Prorated Refund of Security Deposit in Philippine Leases

(A doctrinal and practical guide for landlords, tenants, property managers, and counsel)

Disclaimer: This article is for educational purposes only and does not constitute legal advice. Facts and circumstances vary; always consult a lawyer admitted in the Philippines for a formal opinion.

1. Concept and Rationale

A security deposit (kabayaran sa katiyakan) is money given by a tenant to secure full performance of the lease—chiefly payment of rent, utility charges, and repair of damage. A prorated refund arises when the tenancy ends mid-cycle (e.g., the tenant leaves on the 12th of a month that is paid up to the 31st), or when only part of the deposit is legitimately applied. The unused balance must be returned pro rata—that is, in proportion to the part of the month or obligation that was actually consumed.

2. Governing Sources of Law

Source	Key Points
Civil Code (Arts. 1654-1657, 1306, 1170-1171, 1189)	Lease is consensual; deposit is held in trust; landlord must preserve the premises and return what remains of any guaranty after offsetting lawful claims.
Rent Control Act of 2009 (RA 9653), as successively extended by RA 10966 (to 2020) and RA 11571 (to 2027)	Applies to units ≤ Php 15,000/mo (Metro Manila) or ≤ Php 12,000 elsewhere. Sec. 7 caps deposit at not more than two months plus one month advance, and obliges refund within one (1) month from turnover, minus unpaid obligations. Failure to refund on time accrues interest at 10 % p.a.
National Building Code IRR §3(f); DHSUD Adjudication Rules	Authorise housing arbiters to hear security-deposit disputes and award refunds, interest, and damages.
Batas Pambansa 129 (Judiciary Reorganisation Act)	Small Claims (up to Php 400,000) in first-level courts is another venue.
BIR Revenue Regs. 16-2005 & RMC 16-2013	For landlords in business, a deposit is a current liability. It converts to income subject to VAT/percentage tax only upon (a) application to rent, or (b) forfeiture.

The Philippines has no statute that explicitly details “proration,” so parties and adjudicators rely on basic principles of unjust enrichment (Art. 22 Civil Code) and damages (Art. 1170).

3. Typical Contractual Clauses

Amount – “Lessee shall tender two (2) months’ security deposit and one (1) month advance.”
Use at End of Term – “Deposit may not be applied to rent but shall be refunded after inspection.” or “Deposit may be applied to the last rental period upon mutual written agreement.”
Forfeiture – Often drafted as automatic if the tenant pre-terminates early. Courts disfavor blanket forfeiture unless the lessor shows quantifiable loss.
Timeline for Refund – Customarily 30 days; best practice specifies “30 calendar days from surrender and delivery of keys.”
Interest / Penalty – Some contracts track RA 9653’s 10 % p.a.; others peg at current BSP overnight rate.

4. Mechanics of a Prorated Refund

4.1 When is proration triggered?

Mid-month move-out
Partial consumption of utilities billed on a calendar month basis
Minor repairs cheaper than the remaining deposit
Over-declaration of damages that is later corrected after receipts are produced

4.2 Computation Framework

Daily rent = (Monthly Rent) ÷ 30 (for quick math, even for 28-, 29-, 31-day months)

Suppose:

Monthly rent = Php 20,000
Security deposit = Php 40,000 (2 months)
Tenant vacates June 12; premises immediately relet and inspected the same day
Damage (door knob) = Php 1,500 (OR produced)
Utilities till June 12 = Php 2,000

Item	Php	Notes
Daily rent	666.67	20,000 ÷ 30
Unserved period (June 13-30 = 18 days)	12,000.06	Landlord not entitled if unit already relet on June 13; else deductible
Damage	1,500	Actual receipt
Utilities	2,000	Latest bills
Total deductible	3,500	(assuming no rent deduction)
Refund due	36,500	40,000 – 3,500

If the landlord did collect rent for June 13-30 from a new tenant, keeping the Php 12,000.06 would be unjust enrichment; the former tenant is entitled to the pro rata refund of that amount.

5. Jurisprudence Snapshot

Case (G.R.)	Ratio / Holding
Sia v. Court of Appeals, 341 Phil. 368 (2000)	Blanket forfeiture of a P1 M deposit for minor delay in turnover was unconscionable; deposit must answer only for actual loss.
Deluria v. Delvo, G.R. 191145 (20 Jul 2016)	Landlord who refused to deliver clear accounting and refund was liable for moral damages and attorney’s fees.
AHS/Philam Life v. CA, 257 Phil. 699 (1989)	Deposit is a species of loan in mutuum subject to interest upon demand, because the landlord benefits from its use during the lease.
Concepcion v. People, G.R. 201233 (11 Jan 2016)	Criminal conviction for estafa reversed: retention of deposit by itself is civil, not criminal, unless accompanied by deceit at the time of contracting.

6. Rights, Remedies, and Procedures

Party	Statutory / Contractual Right	Typical Remedy
Tenant	Timely itemised statement; refund of balance; 10 % p.a. interest (if within Rent-Control coverage)	1. Barangay conciliation (Lupong Tagapamayapa) 2. DHSUD Adjudication 3. Small Claims 4. Regular trial court with damages
Landlord	Offset unpaid obligations; reasonable repair costs; interest for late rent	Retain equivalent amount of deposit; file action for deficiency, if any

7. Tax and Accounting View (Landlord)

Phase	Books	VAT / Percentage Tax
Receipt of deposit	Debit Cash / Credit Deposits Payable	None yet
Application to rent	Debit Deposits Payable / Credit Rent Income	Output VAT due in the month applied
Forfeiture	Same entry as above	Output VAT due
Refund (full or prorated)	Debit Deposits Payable / Credit Cash	No tax event

Failure to re-classify forfeited deposit as income can trigger BIR deficiency assessments.

8. Drafting & Compliance Tips

Spell out proration – “Any unused portion of the deposit shall be returned on a per-diem basis calculated as Monthly Rent ÷ 30.”
Joint final inspection – Conduct with photographic inventory and have both parties sign.
Separate bank account – Best practice (though not mandated) improves transparency and may earn interest credited to tenant.
Interest clause symmetry – If deposit earns bank interest, allocate it fairly; if not, be clear that none accrues.
Clear timeline – 15- to 30-day refund window; quicker if utilities are under tenant’s own name.
Formal demand letter – A prerequisite to interest under Articles 1169 & 2209 of the Civil Code when outside Rent-Control coverage.

9. Checklist for a Smooth Prorated Refund

Tenant	Landlord / Agent
Give written notice of move-out, per lease (usually 30–60 days).	Acknowledge receipt; schedule inspection.
Settle latest utilities; secure “No Arrears” letter from providers.	Prepare itemised statement of proposed deductions.
Attend joint inspection; keep photo/video evidence.	Release refund (cash, cheque, or online transfer) within contractual or statutory period.
Issue quitclaim upon full payment.	Secure quitclaim to bar future claims.

10. Conclusion

While Philippine law leaves much of the mechanics to contractual stipulation, overarching civil-law principles—good faith, unjust enrichment, and restitution—require landlords to return any part of the security deposit not actually consumed. Proration is the logical tool for computing that balance. Clear clauses, prompt accounting, and adherence to the timelines in RA 9653 (for covered units) minimize disputes and protect both parties’ cash flow and peace of mind.

11. Quick-Reference Flowchart

(for your internal use; replicate as needed in office manuals)

Lease ends / pre-termination notice ⟶
Joint inspection & documentary proof of deductions ⟶
Compute: Deposit – (Unpaid rent ± prorated rent + utilities + repairs) = Refund ⟶
Release within 30 days ⟶
Secure quitclaim

Following the above keeps you compliant with statute, jurisprudence, and best practice—and avoids the interest meter that starts ticking if you hold on to a tenant’s money longer than necessary.