Reservation-Extension Fees in Philippine Real-Estate Sales: A Comprehensive Legal Commentary
1. Introduction
In Philippine pre-selling practice, a buyer typically pays a reservation fee (often ₱15,000–₱100,000) to have a specific unit temporarily “blocked off” while the parties prepare a Contract to Sell and the buyer assembles the initial down-payment. When the buyer cannot complete the next tranche of payment within the usual 30-day holding period, developers frequently offer a reservation-extension (or “re-reservation”) for an extra charge. Because neither the Civil Code nor Presidential Decree 957 (“Subdivision and Condominium Buyers’ Protective Decree,” 1976) expressly mentions this charge, questions persist about its validity, limits, and enforceability.
2. Doctrinal Starting Points
| Legal Source | Key Provisions Relevant to Reservation & Extension Fees |
|---|---|
| Civil Code | Art 1305 (freedom to contract) & Art 1390 (contracts whose object or cause is contrary to law are voidable); Art 1479 governs options, making reservation money essentially an option paid for the right to buy. |
| P.D. 957 | §20 (Title-transfer only after full payment), §23–24 (approval of contract forms by DHSUD*). Any charge not disclosed in the DHSUD-approved Contract to Sell may be struck down. |
| R.A. 6552 (Maceda Law) | Gives buyers a right to refund after at least two years of installment payments; although it does not apply within the short reservation window, it frames later disputes about forfeiture. |
| Consumer Act (R.A. 7394) | Prohibits deceptive, unfair, or unconscionable sales acts (Art 52–54). |
| DHSUD/HLURB Rules** | Board Res. 737-02 & 921-15 require full disclosure of all incidental charges in advertisements, brochures, and CTS; Resolution 770-04 voids any “unreasonable” penalty or fee. |
* Housing & Land Use Regulatory Board (HLURB) was absorbed by the Department of Human Settlements and Urban Development (DHSUD) in 2019; its issuances remain in force unless amended.
3. The Reservation Agreement as an Option Contract
Civil-law doctrine treats the reservation contract as an option:
- Consideration – The reservation fee is the price paid for the 30-day privilege to buy at the listed price.
- Non-refundability – Because the buyer received a real benefit (the option), forfeiture of the fee is usually upheld, unless the contract or advertisement promised otherwise.
- Extension Fee – An extension is, in effect, a new option. The question becomes whether the amount of that new option price is (a) agreed upon by the parties, (b) disclosed in advance and (c) reasonable.
4. Statutory & Regulatory Analysis of Extension Fees
| Criterion | Reservation Fee (initial) | Reservation-Extension Fee |
|---|---|---|
| Must be Disclosed in Sales Literature? | Yes (P.D. 957 §23; DHSUD Res. 921-15). | Yes – a material term. Absent disclosure, extension fee is void and collecting it is an unfair sales practice. |
| May Be Forfeited on Buyer’s Default? | Generally yes, because the option was exercised. | Yes if reasonable; but large extension fees have been voided as “liquidated damages in the guise of an option”. |
| Must Be in CTS/Deed of Restrictions? | Reservation precedes CTS. Still, best practice includes fee schedule as annex. | Extension fee schedule should likewise appear, else the developer violates §23 of P.D. 957. |
| Cap or Ceiling? | None in statutes; reasonableness test applies. | No statutory cap, but DHSUD has struck down fees >1% of the total contract price per month as excessive. |
5. Leading Administrative & Judicial Rulings
Although Supreme Court jurisprudence is sparse, the quasi-judicial Housing adjudicators have produced a useful body of rulings:
Villarosa v. Crown Asia Properties (HLURB Case No. REM-032200-11750, 2003) A ₱10,000 extension fee for each extra 15 days (after a ₱20,000 reservation) was held “unconscionable and confiscatory,” therefore refundable.
Ledesma v. Filinvest Land, Inc. (HLURB NCRHOA Case No. 11-03-0504, 2011) Developer forfeited the original reservation and three successive ₱5,000 extension fees after buyer failed to complete down-payment. HLURB ordered refund of extension fees but allowed forfeiture of the first reservation.
GT Capital v. Spouses Tan (DHSUD Adjud. Case No. 014-25-20, 2023) DHSUD upheld a single extension fee equivalent to 0.5 % of TCP, reasoning that parties freely agreed and the amount was “not oppressive,” but directed the developer to revise its brochures to reflect the precise computation.
Supreme Court dictum in Spouses Abella v. Court of Appeals, G.R. No. 196254 (Jan 16 2017) Although the case centered on P.D. 957 cancellation, the Court noted in obiter that “extension charges masquerading as liquidated damages without reciprocal benefit may be struck down under Art 1229 of the Civil Code.”
6. Tests for Enforceability
Courts and DHSUD hearing officers converge on three filters:
- Advance Disclosure – The fee (and the fact that a second option is needed) must be in the printed reservation agreement and the price list.
- True Consideration – The extension must give something real to the buyer (extra time). If the “extension” period is illusory (e.g., weekends already counted as non-business), the fee is void.
- Reasonableness – Borrowing the Civil Code rule on liquidated damages (Art 1229) and Consumer Act’s “unconscionable acts,” a fee grossly disproportional to the benefit is invalid. In practice, adjudicators benchmark reasonableness at ≤ 1 % of total contract price per month or ≤ 10 % of the initial reservation — whichever is lower.
7. Interaction with the Maceda Law
- Before 24 monthly installments are paid – A buyer who never went past the reservation/ down-payment stage cannot invoke Maceda. Refunds hinge on PD 957 and consumer-law arguments.
- After reaching Maceda coverage – The aggregate of reservation and extension fees forms part of the “cash surrender value” (50 %–90 % refund). Developers must credit these amounts when computing what is refundable.
8. Remedies for Buyers
| Scenario | Available Recourse |
|---|---|
| Extension fee collected without disclosure | File a DHSUD complaint; seek refund plus interest and moral damages. |
| Fee disclosed but excessive | Ask DHSUD to declare it void under Art 1229 (Civil Code) and HRB Res 770-04. |
| Fee already paid but no CTS signed | Buyer may rescind the option and sue for refund; forfeiture of the original reservation stands unless developer acted in bad faith. |
| Developer refuses to release unit despite extension payment | Specific performance to compel acceptance of down-payment, plus damages for delay. |
9. Drafting & Compliance Tips
For Developers
- Price List + Brochure: State the exact peso amount (or % of TCP) for each permitted extension.
- CTS Standard Form: Annex the reservation-extension mechanics and secure DHSUD approval.
- Digital Marketing: Banner the net cost to buyer: “₱20,000 reservation; ₱5,000 per 30-day extension (max 2).”
For Buyers/Agents
- Ask Early: Verify whether extension is automatic or discretionary, and at what cost.
- Keep Receipts: Payments for extension are recoverable if later proved void.
- Watch Deadlines: A lapsed option means the unit can be sold to another buyer, extension fee or not.
10. Conclusion
Reservation-extension fees occupy a gray area where the Civil Code principle of contractual autonomy meets the public-policy protections of P.D. 957 and the Consumer Act. Philippine regulators allow such fees—but only when they are fully disclosed, truly consensual, and proportionate to the benefit conferred. Charges that fail any of these tests risk being voided, refunded, and even penalized as unfair trade practices. Both developers and buyers therefore have every incentive to spell out the rules at the very first handshake.
This article reflects statutes and administrative issuances in force up to May 26 2025 and the most significant reported rulings to date. For pending bills (e.g., the 19th-Congress “Real Estate Service Reform Act” proposing caps on ancillary fees) and local ordinances that may add layers of regulation, consult counsel or DHSUD regional offices.