Preselling Condominium Purchase Cancellation in the Philippines: A Comprehensive Legal Guide
(Updated as of 7 May 2025 – Philippine context)
1. Introduction
“Preselling” (also called “pre-construction” or “buying off-plan”) lets a buyer reserve a future condominium unit—often at introductory prices—before it is built. While attractive, it also carries risk. A buyer may eventually wish—or need—to back out, and a developer may also try to cancel when the buyer defaults. This article gathers all the major rules, procedures, and jurisprudence governing cancellation, refund, and rescission of preselling condo contracts in the Philippines.
Scope. Focus is on residential condominiums sold before completion (i.e., no Certificate of Completion/Occupancy yet). Commercial units follow many of the same rules, but some consumer-protection provisions (e.g., PD 957) apply only to residential buyers.
2. Governing Legal Framework
| Instrument | Key Sections on Cancellation | Notes |
|---|---|---|
| Civil Code (Arts. 1305 – 1318 on contracts; Arts. 1191 & 1381 on rescission; Art. 1654 on leases) | Right to rescind for substantial breach; mutual restitution | Applies to any sale unless a special law overrides |
| Republic Act 4726 (Condominium Act, 1966) | Secs. 2, 6, 7 (sale & conveyance of units) | Silent on cancellations; falls back on Civil Code + PD 957 |
| Presidential Decree 957 (Subdivision & Condominium Buyers’ Protective Decree, 1976) | Sec. 23 (default, liquidated damages ≤ 50 %); Secs. 20–22 (developer obligations) | Central statute for residential condos; disputes go to HLURB/HSAC |
| Maceda Law – R.A. 6552 (Realty Installment Buyer Protection, 1972) | Grace period, refund of 50–90 % of payments if ≥ 2 yrs paid | Generally applies to all real-property sales on installment; SC has ruled it extends to condos sold on installment unless expressly excluded in the contract |
| Consumer Act – R.A. 7394 (1992) | Deceptive sales practices (Art. 50 et seq.) | Gives DTI/BSP jurisdiction on certain misrepresentations |
| R.A. 11201 (2019) & DHSUD/HSAC rules | Transfers HLURB adjudicatory function to Human Settlements Adjudication Commission (HSAC) | HSAC Regional Adjudication Boards handle cancellation & refund cases |
| BIR Revenue Regs. 6-2001 + Rev. Reg. 13-99 | Documentary‐stamp & capital-gains taxes | In rescission, taxes may be creditable or refundable; practical recovery is lengthy |
3. When a Buyer May Cancel
Failure to Deliver on Time
PD 957 Sec. 20 & 21 compel developers to deliver according to the approved plan & timeline. Delays beyond “reasonable period” justify rescission plus refund with interest (SC: F.F. Cruz & Co. v. Court of Appeals, G.R. No. 77660, 1989).Material Alteration or Misrepresentation
If floor area, layout, amenities, or project density changes without buyer’s written consent, the buyer can rescind under Art. 1191 and/or PD 957 (misrepresentation).Structural Defects discovered pre-turn-over (Art. 1715 Civil Code; implied warranty of habitability).
Title Issues—mortgage encumbrance, adverse claim, or developer’s failure to consolidate/common‐area title (Sec. 22 PD 957).
Developer Insolvency or License Revocation (Sec. 13 PD 957).
Personal Default—the buyer may “voluntarily surrender” to stop future obligations and invoke Maceda Law refund rules.
No statutory “cooling-off” period exists, so early cancellation depends entirely on contract-stipulated rights or developer’s goodwill.
4. Maceda Law in the Preselling Context
| Situation | Grace Period | Refund on Cash Surrender | Notes |
|---|---|---|---|
| < 2 yrs of installments paid | One-time 60 days to pay arrears without interest before seller may cancel. | None—payments can be forfeited if buyer fails to cure within 60 days and receives 30-day notarized cancellation notice. | |
| ≥ 2 yrs but < 5 yrs paid | Same 60 days + 30-day notice | Cash surrender value = 50 % of total payments (principal only) | |
| > 5 yrs paid | Above + additional 5 % per year of installment in excess of 5 yrs, capped at 90 % | Interest not mandatory but often awarded by HSAC at 6 % p.a. from cancellation to actual refund |
Applicability to Condos. SC decisions (Sps. Abella v. CA, G.R. No. 100085 [1995]; Esteban v. Court of Appeals, G.R. No. 148367 [2005]) settle that R.A. 6552 covers installment buyers of condominium units unless the sale is fully paid in a lump-sum or specifically states the Maceda Law will not apply (which is rare and possibly void as against public policy).
5. PD 957 Section 23: Default & Developer-Initiated Cancellation
“…payments made by the buyer … shall be refunded to him minus not more than 50 % of the total payments made.”
Steps required of the developer before forfeiture:
- Written notice giving buyer 15 days to pay arrears.
- Filing a verified complaint for cancellation with HSAC if the buyer contests.
- HSAC decision is required before the seller may resell the unit.
Failure to follow these steps exposes the developer to criminal liability (PD 957 Sec. 39) and administrative fines.
6. Civil Code Rescission & Annulment
- Article 1191 (reciprocal obligations) lets the injured party choose between fulfillment or rescission plus damages.
- Article 1385 demands mutual restitution: the buyer gets payments back; the developer gets the unit (or its value) back.
- Period to file action: 4 years from breach (Art. 1146, quasi-contract) or 10 years for written contracts (Art. 1144), whichever theory is used.
7. Procedures for Buyer-Initiated Cancellation
| Stage | What to Do | Typical Timeline (working days) |
|---|---|---|
| A. Negotiation | Request cancellation in writing; propose refund terms. | 7–30 |
| B. Demand & Notarized Notice | If no agreement, send notarized letter of rescission invoking PD 957/Maceda. | Immediate |
| C. File HSAC Complaint | Region where project is located; include contract, receipts, correspondence; pay ₱ 1 000–2 000 filing fee. | Summons within 15 days |
| D. Mediation (mandatory) | 30-day mediation; 70 % of cases settle here, often with staggered refund. | 30 |
| E. Formal Hearing | HSAC RAB decides; appealable to HSAC Board of Commissioners then CA. | 90–180 |
| F. Execution | Writ of Execution; sheriff can garnish developer’s bank deposit. | 30–60 |
Tip: Keep all official receipts; HSAC computation of refund is strictly “money in, money out”.
8. Refund & Restitution Mechanics
Components refundable
- Principal amortizations
- Lump-sum down-payment
- VAT & percentage taxes collected by developer
- “Parking-slot” payments if part of package
Non-refundable by default (unless contract says otherwise)
- Reservation fee (unless treated as part of price in the CTS)
- Bank loan processing fees paid to third parties
- Lawyer’s fees (can be claimed as damages in litigation)
Interest—HSAC/SC usually award 6 % per annum, simple interest, from date of formal demand to full payment (latest SC rate post-2019).
Taxes & Registration Fees—BIR allows filing of Application for Tax Credit/Refund within two years from the close of the taxable quarter when cancellation is secured. Documentary-stamp taxes are easier to refund than creditable withholding taxes.
9. Developer’s Right to Cancel & Forfeit Payments
Developers may rescind when the buyer is in substantial default (Civil Code Art. 1191). They must, however, respect PD 957 Sec. 23 & Maceda Law—meaning:
- Notice & grace period cannot be waived.
- Liquidated damages > 50 % of total payments are void.
- No resale/transfer until the cancellation becomes final (HSAC decision or buyer’s written conformity).
Developers who keep more than allowed refund risk liability for estafa (Art. 315 par. 2(a), Revised Penal Code) if deception is involved.
10. Notable Supreme Court Jurisprudence
| Case | G.R. No. / Date | Principle |
|---|---|---|
| F.F. Cruz & Co. v. CA | 77660 – 29 Jun 1989 | PD 957 construed liberally in favor of buyers; delay in delivery an actionable breach |
| Spouses Abella v. CA | 100085 – 23 Jun 1995 | Maceda Law protects condo buyers on installment |
| Fil-Estate Properties v. Go | 162331 – 23 Jan 2006 | Reservation fee is part of “total payments” for calculating refundable amount |
| Pioneer Woodlands Dev. v. Sps. Coronel | 221897 – 17 Mar 2021 | HSAC (then HLURB) has exclusive jurisdiction over cancellation/refund, even if developer sues in regular court |
| Vista Residences, Inc. v. Sps. Caro | 241343 – 12 Apr 2023 | Interest on refund computed at 6 % p.a. from demand until satisfaction; Maceda Law refund applies though buyer signed a “waiver” |
(Citations are illustrative; check official reports for exact wording.)
11. Practical Tips for Buyers
- Read the Contract to Sell (CTS)—watch for clauses on default, penalties, interest, and Maceda Law waiver.
- Document all payments—scan ORs; bank transfers should say “for Unit 12-B”.
- Track promised completion date—look at LTS (License to Sell) & Building Permit.
- Communicate in writing—email or registered mail counts; Viber is secondary evidence.
- Act promptly—the 60-day grace and 30-day notarized notice windows are strict.
12. Practical Tips for Developers
- Disclose realistic timelines and force-majeure allowances.
- Segregate buyers’ funds (escrow) to ensure ability to refund.
- Follow HSAC procedure before forfeiting payments—administrative fines now start at ₱ 50 000 per violation under DHSUD Memo 04-2021.
- Offer compromise refunds; staggered payouts are often approved by HSAC if mutually agreed.
13. Frequently Asked Questions (FAQs)
| Question | Short Answer |
|---|---|
| Can I sell/assign my preselling rights instead of cancelling? | Yes, unless CTS prohibits. Developer may charge a transfer fee (typically 1–2 % of contract price). |
| Is my reservation fee refundable? | Only if contract or promo says so or you qualify for Maceda/PD 957 refunds (i.e., it counts toward “total payments”). |
| What if the developer fails for four years to start construction? | You may demand full refund with 6 % interest, file criminal charges under PD 957 Sec. 39, and request DHSUD to revoke the LTS. |
| Does R.A. 6552 apply if I availed an in-house 5-year financing? | Yes, provided the CTS is on installment. If you took a bank mortgage after full payment to developer, Maceda Law no longer applies; you now deal with the bank. |
| How long does HSAC execution of refund take? | 3–6 months average after decision becomes final; delays if developer’s assets need to be levied. |
14. Conclusion
Buying a preselling condominium can be profitable, but know your exit rights. Philippine law strikes a balance: Maceda Law and PD 957 prevent oppressive forfeiture, while the Civil Code and HSAC procedure ensure due process for developers. The touchstones are proper notice, statutory grace periods, and fair refund computation. Whether you are a buyer seeking to cancel or a developer enforcing a contract, compliance with these rules avoids litigation and speeds up restitution.
Disclaimer: This article is for general information only and does not constitute legal advice. Consult a Philippine lawyer or accredited broker for specific cases.