1) Why this issue comes up

Tenants often spend money to make a rented house, condo, office, or commercial space usable—painting, partitions, built-in cabinets, lighting, air-conditioning, plumbing upgrades, or even major renovations. When the lease ends and the tenant leaves, the central question is:

Can the tenant demand reimbursement for those improvements, or at least remove them?

Under Philippine law, the default rules come mainly from the Civil Code provisions on lease and the broader property principle of accession (the idea that the owner of property generally owns what becomes attached to it). Most disputes are resolved by applying:

What the lease contract says, and if it’s silent or unclear,
Civil Code rules, especially the provision on useful improvements made by a lessee (commonly cited as Article 1678), plus rules on repairs, damages, and unjust enrichment where appropriate.

This article explains the governing framework, the categories of expenses/improvements, what a tenant may claim at the end of a lease, and how claims are typically asserted.

2) The starting point: contract controls (within limits)

A lease is a contract. Parties can validly agree on:

Whether improvements require the lessor’s written approval;
Whether improvements become the lessor’s property immediately or at lease end;
Whether there is reimbursement (and how computed: cost, appraised value, or amortization);
Whether the tenant must restore the premises to its original condition;
Whether improvements are “for the tenant’s account” with no reimbursement.

In practice, the lease contract is usually decisive—especially in commercial leases with “fit-out” provisions. If the contract clearly says no reimbursement and the tenant agreed knowingly, that is typically enforced unless it violates law or public policy.

When the contract is silent, ambiguous, or unfairly applied, the Civil Code fills the gaps.

3) Property law background: accession, fixtures, and what “belongs” to whom

3.1 Accession and attachment

As a general property principle, the owner of land/building tends to acquire ownership of things that become incorporated or attached to it in a permanent way. Many improvements a tenant installs can become part of the immovable property (especially built-in or embedded works).

3.2 The practical distinction: removable vs non-removable

A useful way to analyze tenant improvements is whether they are:

Removable without material damage (e.g., freestanding shelves, some modular partitions, many appliances);
Affixed/embedded so removal would materially damage the premises (e.g., built-in cabinetry fixed to walls, tiled flooring, rewired electrical systems, plumbing lines inside walls).

This “removability” matters because—even when reimbursement is not available—the law often allows a tenant to remove certain improvements if removal won’t cause undue damage, subject to restoring the premises as required.

4) Classifying tenant expenditures: repairs vs improvements (and why it matters)

Philippine civil law traditionally distinguishes among:

A) Necessary expenses / necessary repairs

These are expenses to preserve the property or keep it from deteriorating (e.g., fixing a leaking roof that threatens damage, repairing a burst pipe, urgent electrical hazard repair).

General rule in lease: The lessor is generally obliged to make necessary repairs to keep the premises fit for the purpose of the lease. If the tenant advances money for repairs that the lessor should have shouldered (especially urgent ones), reimbursement may be demanded under the lease rules and general obligations principles—often conditioned on notice to the lessor and proof that the repairs were necessary and reasonable.

B) Useful improvements

These are expenses that increase value or improve utility beyond mere preservation (e.g., adding partitions to improve office layout, installing built-in storage, upgrading lighting, adding fixtures that enhance functionality).

This category is where the Civil Code’s special rule for lessees typically applies (commonly referenced as Article 1678).

C) Luxurious / ornamental improvements

These are for mere pleasure, aesthetics, or luxury (e.g., high-end decorative finishes, premium ornamental features not needed for use).

Ornamental/luxury spending is usually the hardest to recover. The law is generally reluctant to require the lessor to pay for a tenant’s taste-based upgrades unless the lessor agreed.

5) Necessary repairs and expenses: when reimbursement is most plausible

5.1 Lessor’s duty to maintain; tenant’s duty to notify

Civil Code lease principles generally place on the lessor the duty to:

Deliver the thing leased in a condition fit for its intended use; and
Make necessary repairs to keep it suitable for that use.

The tenant typically must:

Use the premises with due diligence; and
Notify the lessor when repairs are needed (especially if the tenant wants the lessor to fix them or to later claim reimbursement).

5.2 Urgent repairs paid by the tenant

Where repairs are urgent and delay would cause greater damage or danger, a tenant who pays first has a stronger argument for reimbursement—especially if:

The lessor was notified (or could not be reached in time);
The repairs were truly necessary (not elective upgrades); and
The cost was reasonable and documented.

5.3 The common evidentiary issue

Reimbursement fights often fail on proof. Tenants should be able to show:

Before-and-after condition;
Repair quotations and invoices;
Receipts and proof of payment;
A short written notice/request to the lessor (even messaging that can be authenticated);
Evidence the work was necessary (photos, inspection reports).

6) Useful improvements by the tenant: the Civil Code rule at the end of the lease

The Civil Code provides a specific mechanism for useful improvements introduced by the lessee in good faith and suitable to the intended use of the lease (commonly associated with Article 1678). In simplified operational terms:

6.1 Core conditions (what generally must be shown)

A tenant’s claim under this rule is strongest when the improvements are:

Useful (they improve utility/value, not just decorative);
Made in good faith (not a spiteful alteration, not clandestine vandalism, and typically not in bad-faith defiance of an express prohibition);
Suitable to the use intended by the lease (e.g., office fit-out for an office lease; kitchen improvements for a residential lease);
Done without fundamentally altering the form/substance of the property in a way inconsistent with the lease (major structural changes are more contentious and often require consent).

6.2 The lessor’s option at termination: pay half or allow removal

At the end of the lease, the lessor is generally given a choice:

Pay the tenant a portion (commonly one-half) of the value of the useful improvements, in which case the improvements remain; or
Refuse to pay, in which case the tenant may generally remove the improvements, provided removal can be done without improper damage (and subject to reasonable restoration obligations).

This is a distinctive feature: the lessor is not automatically forced to buy the improvements at full cost. The legal structure is closer to: either partially compensate and keep them, or let the tenant take them away.

6.3 “Value” is not always “cost”

Disputes often turn on valuation. Even when reimbursement is allowed, the measure is typically closer to the value at the relevant time, not necessarily the original purchase/construction cost. Depreciation, wear, and obsolescence matter. A tenant who spent heavily on a specialized fit-out may find that the “value” is far lower than the “cost,” especially for improvements that are:

Highly customized;
No longer in good condition; or
Unhelpful to the next occupant.

6.4 Removal rights are practical, not absolute

Even when the law allows removal after the lessor refuses to pay, removal is typically constrained by:

Feasibility (can it be removed at all?);
Damage (removal shouldn’t cause unreasonable destruction beyond what is necessary);
Restoration (many leases require returning the premises to original condition, ordinary wear and tear excepted);
Time (removal must be done promptly as part of turnover, unless the lessor grants time).

7) Luxurious or ornamental improvements: usually no reimbursement

As a general civil law principle, luxury/ornamental expenses are not reimbursable unless the lessor agreed.

A tenant may often remove purely decorative additions if removal can be done without damaging the premises (and again subject to restoration obligations). If removal would damage the premises, the tenant may be forced to leave them, typically without payment unless the contract says otherwise.

8) Improvements made with the lessor’s consent (or at the lessor’s request)

8.1 Written consent changes the landscape

When the lessor expressly authorizes improvements—especially in writing—the tenant’s position improves because the dispute becomes primarily contract-based:

Was reimbursement promised?
Was there a cost-sharing agreement?
Was there a fit-out allowance?
Was there an amortization scheme?

Courts generally enforce clear contractual undertakings.

8.2 Implied consent, acquiescence, and estoppel

Even without a formal written approval, a lessor’s knowledge and prolonged acceptance of the work (e.g., repeated inspections, approvals of plans, silence despite opportunity to object) can sometimes support arguments that the lessor acquiesced. That can matter when evaluating:

Whether the tenant acted “in good faith”;
Whether the lessor can later demand removal as a “violation”;
Whether it would be inequitable for the lessor to keep benefits without honoring representations.

These arguments are fact-intensive and heavily dependent on evidence.

8.3 Unjust enrichment as a backstop (not a shortcut)

The Civil Code recognizes unjust enrichment (no one should unjustly enrich themselves at the expense of another). In improvement disputes, unjust enrichment arguments sometimes appear when:

The lessor induced the tenant to spend;
The lessor promised reimbursement informally;
The lessor terminated the lease early after benefiting from improvements.

However, unjust enrichment typically does not override clear lease stipulations allocating improvement costs, and it often yields to the specific Civil Code regime governing leases and improvements.

9) Improvements done without consent or in violation of the lease

If a lease prohibits alterations or requires prior approval, and the tenant proceeds anyway, consequences can include:

Demand to restore the premises at the tenant’s expense;
Forfeiture of improvements (tenant leaves them with no payment);
Damages if the alteration caused loss or impaired value;
Possible lease violation supporting termination/eviction (depending on facts and contract terms).

That said, not all unapproved improvements are automatically “bad faith.” A tenant may still argue good faith where the work was necessary or plainly aligned with the lease’s purpose and did not fundamentally alter the premises—but the tenant takes on higher risk when ignoring approval clauses.

10) End-of-lease realities: what tenants can (and cannot) do when leaving

10.1 A tenant generally must return possession

When the lease ends, the tenant is generally obliged to vacate and return the premises. A common misconception is that a tenant can “hold the premises hostage” until reimbursed for improvements. Unlike a classic possessor-in-good-faith scenario, a lessee’s right to remain is ordinarily governed by the lease, and ejectment mechanisms exist for lessors.

Practically, tenants often assert improvement claims through:

Negotiation using the security deposit or a settlement amount;
A counterclaim (in some situations) when the lessor sues for ejectment/unlawful detainer;
A separate civil claim for reimbursement/sum of money.

10.2 Security deposits: not automatically an “improvement fund”

Security deposits are usually meant to cover:

Unpaid rent/utility bills;
Damage beyond ordinary wear and tear;
Other lease-defined liabilities.

Unless the lease allows it, a tenant cannot unilaterally treat the deposit as reimbursement for improvements. Still, deposits frequently become bargaining leverage in settlement discussions.

10.3 Turnover protocol matters

To avoid disputes, turnover should ideally include:

Joint inspection (written punch list);
Photo/video documentation;
Inventory of removable items installed by the tenant;
Agreement on what stays and what goes;
Meter readings and utility clearance.

11) Enforcing reimbursement or removal rights: where and how claims are raised

11.1 Demand and documentation

Most viable claims start with a clear written demand specifying:

The improvements made (with dates);
The basis of the claim (lease clause and/or Civil Code rule on useful improvements);
The amount claimed and how computed (cost, depreciated value, appraisal);
The relief sought: reimbursement or permission to remove.

11.2 Barangay conciliation (often required)

Many disputes between individuals residing or doing business in the same city/municipality may require Katarungang Pambarangay conciliation as a precondition to court filing, subject to exceptions. Improvement disputes frequently fall into this track, especially residential ones.

11.3 Court routes: small claims vs regular civil action vs counterclaim in ejectment

Small Claims may be possible when the claim is purely for a sum of money within the applicable threshold and fits the rules.
Regular civil action is used for larger or more complex disputes (especially where valuation, appraisals, or mixed causes of action are involved).
Ejectment/unlawful detainer cases are summary in nature; improvement reimbursement issues may be raised defensively or via counterclaim depending on procedural posture and the court’s handling, but the primary focus remains possession.

11.4 Prescription (time limits)

As a general Civil Code framework on prescription:

Actions based on a written contract commonly prescribe in 10 years.
Actions based on an oral contract and certain quasi-contractual obligations commonly prescribe in 6 years.
Other causes of action may have different periods depending on the right asserted.

The key practical takeaway is that tenants should not delay asserting claims after lease termination or after a clear refusal by the lessor.

12) Drafting guidance: clauses that prevent disputes (commercial and residential)

Disputes usually happen because parties never agreed on the “exit value” of improvements. Clauses that reduce conflict typically address:

Approval process

“No alteration without prior written approval.”
Attach drawings/specifications for major works.

Ownership

“All improvements become the property of the lessor upon installation / upon lease termination,” or
“Tenant retains ownership of identified trade fixtures.”

Removal and restoration

Define which items the tenant must remove and what “restore” means (paint color, wall condition, floor restoration, ceiling restoration).

Reimbursement formula

Fixed reimbursement amount;
Shared-cost scheme;
Amortization schedule (e.g., tenant recovers X% per year of remaining term);
Appraisal-based valuation at termination.

Timing

Notice period before move-out for inspection and valuation;
Removal window after lease end if the lessor refuses to pay.

Documentation

Receipts, permits, as-built plans, contractor warranties turned over to the lessor if improvements remain.

13) Common scenarios and how the rules usually apply

Scenario 1: Tenant installs modular office partitions

Often removable and treated as tenant property if removal doesn’t damage floors/walls significantly.
If the lessor wants them left behind, reimbursement becomes negotiable; absent a clause, the Civil Code useful improvement framework may be invoked depending on suitability and good faith.

Scenario 2: Tenant builds a fixed mezzanine or performs structural alterations

Higher risk without written consent.
Likely treated as part of the immovable property once integrated.
Removal may be impractical; reimbursement depends heavily on contract/consent and whether the work is consistent with the lease purpose.

Scenario 3: Tenant upgrades flooring (tiles/vinyl) and repainting

Repainting is often treated as ordinary maintenance unless it is a major specialized coating/finish.
Flooring upgrades can be “useful improvements,” but removal is typically destructive; without a reimbursement clause, the tenant may end up leaving it without payment unless the lessor elects to compensate under the Civil Code framework.

Scenario 4: Tenant installs air-conditioning units

If split-type units are installed, the indoor/outdoor units may be removable, but wall penetrations and brackets may require restoration.
Reimbursement is not automatic; removal is often the practical remedy unless the lessor negotiates to keep them.

Scenario 5: Tenant adds built-in cabinets and shelving

Often becomes functionally integrated with the unit.
Removal can cause significant damage; reimbursement depends on the lease and the lessor’s election under the useful improvement rule, if applicable.

14) Quick reference: end-of-lease outcomes by category (default rules)

Necessary repairs (preservation/safety):

Strongest basis for reimbursement if the lessor was responsible and the tenant can prove necessity and reasonableness.

Useful improvements (value/utility increasing):

No automatic full reimbursement.
End-of-lease mechanism commonly gives the lessor a choice: keep with partial compensation or refuse and allow removal (where feasible), subject to conditions like good faith and suitability.

Luxurious/ornamental improvements:

Usually no reimbursement.
Tenant may remove if removal is feasible without damage; otherwise may have to leave them without payment.

Any category where the lease contract clearly allocates costs:

The contract typically governs.

15) Core takeaways

Read the lease first: reimbursement and ownership of improvements are often contractually predetermined.
Separate repairs from improvements: necessary repairs have a more direct path to reimbursement than elective upgrades.
For useful improvements, Philippine civil law generally does not treat the tenant as entitled to full reimbursement by default; it typically gives the lessor an election at lease end—keep with partial compensation or refuse and allow removal where feasible.
Proof is everything: documentation, consent, suitability to lease purpose, and valuation evidence determine outcomes.
Removal is often the practical remedy when reimbursement is disputed—if removal can be done without improper damage and consistent with restoration obligations.