Purchasing a condominium unit "off-plan" or during the pre-selling stage is a common investment strategy in the Philippines. However, changes in financial circumstances, project delays, or a change of heart often lead buyers to seek a way out. In the Philippine legal landscape, two primary laws govern these cancellations: Presidential Decree No. 957 (P.D. 957) and Republic Act No. 6552 (The Maceda Law).
Understanding which law applies—and under what circumstances—is critical to determining whether you are entitled to a full refund, a partial refund, or if you will forfeit your investment.
1. Cancellation Due to Developer Fault (P.D. 957)
If you are canceling because the developer failed to deliver on its promises, Section 23 of P.D. 957 (The Subdivision and Condominium Buyers' Protective Decree) is your primary shield. This is the most potent right a buyer has.
- Grounds for Cancellation: The developer fails to develop the project according to the approved plans or fails to complete the project within the time limit specified in the License to Sell (LTS).
- The Right to a Full Refund: Under Section 23, the buyer has the right to stop paying installments. If they choose to cancel, they are entitled to a 100% refund of the total amount paid.
- What is Included: The refund includes the down payment, reservation fees, and all monthly installments, plus legal interest (typically 6% to 12% per annum, depending on recent jurisprudence and the nature of the breach).
- No Forfeiture: The law explicitly states that no installment payment shall be forfeited in favor of the owner or developer when the buyer opts to desists from further payment due to the developer's failure to develop.
Note: Before stopping payments, it is legally prudent to send a formal Notice of Non-Payment to the developer, citing Section 23 of P.D. 957 as the reason.
2. Cancellation Due to Buyer’s Convenience (The Maceda Law)
If the developer is on schedule and has committed no breach, but you (the buyer) can no longer continue payments due to personal reasons, Republic Act No. 6552, or the Maceda Law, applies.
The rights under this law depend on how many years of installments you have paid:
A. If you have paid at least two (2) years of installments:
- Grace Period: You are entitled to a grace period of one month for every year of installments made. This right can only be exercised once every five years.
- The Cash Surrender Value (Refund): If the contract is canceled, the buyer is entitled to a refund of 50% of the total payments made.
- Additional Refund: After five years of installments, the buyer is entitled to an additional 5% refund every year, but the total refund cannot exceed 90% of the total payments made.
- Notice Requirement: The cancellation only becomes effective 30 days after the buyer receives a Notice of Cancellation or a Demand for Rescission by notarial act from the developer.
B. If you have paid less than two (2) years of installments:
- Grace Period: The developer must give you a grace period of not less than 60 days from the date the installment became due.
- Refund Policy: If you fail to pay within the grace period, the developer can cancel the contract. Crucially, under the Maceda Law, if you have paid less than two years of installments, you are not entitled to a refund.
3. Key Distinctions and Protections
To navigate these rights effectively, buyers should be aware of several "fine print" protections provided by Philippine law:
| Feature | P.D. 957 (Developer Fault) | Maceda Law (Buyer Fault/Default) |
|---|---|---|
| Refund Amount | 100% of total payments + Interest | 50% to 90% (if >2 years paid) |
| Reservation Fee | Refundable | Usually Non-refundable |
| Cause | Delay or deviation from plans | Financial incapacity / Change of mind |
| Requirements | Formal notice of desistance | Notarial notice of cancellation |
- The Non-Forfeiture Clause: Any clause in a contract that says a buyer waives their rights under P.D. 957 or the Maceda Law is considered void and against public policy.
- The Role of the DHSUD: The Department of Human Settlements and Urban Development (DHSUD)—formerly the HLURB—is the quasi-judicial body that handles these disputes. If a developer refuses a refund mandated by law, the buyer must file a verified complaint with the DHSUD.
4. Important Considerations for Pre-selling
- License to Sell (LTS): Always verify if the project has a valid LTS. If a developer sells units without an LTS, the contract is voidable, and you may have additional grounds for a full refund under P.D. 957.
- Reservation Agreements: Most developers state that reservation fees are non-refundable. While true in a voluntary "change of mind" scenario, if the cancellation is due to the developer’s fault (P.D. 957), even the reservation fee must be returned.
- Notarial Act: For a developer to legally cancel your contract under the Maceda Law, the notice must be notarized. A simple email or letter is often insufficient to legally terminate your rights to the property.
5. Summary of Process for Cancellation
- Audit Payments: Determine exactly how many months you have paid to see if you hit the 2-year Maceda Law threshold.
- Identify the Ground: Determine if the project is delayed (P.D. 957) or if you are simply unable to pay (Maceda Law).
- Formal Communication: Send a formal letter of intent to cancel. If claiming under P.D. 957, specify that you are invoking Section 23.
- DHSUD Mediation: If the developer ignores the request or offers an amount lower than what the law mandates, seek assistance from the DHSUD for mediation or adjudication.