health Program approval, site safety officers, incident reporting, government inspections, mandatory signage.
Commissioning/operations: Certificate of Occupancy, fire safety inspection certificate, elevator/escalator permits, pollution control officer (where required).
For leased premises: ensure Lessor delivers premises consistent with minimum technical delivery condition; Lessee’s fit-out permit + adherence to Lessor’s House Rules and the Building Administration Manual.

7) Risk Management & Insurance Checklists

Construction

CAR/EAR, third-party liability, PI (if design), employer’s liability, equipment (contractors’ plant & machinery), delay in start-up (optional), marine cargo.
Named insureds: Owner and Contractor as co-insured; cross-liability; primary & non-contributory wording.

Lease

Property all-risk (lessor), tenant’s improvements/contents (lessee), business interruption (optional), public liability, plate glass, money insurance for retail.
Waiver of subrogation & mutual waivers to reduce disputes.

8) Dispute Prevention and Resolution

Governance: weekly site meetings, dashboard reporting, early warning notices, change control boards.
Expert determination for narrow technical disputes (e.g., measurement) and Dispute Adjudication/Review Boards for large projects.
Arbitration: State the seat, rules, and institution (CIAC/ICC/PDRCI); specify interim relief via courts; allow consolidation/joinder for multi-party disputes.
Court relief: Identify exclusive venue and courts for injunctive relief or enforcement.

9) Data Privacy, IP, and Confidentiality

Design documents, BIM models, and shop drawings: ownership vs. license to use; restrictions on reuse by Owner or Contractor.
As-built data and O&M manuals: deliverables on handover; license terms for software in equipment.
Confidentiality: NDAs within the main contract; exceptions (legal duty, financing disclosures); data privacy obligations for tenant/customer information in commercial centers.

10) Ethical Procurement and Anti-Corruption

Anti-bribery warranties and compliance programs, especially for public projects or government counterparties.
Conflict-of-interest disclosures for designers, project managers, and bidding evaluators.
Gifts/hospitality registers and thresholds; sanctions/termination for violations.

11) Practical Drafting Playbooks

11.1 Model Clause Starters (illustrative language)

Parties: “This Construction Contract is made on [date] between [OWNER LEGAL NAME], a [entity] with principal office at [address] (Owner), and [CONTRACTOR LEGAL NAME], PCAB License No. [___], with principal office at [address] (Contractor).”
Scope & Hierarchy: “The Contract Documents consist of this Agreement, the Conditions, the Specifications, the Drawings, the Bill of Quantities, and all Variation Orders. In case of conflict, the order of precedence shall be: (1) this Agreement; (2) Special Conditions; (3) Technical Specifications; (4) Drawings; (5) BOQ.”
Rent & Taxes: “Rent is exclusive of VAT and other indirect taxes. Lessee shall withhold applicable creditable withholding taxes at prevailing rates and furnish BIR Form 2307 within [__] days of payment.”
LDs & Caps: “LDs for delay shall be [] per day, capped at []% of Contract Price; this is the sole remedy for delay, without prejudice to termination rights.”
Arbitration: “Any construction dispute shall be finally resolved by arbitration under [CIAC/ICC/PDRCI] Rules. Seat: [City], Philippines. Language: English.”

11.2 Document Checklists

A. Construction Contract

Corporate docs: SEC/DTI, board resolutions, signatory IDs
PCAB license copies (matching scope/classification)
Performance/advance/warranty bonds; insurance binders
Permits plan & responsibility matrix
Detailed program of works; resource & cash-flow schedules
Safety plan & environmental management plan
Testing/commissioning protocols; DLP plan
Confidentiality/IP schedules; data room index

B. Lease Agreement

TCT/CCT copies; building permits/occupancy cert
Zoning confirmation; use compatibility
Space plans; handover specs; as-is condition report
Rent table; escalation mechanics; CAM formula
Deposit & advance receipts; bank details
House Rules; fit-out manual; signage rules
Insurance certificates; emergency procedures
Sublease/assignment policy; consent form templates

12) Common Pitfalls & How to Avoid Them

Ambiguous party names (trade names only) → Always use registered legal names and attach authority documents.
Unclear tax treatment → State inclusive/exclusive basis; allocate VAT/EWT/DST responsibilities; require official receipts.
Missing dispute forum → Include arbitration/court venue clauses tailored to construction vs. lease contexts.
No variation/change protocol → Add written change order procedure with pricing/time rules.
Retention and bond gaps → Align retention, bond expiries, and DLP; require renewals.
Unregistered long leases → Register/annotate to bind third parties and protect tenancy.
Omitted OSH/environmental obligations → Embed compliance warranties and audit rights.
Fit-out/restoration disputes → Attach fit-out standards and surrender checklist with photos and plans.
Insurance misalignment → Cross-check named insureds, limits, and waivers of subrogation.

13) Execution & Post-Signing

Notarial acknowledgment with complete details and IDs
BIR compliance: DST payment and stamping; VAT/EWT compliance; OR issuance cadence
Registry actions: annotation of long-term leases; memoranda of encumbrances
Notice addresses: physical and electronic; update obligations
Change management: keep a contractor’s instruction log / lease amendment log
Claims diary for notices of delay, variation, defects, rent defaults, or set-offs

14) Quick Templates (mini-outlines)

Construction (DBB) – Headings

Parties and Recitals
Definitions and Document Hierarchy
Scope of Works and Standards
Contract Price and Payment; Taxes & Withholding
Time for Completion; LDs; Bonus (if any)
Variations and Adjustments
Employer’s Obligations (site, permits, utilities)
Contractor’s Obligations (staffing, safety, QA/QC)
Design Responsibility (if any)
Risk & Title; Insurance; Bonds/Guarantees
Acceptance, Handover, and DLP
Termination & Suspension
Dispute Resolution; Governing Law
Confidentiality, IP, Data, and Ethics
Miscellaneous (assignment, notices, force majeure)

Commercial Lease – Headings

Parties; Premises; Term
Use; Compliance; House Rules
Rent, Escalation, and Charges; Taxes & Withholding
Deposits, Guarantees, and Security
Repairs & Maintenance; Services; Utilities
Fit-out/Alterations; Signage; Restoration
Insurance; Risk of Loss; Indemnities
Assignment, Sublease, and Change of Control
Default, Remedies, and Re-entry
Casualty/Condemnation; Early Termination
Data Privacy; Confidentiality
Dispute Resolution; Governing Law
Miscellaneous (notices, waiver, severability)

15) Final Notes

Use clear naming and robust authority documentation to avoid avoidable invalidity or enforcement problems.
For both construction and leases, compliance (permits, safety, taxes) is as important as pricing and term.
Keep clauses future-proof: reference “prevailing laws/regulations” and provide adjustment mechanisms for tax, safety, and technical standards.
When in doubt, attach schedules (drawings, fit-out rules, matrix of responsibilities, insurance certificates) rather than embedding dense prose.

(Non-exhaustive) Document Annex Pack You Can Prepare

Party authority docs (SEC/DTI/CDA, resolutions, SPAs)
Insurance & bonds forms (performance, advance, warranty)
Variation/change order template
Payment certificate and progress billing template
Handover & punchlist forms; DLP defect notice form
Lease turnover checklist; restoration standards; photo log
Tax compliance checklist (VAT/EWT/DST) and OR issuance schedule

If you want, I can turn any section above into fillable clause templates or a checklist PDF tailored to your project or property.