Refund of Real-Estate Reservation Fees in the Philippines When There Is Misrepresentation

This article is for general information only and does not create a lawyer–client relationship. Always consult counsel for advice on specific facts.

1. Reservation Fees: Nature and Purpose

A reservation fee (sometimes called a holding or option fee) is the amount a buyer pays to a developer or broker so that the chosen unit or lot is temporarily taken off the market while preliminary documents are prepared (e.g., the Contract to Sell). It is not yet part of the purchase price; rather, it is:

an option contract under Article 1479 of the Civil Code, giving the buyer the right but not the obligation to proceed;
usually deductible from the first down-payment or equity once the contract is perfected;
commonly non-refundable by stipulation—but only if the stipulation is valid and if the buyer’s consent was not vitiated by fraud, mistake, intimidation, or undue influence.

2. Governing Legal and Regulatory Framework

Instrument	Salient Provisions Relevant to Misrepresentation and Refund
Civil Code (Art. 1318, 1330, 1390-1398, 1479, 1189, 2154)	Defines fraud, voidable contracts, option contracts, and unjust enrichment.
Presidential Decree No. 957 (Subdivision and Condominium Buyers’ Protective Decree)	§20 bars false or deceptive advertisements; §§23-24 allow buyers to demand refund and interest if the developer substantially breaches its obligations.
Republic Act No. 6552 (Maceda Law)	Gives buyers who paid at least two years of installments the right to a cash-surrender value upon cancellation, reinforcing refund principles.
Republic Act No. 7394 (Consumer Act)	Declares it unlawful to make false or misleading representations in the sale of consumer products, including real property.
DHSUD/HLURB Rules¹	• Brochure and ads form part of the contract. • Reservation agreements must be in writing and in plain language. • A buyer may cancel within a “cool-off” period (often 15–30 days) and recover the reservation fee, less minimal administrative charges. • Administrative fines and suspension for misrepresentation.

¹ Former HLURB Board Resolutions 848 (1996), 921 (2014) & 923 (2014); now enforced by the Department of Human Settlements and Urban Development (DHSUD).

3. What Constitutes Misrepresentation

Mode	Examples in Real-Estate Projects
Fraudulent Misrepresentation (Art. 1330)	• Falsifying project completion date. • Claiming clean title when it is mortgaged. • Advertising amenities (clubhouse, pool) that are not in the approved plan.
False Advertising (PD 957 §20)	Marketing units larger than the actual floor area; depicting unobstructed sea view that is impossible in the project’s location.
Omission of Material Facts	Concealing the fact that the project has no DHSUD license to sell.
Half-truths / Ambiguous Statements	“Ready for occupancy” when only site clearing has started.

A misrepresentation vitiates consent and renders the contract voidable (not void). The aggrieved buyer may annul it and demand restitution under Articles 1397-1398 and 1385.

4. Buyer’s Remedies and the Right to Refund

Extrajudicial Demand Write a formal demand letter to the developer within a reasonable time (Article 1391: four-year prescriptive period from discovery of fraud). Cite the misleading statements and demand:
- refund of the reservation fee plus legal interest, and
- return of other payments (if any) — less reasonable rent or use, if buyer occupied the unit.
DHSUD Adjudication File a complaint for annulment of contract, refund, and damages under PD 957 and its IRR. DHSUD mediates first; if unresolved, the case is tried before the Regional Adjudication Board. Reliefs may include:
- full refund (reservation, down-payment, amortizations);
- 6 % legal interest per annum;
- administrative fines against the developer;
- revocation of the project’s license to sell.
Civil Action in Court Alternative to (or appeal from) DHSUD, asking for annulment (Art. 1397), rescission (Art. 1191), or damages (Art. 1170). Courts often award moral and exemplary damages if deceit is proven.
Criminal Prosecution PD 957 treats false statements in advertisements or brochures as a criminal offense (fine and/or imprisonment). A criminal complaint is filed with the Provincial or City Prosecutor, independent of civil refund.

5. Relevant Case Law

Case	G.R. No. / Date	Principle
Torres v. Court of Appeals	G.R. 109548, 17 Mar 1999	Buyers may annul and recover payments when consent is vitiated by developer’s fraudulent failure to disclose that the property was under litigation.
Spouses Soriano v. Laguna Dev. Corp.	G.R. 155040, 18 Oct 2004	Reservation/deposit must be refunded where the subdivision plan and amenities were materially different from the marketing brochure.
Pioneer Highlands Condo Corp. v. Spouses Cordero	G.R. 181452, 02 Aug 2016	Even when buyers later executed a Deed of Sale, prior fraudulent ads remain actionable; damages and refund were upheld.
HLURB Case No. REM-072701-9777 (Del Carmen v. ABC Dev’t)	11 Nov 2019	HLURB ordered 100 % refund of ₱50,000 reservation fee within 30 days, plus ₱10,000 moral damages, where the developer falsely claimed a “commercial strip” inside the subdivision.

6. Defenses Commonly Raised (and How Courts Rule)

Developer’s Defense	Usual Judicial/Administrative Ruling
“Reservation agreement says non-refundable.”	A stipulation cannot defeat mandatory laws against fraud (Art. 6 Civil Code) and may be struck down as contrary to public policy.
“Buyer failed to exercise due diligence; caveat emptor.”	Caveat emptor does not apply to concealed defects or intentional misstatements.
“Misrepresentation was made by a third-party broker.”	Developers are liable for acts of their authorized salespersons and marketing arms (PD 957 §20; agency rules).
“Buyer accepted later corrections.”	Acceptance after discovery of fraud must be voluntary and informed; otherwise, ratification is invalid.

7. Practical Steps for Buyers Seeking a Refund

Collect evidence: brochures, social-media ads, email or Viber chats, receipts, marketing videos, and photos of the actual site.
Compute the amount: reservation fee + any additional payments + interest (usually 6 % p.a. from demand).
Send a written demand (keep proof of receipt). Give a deadline (10-15 days) to pay.
If no refund, file a complaint with the DHSUD regional office where the project is located. Attach all evidence and pay minimal filing fees (₱1,000 – ₱2,000).
Attend mandatory mediation. A settlement is common because developers risk suspension of license.
If mediation fails, pursue adjudication or go to the regular courts.
Consider a class or group complaint if many buyers are affected; it reduces cost and shows pattern of deceit.

8. Tax and Accounting Considerations

No DST or transfer taxes arise, because the principal sale is annulled.
A refund is not subject to VAT; it is merely returning the buyer’s money.
Developers must issue an official receipt or credit memo for the refund and adjust their VAT and income-tax filings correspondingly.
If the refund is partial and the contract remains, it may be treated as a price adjustment rather than annulment.

9. Developer Best Practices to Avoid Liability

Use accurate, approved perspectives and state “artist’s illustration subject to change” prominently.
Secure DHSUD permits and announce their numbers in all ads.
Train brokers; provide a sales script that forbids exaggerated claims.
Keep a “Reservation Reversible Within 15 Days” clause to show good faith.
Implement a quick refund program; most cases escalate only because initial requests are ignored.

10. Key Take-Away Points

Misrepresentation vitiates consent; any money paid—including the reservation fee—can be demanded back, notwithstanding a “non-refundable” clause.
PD 957 and the Civil Code override private stipulations; buyers’ rights are protected as a matter of public policy.
Timely action matters: buyers have four years from discovering the fraud to annul; otherwise, ratification is presumed.
DHSUD provides a faster, less-expensive forum than regular courts, and its orders are enforceable via writ of execution.
Developers face administrative, civil, and criminal exposure, so early settlement is often in their best interest.

Prepared by: [Your Name], Philippine real-estate and commercial lawyer