In the landscape of Philippine real estate, Presidential Decree No. 957 (PD 957), otherwise known as the Subdivision and Condominium Buyers' Protective Decree, stands as the primary shield for property buyers. One of the most critical, yet frequently litigated, areas involves the right of a buyer to demand a full refund when a developer sells units or lots without a valid License to Sell (LTS).
The Legal Necessity of a License to Sell
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 Housing and Land Use Regulatory Board (HLURB).
The LTS is not a mere formality; it is a certification that:
- The developer has legal title to the property.
- The project plans have been verified and approved.
- A performance bond has been posted to guarantee completion.
The Prohibited Act
Section 5 is explicit: selling without an LTS is a violation of the law. This remains true even if the developer has already secured a Certificate of Registration. Registration proves the project exists; the License to Sell proves the project is legally allowed to be offered to the public.
The Ground for Full Refund: Section 23
While Section 23 of PD 957 is most commonly cited for "delay in completion," Philippine jurisprudence has consistently expanded the protections for buyers when a developer operates without an LTS.
When a developer fails to secure an LTS, they essentially enter into a contract that is voidable at the option of the buyer. Because the developer failed to comply with a mandatory legal requirement intended for public protection, the buyer is entitled to back out of the transaction.
Key Features of the Refund
- 100% Total Payments: The refund must include the entirety of the payments made, including reservation fees, down payments, and monthly amortizations.
- No Deductions: The developer is prohibited from deducting "administration fees," "cancellation fees," or taxes from the refund amount.
- Legal Interest: In most cases, the refund should include legal interest (currently 6% per annum) calculated from the date of the demand or the filing of the complaint.
Jurisprudence: The "Voidable Contract" Doctrine
The Supreme Court has clarified in several landmark cases (such as Sycip v. CA and Co Chien v. Sta. Lucia Realty) that the absence of a License to Sell does not automatically render the contract void ab initio (void from the beginning), as that might allow a developer to escape their obligations. Instead, the contract is valid but voidable.
This means:
- The buyer has the sole choice to either continue with the contract (expecting the developer to eventually get the license) or to rescind it.
- The developer cannot use their own lack of a license as an excuse to cancel a contract with a buyer.
PD 957 vs. The Maceda Law
It is vital to distinguish between a refund under PD 957 and a refund under Republic Act No. 6552 (The Maceda Law).
| Feature | PD 957 (Section 23/No LTS) | Maceda Law |
|---|---|---|
| Basis | Developer’s fault/Non-compliance | Buyer’s default in payment |
| Refund Amount | 100% of total payments | 50% to 90% (Cash Surrender Value) |
| Eligibility | Any time the developer is in default | Only after 2 years of payments |
| Deductions | Strictly prohibited | Allowed based on formula |
If a project lacks an LTS, the buyer should invoke PD 957, not the Maceda Law, to ensure they receive their money back in full rather than just a percentage.
Administrative Remedies and Filing
If a developer refuses to grant a full refund despite the lack of an LTS, the buyer may take the following steps:
- Verification: Confirm the absence of the LTS through the DHSUD online portal or by visiting the regional office.
- Demand Letter: Send a formal letter of demand for a 100% refund citing Section 5 and Section 23 of PD 957.
- Filing a Complaint: If the demand is ignored, file a verified complaint with the DHSUD Human Settlements Adjudication Commission (HSAC). This is a quasi-judicial body specifically designed to handle real estate disputes more quickly than traditional courts.
Criminal and Administrative Penalties
In addition to refunding the buyer, developers caught selling without an LTS face:
- Administrative Fines: Imposed by the DHSUD per violation/unit sold.
- Criminal Liability: Under Section 39, violators may face a fine of not more than ₱20,000 or imprisonment of not more than ten years, or both.