RESALE CONDOMINIUM UNITS SOLD ON INSTALLMENT IN THE PHILIPPINES
What happens when the buyer stops paying? (A practitioner-oriented legal guide, July 2025)
1. Why the topic matters
Condominiums now account for a large share of urban housing. A growing portion of transactions are secondary-market—or “resale”—sales, where an existing unit owner finances the purchase price in installments. Because the buyer does not yet hold the Condominium Certificate of Title (CCT), default triggers complicated questions:
- Which statute governs—the Civil Code, the Condominium Act, or the Maceda Law?
- How much time must the seller give before canceling?
- Is the buyer entitled to a refund of the payments already made?
- What taxes and documentary steps follow rescission?
This article consolidates all doctrinal, statutory and practical rules that a Filipino lawyer, broker, or unit owner needs to navigate a default scenario.
2. Source of rights and remedies
| Source | Key provisions relevant to default | Notes |
|---|---|---|
| Condominium Act (RA 4726, 1966) | §§2–3 (definition of unit & common areas), §6 (separate CCT), §9 (transfer of membership in condominium corporation). | Establishes the nature of condo ownership but is silent on installment default; it defers to general law on contracts. |
| Maceda Law (RA 6552, 1972) | Grace periods, notice, cancellation, cash-surrender value refund. | Applies to any sale of residential real estate on installments—including a resale condo—regardless of whether the seller is a developer or a natural person, provided the unit is for residential use. |
| Civil Code (1949) | Art. 1191 (rescission for reciprocal breach), Arts. 1305-1318 (essential requisites of contracts), Art. 1385 (effects of rescission), Arts. 1144-1145 (prescription). | Fills gaps not covered by Maceda; governs rescission suits, damages, and restitution. |
| DHSUD/HLURB rules | 2021 Revised Rules of Procedure (DHSUD Board Res. No. 2021-02). | DHSUD has quasi-judicial jurisdiction over Maceda Law disputes even in resales. |
| Select jurisprudence | Rillo v. CA, G.R. No. 99883 (1992); Spouses Abundo v. CA, G.R. No. 168635 (2010); Sps. Estreller v. CA, G.R. No. 167704 (2012); Gotee v. DHCR, G.R. No. 240235 (2021). | Supreme Court consistently holds that Maceda is liberal, pro-buyer remedial legislation; strict compliance with notice-and-refund is jurisdictional. |
3. Anatomy of a resale installment contract
Contract to Sell / Deed of Conditional Sale
- Title remains with seller until full payment.
- Typically annotated on the CCT to create real notice (recommended but not legally mandatory).
Promissory Note or Post-Dated Checks
- Serves as evidence of installment schedule but does not displace Maceda’s mandatory periods.
Secondary mortgage (optional)
- Some sellers require a Real Estate Mortgage over the same unit; default then also opens the foreclosure route under Act 3135.
Turn-over & possession
- Parties can agree that buyer enjoys possession upon 10-20 % down-payment. Association dues and utilities usually pass to the buyer upon turn-over.
4. When is the buyer legally in default?
Contractual definition – missed due date plus any contractual cure period (often 30 days).
Maceda overlay – regardless of the contract, Maceda supplies statutory grace once default exists:
Years of installments paid Statutory grace period Effect if cured < 2 years 60 days from due date to pay all unpaid installments without interest. Contract continues. ≥ 2 years 1 month per year of paid installments (minimum still 60 days). Buyer may either (a) pay arrears without interest, or (b) sell/assign his rights during the grace period.
Important – Grace periods may be enjoyed only once every five years of the life of the contract.
5. Seller’s remedies upon lapse of grace period
Statutory cancellation under Maceda
Step 1 – Written notice of cancellation by notarial act.
Step 2 – 30-day waiting period after buyer receives the notice.
Step 3 – Refund (if ≥ 2 years of payments):
- 50 % of total payments made;
- +5 % per additional year after the fifth year, capped at 90 %.
Delivery – refund must accompany or precede the actual cancellation.
Judicial rescission under Civil Code Art. 1191
- Seller may sue for rescission with damages instead of employing Maceda procedure (useful when buyer resists vacating).
- Court must order mutual restitution: seller returns payments (possibly subject to reasonable compensation for use), buyer returns possession.
- Maceda’s cash-surrender percentages are minimums; courts cannot award less.
Extra-judicial foreclosure (if mortgage exists)
- Governed by Act 3135; timeline can be faster than Maceda but foreclosure does not avoid the need to refund under Maceda if the buyer paid ≥ 2 years.
Specific performance
- Rare in resales (seller usually wants the unit back), but is legally available under Art. 1191.
6. Buyer’s protections & options
Statutory grace and interest-free catch-up.
Right to refund (cash-surrender value) – cannot be waived by contract (void under Art. 1306).
Right to sell or assign during the grace period (Maceda §4).
Right to receive valid notice – cancellation without notarized notice is void; the buyer may treat contract as subsisting.
Right to file:
- Complaint before DHSUD Adjudication Office – within 10 years (Art. 1144).
- Action in regular courts – rescission, refund, damages.
7. Condotel / commercial-use caveat
Maceda covers only residential real estate. A resale condominium unit held out as a condotel or business space falls outside RA 6552; default is then purely contractual + Civil Code. Parties often stipulate pure forfeiture of payments, but courts may reduce the forfeiture under Art. 1229 (penalty clause).
8. Tax and documentary consequences of rescission
| Stage | Seller obligations | Buyer consequences |
|---|---|---|
| Initial sale | Capital Gains Tax (6 %), Documentary Stamp Tax (DST), transfer fees upon execution of Deed of Absolute Sale (often deferred until full payment). | None yet (unless possession triggers Real Property Tax). |
| During installment period | Declare receipts in income tax if seller is engaged in trade. | Pays condo dues and RPT (per contract). |
| Upon cancellation | Seller may apply for CGT/DST tax credit under BIR RR 13-99 (rescission within 4 years). | Buyer may seek refund of RPT/dues paid but contract must expressly allow it. |
| Re-sale to a new buyer | Treated as a fresh sale; previous payments lost unless included as deduction in tax base. | N/A |
9. Association dues & corporate membership
- Until the CCT is transferred, legal title—and therefore membership in the condo corporation—remains with the seller.
- Most by-laws allow the beneficial occupant (the buyer) to exercise voting rights if authorized by the registered owner.
- Upon rescission, the seller simply presents the notarized deed of cancellation to the corporation; unpaid dues can be offset against the refundable amount (Maceda silent; parties may agree).
10. Comparative timeline (typical)**
| Day | Event |
|---|---|
| 0 | Installment due but unpaid. |
| 60 | Grace period expires (< 2 yrs payments) OR longer grace under §3(b). |
| 61 | Seller drafts Notarized Notice of Cancellation; serves via personal or registered mail. |
| 91 | 30 days after buyer’s receipt; cancellation becomes effective only if seller simultaneously tenders the refund (when applicable). |
| 92-120 | Eviction or voluntary surrender; annotation of cancellation at the Registry of Deeds; re-sale process begins. |
(**Business days if contract so states; otherwise calendar days.)
11. Key Supreme Court doctrines
- Strict construction against forfeiture – Courts read Maceda in favor of the buyer; any waiver or acceleration of cancellation void (Abundo).
- Notice jurisdictional – Absent notarized notice, rescission is ineffective even if grace period lapsed (Spouses Estreller).
- Refund a condition precedent – Seller who cancels without first tendering the cash-surrender value remains bound by the contract; buyer can still tender arrears and demand compliance (Rillo).
- Substantial compliance – Exact computation errors in refund do not void cancellation if the statutory minimum is met (Gotee, 2021).
12. Drafting tips & best practices
For sellers
- Annotate the Contract to Sell on the CCT to bind third parties.
- Insert a graduated penalty clause (1–2 % per month) but remember it cannot defeat Maceda.
- Retain custody of the original CCT, taxes-paid clearances, and condo corp endorsement letters.
- Keep proof of service of notices (registry receipts, affidavits).
For buyers
- Demand that the Contract to Sell be DHSUD-registered or at least annotated.
- Reserve an emergency fund equal to three months of installments to cover sudden default.
- Ensure that post-dated checks or auto-debit arrangements include a grace-period exception.
- Clarify in writing who bears association dues during installment stage.
For brokers & lawyers
- Verify whether the unit is for residential use, else Maceda will not apply.
- Explain the once-every-five-years limitation to avoid buyer surprise.
- Encourage mediation; DHSUD conciliatory conference is faster and cheaper than court.
13. Quick reference checklist
- ☐ Is the unit residential?
- ☐ How many years of installments have been paid?
- ☐ Compute statutory grace period.
- ☐ Serve notarized demand & notice of cancellation only after grace lapses.
- ☐ Prepare refund computation worksheet.
- ☐ Tender refund simultaneously with cancellation.
- ☐ Annotate cancellation on CCT & inform condo corp.
- ☐ Recompute taxes and file BIR tax-credit claim if within 4 years.
14. Conclusion
Default on installment payments for a resale condominium unit is governed primarily by the Maceda Law’s consumer-protective framework, supplemented by the Civil Code and the Condominium Act. Sellers must follow the notice-grace-refund sequence to effect a valid cancellation; buyers enjoy liberal opportunities either to cure or to recover a cash-surrender value. Proper documentation, prompt statutory compliance, and early resort to DHSUD mediation can turn what is often an acrimonious dispute into a predictable, manageable process.
(This article is for educational purposes and is not a substitute for independent legal advice. Laws and jurisprudence cited are current as of July 17 2025.)