In the Philippine real estate landscape, Presidential Decree No. 957 (PD 957), otherwise known as the Subdivision and Condominium Buyers' Protective Decree, serves as the primary shield for property buyers. One of the most critical, yet often misunderstood, protections involves the License to Sell (LTS).
When a developer sells a property without this license, it triggers specific legal consequences and grants the buyer substantial refund rights.
The Statutory Requirement: Section 5 of PD 957
Under Section 5 of PD 957, no owner or developer shall sell any subdivision lot or condominium unit without first obtaining a License to Sell from the Department of Human Settlements and Urban Development (DHSUD), formerly the HLURB.
The LTS is not a mere formality; it is a certification that:
- The developer has the legal title to the land.
- The project plans have been approved.
- The developer is financially stable enough to complete the project.
- The required performance bond has been posted.
Rights of the Buyer: The "Voidable" Nature of the Contract
While PD 957 does not explicitly state that a contract without an LTS is automatically void (non-existent from the start), Philippine jurisprudence (notably Spouses Co Chien vs. Sta. Lucia Realty & Dev., Inc.) clarifies that such contracts are voidable.
This means the contract is valid until a court or the DHSUD annuls it. However, because the lack of an LTS is a violation of a protective decree, the law heavily favors the buyer in such disputes.
Total Refund vs. Partial Refund
The most significant advantage for a buyer when an LTS is missing is the right to a full refund.
1. The Right to Stop Payment (Section 23)
If a developer fails to develop the project according to approved plans or fails to secure the necessary permits (including the LTS), the buyer has the right to desist from further payment.
- Notice Requirement: The buyer must notify the developer of their intention to stop payment due to the lack of project completion or missing permits.
- No Forfeiture: The developer cannot cancel the contract or forfeit previous payments due to this non-payment.
2. The 100% Refund Rule
If the buyer chooses to rescind (cancel) the contract because the developer lacks an LTS or failed to complete the project:
- The buyer is entitled to a 100% refund of the total amount paid.
- This includes the reservation fee, down payments, and monthly amortizations.
- Legal Interest: Typically, the refund includes legal interest (currently 6% per annum) computed from the date of the demand.
PD 957 vs. The Maceda Law
It is vital to distinguish between refunds under PD 957 and the Maceda Law (RA 6552).
- Maceda Law: Applies when a buyer defaults on payments. It generally only grants a 50% refund (and only after 2 years of installments).
- PD 957 (Lack of LTS): Applies when the developer is at fault. Under this decree, the buyer gets 100%, regardless of how many installments were made.
Summary of Buyer Protections
| Feature | Situation: Lack of License to Sell (PD 957) |
|---|---|
| Refund Amount | 100% of all payments made. |
| Interest | Legal interest is usually applicable upon demand. |
| Penalty/Deductions | No "processing fees" or "penalty charges" can be deducted. |
| Installment Duration | Rights apply even if the buyer has paid for less than 2 years. |
| Developer Status | The developer may face administrative fines and criminal liability. |
How to Exercise the Right
- Verification: Confirm the lack of LTS through the DHSUD online portal or by visiting the regional office.
- Formal Demand: Send a notarized Notice of Rescission and Demand for Refund to the developer, citing Section 5 and Section 23 of PD 957.
- Administrative Complaint: If the developer refuses, file a verified complaint with the DHSUD. The DHSUD has quasi-judicial powers to order the refund and impose fines on the developer.
Note on Good Faith: While developers often argue "good faith" (i.e., the license was pending), the Supreme Court has ruled that PD 957 is a special law. Its violation is malum prohibitum—the simple act of selling without the license is enough to trigger the penalty, regardless of the developer's intent.