Preselling Condominium Projects in the Philippines
Contract Breach & Delayed Turn-Over: A Comprehensive Legal Guide
This material is written for informational purposes only and does not constitute legal advice. For specific concerns, always consult a Philippine-licensed lawyer or accredited real-estate service professional.
1. Key Concepts & Statutory Sources
| Concept | Governing Law / Body | Salient Provisions |
|---|---|---|
| Condominium ownership | Republic Act No. 4726 (Condominium Act) | §§2-4 define common areas; §6 allows sale of units before completion subject to conditions. |
| Sale/marketing of subdivision & condo units | Presidential Decree No. 957 (Subdivision & Condominium Buyers’ Protective Decree), implemented by the Department of Human Settlements & Urban Development (DHSUD) through the Human Settlements Adjudication Commission (HSAC) | §4 requires a License to Sell (LTS); §§19-25 grant buyer remedies (refund, interest, administrative sanctions) for developer violations—including delay. |
| Installment buyer protection (long-term CTS) | RA 6552 (Maceda Law) | Refund schedule & grace periods; historically applied to subdivision lots, but by jurisprudence and HSAC rulings is now also invoked by condo buyers on installment. |
| Civil Code of the Philippines | Arts. 1159-1170 (obligations), 1191 (rescission), 2200-2229 (damages), 1305 ff. (contracts) | Contractual delay (“default”), mora solvendi, liquidated damages, specific performance. |
| Consumer protection | RA 7394 (Consumer Act) + DTI rules; can supplement PD 957. | |
| Administrative regime | RA 11201 (created DHSUD, re-organized HLURB → HSAC) | HSAC adjudicates buyer complaints; DHSUD issues licenses, suspends projects, imposes fines (up to ₱50,000 per day of continuing violation + project suspension). |
2. The Preselling Lifecycle & Developer Duties
Land acquisition & project registration
- Submit master deed, declaration of restrictions, and development plans to DHSUD.
- Secure a Certificate of Registration (CoR) and LTS before launching any advertisement or collecting reservation fees.
Marketing & Reservation
- Ads must bear the LTS number.
- Reservation agreements are merely option contracts—buyers may still back-out and must be refunded (less a not-exceeding ₱1,000 documentation fee under PD 957 §24).
Contract to Sell (CTS) / Agreement
- Must contain project timetable, turnover date, default clauses, schedule of payments, interest rate on late turnover, force-majeure window (usually 6–12 months).
- Developer cannot unilaterally change materials, layout, amenities except as approved by DHSUD and with written buyer conformity.
Construction & Progressive Development Reports
- Quarterly submissions to DHSUD; site inspection possible.
- Escrow rules (BSP Circular 921) apply to pre-sale collections: at least 10% of collections stay in escrow until completion milestones.
Turn-Over / Unit Acceptance
- Developer must complete the unit & common facilities “in accordance with approved plans and specifications.”
- Punch-list system: buyer may list defects; developer given 60-day window to correct minor defects, longer for structural issues.
- Delivery is perfected by Deed of Absolute Sale (DoAS) and title transfer (condominium certificate of title).
3. What Constitutes Delay?
Under Civil Code Art. 1169 a promissor is in mora solvendi when: a) The obligation is due/demandable; b) The creditor (buyer) demands performance—unless a demand is unnecessary (stipulated date is controlling, or law so provides); and c) Performance is not tendered.
Typical contractual stipulations treat turnover dates as “of the essence,” so demand is unnecessary. A grace period (e.g., 12 months) may be allowed, but once lapsed the developer is legally in default.
4. Legal Consequences of Breach
| Remedy | Statutory / Case Basis | Practical Effect |
|---|---|---|
| Specific Performance | Civil Code Arts. 1165 & 1191; PD 957 §§20-21 | Buyer compels delivery + completion; HSAC may order continuing fines until compliance. |
| Rescission with Refund | PD 957 §23–24; Maceda Law §§3-4; Art. 1191 | Full refund of all payments plus legal interest (or 6% per BSP rates) and additional 5% per annum under §23 PD 957 if delay >1 year. |
| Damages (actual, moral, exemplary) | Arts. 1170, 2200-2208, 2232-2234 | Includes rental value (lost use), cost of renting an alternative dwelling, mental anguish for bad-faith delay. |
| Administrative Sanctions | PD 957 §38; DHSUD Charter; HSAC Rules of Procedure | Suspension/revocation of LTS, cease-and-desist orders, fines up to ₱50k per day, blacklisting, criminal prosecution (PD 957 is penal). |
| Resale/Assignment | Buyer may assign CTS; developer must honor or refund. |
5. Installment Buyers & the Maceda Law
Although RA 6552 speaks of “subdivision lots,” HSAC and several Court of Appeals decisions (e.g., Gotesco vs. Chua, CA-G.R. CV 84759 [2011]) extend its protection to condominium CTS when the unit is bought on installment for at least two years. In delayed turnover scenarios:
- Buyer who has paid ≥ 2 years: may cancel & recover 50 % of total payments, plus 5 % per year after the 5th year (max 90 %).
- Buyer who has paid < 2 years: entitled to 60-day grace period to pay unpaid dues before cancellation.
- Developer must refund within 30 days of cancellation notice.
6. Notable Supreme Court & HSAC Decisions
| Case | Gist / Ruling |
|---|---|
| Spouses Abalos v. Court of Appeals, G.R. No. 103655 (Sept 23 1992) | Rescission is proper where developer’s delay frustrates the contract’s purpose; buyer may recover double damages when acting in bad faith. |
| Fil-Estate Properties v. Go, HLURB Case No. REM-070701-11496 | One-year construction slippage constituted breach; HLURB ordered refund + 12 % interest. |
| Bernardino v. PSBank, G.R. No. 224560 (Oct 13 2021) | Bank mortgage over unit does not excuse developer from delivering clean title; buyers remain protected under PD 957 §18. |
| VDu Builders Corp. v. HSAC (2024) | First SC case post-RA 11201: affirmed HSAC’s power to award both administrative fines and civil damages simultaneously. |
7. Procedure for Aggrieved Buyers
Demand Letter (optional if turnover date absolute)
File Complaint with HSAC Regional Adjudication Branch having jurisdiction over the project.
- Requirements: verified complaint, copy of CTS/receipts, proof of delay, prayer for relief.
- Fees: filing ₱1,010 + adjudication fee (0.1 % of claim exceeding ₱200k).
Mediation (15 days) → Adjudication (90 days).
Appeal lies to the HSAC Board of Commissioners, then to the Court of Appeals under Rule 43.
Execution: Writ of execution; sheriff may garnish developer’s escrow or sell unencumbered inventory.
8. Developer Defenses & Excuses
| Defense | Chances of Success | Notes |
|---|---|---|
| Force Majeure (e.g., COVID-19 lockdowns, typhoons) | Limited | Must prove impossibility not mere difficulty; and must promptly notify buyers. |
| Buyer’s Default in Payments | Moderate | Developer must prove valid demand and observe Maceda Law grace periods before cancelling. |
| Government permitting delays | Weak | PD 957 §20: regulatory delays are developer’s risk unless expressly excepted and approved. |
| Acts of third parties (strikes, supplier bankruptcy) | Weak | Generally foreseeable business risks; cannot excuse performance unless contract so provides and DHSUD approves. |
9. Practical Tips
For Buyers
- Check DHSUD website for LTS & project status.
- Scrutinize CTS clauses on turnover date, grace period, and liquidated damages.
- Keep every official receipt; pay directly to the escrow collection account.
- If delay > 3 months, start documenting (photos, email demands).
- Coordinate with co-buyers—collective action often results in faster settlements.
For Developers
- Draft realistic construction timetables; build buffers into marketing material.
- Disclose force-majeure windows clearly; file suspension of LTS if delay foreseeable > 6 months to avoid compounding penalties.
- Maintain escrow integrity; late releases worsen liability.
- Offer voluntary rent allowance (“stay-allowance”) to mitigate buyer damages claims.
- Engage DHSUD early when encountering unavoidable delays.
10. Tax & Financial Implications of Cancellation
- Refunds constitute a deduction from gross income for the developer (BIR Ruling DA-715-09).
- Documentary Stamp Tax (DST) paid on the CTS is not refundable; but DST on a rescinded DoAS need not be paid.
- Capital Gains Tax (CGT) & VAT become due only upon actual transfer of title; if rescinded, taxes are not triggered.
Conclusion
Breach of a preselling condominium contract—particularly delayed turnover—activates a robust buyer-protective regime under PD 957, the Civil Code, Maceda Law, and consumer statutes. The HSAC now provides a streamlined forum to obtain specific performance, refunds, and damages. Developers, on the other hand, must treat the promised turnover date as sacrosanct, factoring in contingencies and regulatory lead times. In a jurisdiction that strongly favors real-estate consumers, prevention (through transparent project planning and clear contracts) remains the best defense.
Last updated: 18 July 2025