Selling Real Property on Installment in the Philippines: Risks and Legal Safeguards for Sellers

This guide is written for owners, developers, and brokers who sell Philippine real estate on installment. It focuses on the seller’s risk—and the legal tools to manage it—under the Civil Code, the “Maceda Law” (R.A. 6552), P.D. 957, P.D. 1529 (Land Registration Decree), and related rules. It is not a substitute for tailored legal advice.

1) What “installment sale” really means (and why labels matter)

Installment sale is any arrangement where the buyer pays the price over time rather than in one lump sum. The law looks past labels—“rent-to-own,” “contract to sell,” “reservation agreement,” “lease with option,” etc.—and examines the parties’ obligations and the timing of transfer of ownership/possession.

Key distinctions that affect your risk:

Deed of Absolute Sale (DOAS) now vs. later
- Immediate DOAS + delivery: Ownership passes at notarization/registration; you rely on security (e.g., mortgage) if the buyer later defaults.
- Deferred DOAS (“Contract to Sell”): Ownership passes only upon full payment and execution of DOAS; you keep title meanwhile.
Delivery/possession: Letting the buyer occupy before full payment increases eviction risk and deterioration risk. Keeping possession until full payment strengthens leverage.
Personal vs. real property rules: The Recto Law (Art. 1484 Civil Code) protects buyers of personal property on installments. Real property installment sales are governed differently, chiefly by R.A. 6552 (Maceda Law) and Art. 1191 (rescission for breach).

2) The Maceda Law (R.A. 6552): what sellers must honor

Scope. Protects buyers of real estate on installments, including residential lots, house-and-lot, and condominium units (including pre-selling). It does not typically apply to purely commercial/industrial sales. When in doubt, assume coverage for residential deals and comply.

Core buyer rights you must plan around:

Grace period if buyer paid ≥ 2 years
- 1 month of grace per year of paid installments (no interest) to pay unpaid installments.
- Upon cancellation, cash surrender value (CSV) of at least 50% of total payments, plus 5% per year after 5 years, capped at 90%.
If buyer paid < 2 years
- At least 60 days grace to pay unpaid installments.
Cancellation formalities
- Cancellation or rescission takes effect only after:
  - the grace period lapses and
  - 30 days from buyer’s receipt of a notarial notice of cancellation/demand.
- Without a notarial notice and the 30-day period, cancellation is ineffective.
Other buyer options you must allow
- Reinstatement by updating accounts before cancellation.
- Assignment or resale of rights.
- Full prepayment without interest charges on future installments.
- Borrower’s choice of paying delinquent installments within the grace period without additional interest.

Practical effect for sellers: You must build these rights into your documents and workflows (calendaring grace periods, using notarial notices, computing CSV correctly). Unlawful forfeiture clauses are unenforceable.

3) Civil Code remedies that still matter for sellers

Art. 1191 (rescission) for substantial breach applies in addition to Maceda safeguards. A contractual “automatic rescission” clause helps but does not excuse you from Maceda’s notarial-notice/periods when the law applies.
Damages/penalties: Reasonable delinquency interest and penalties are allowed; courts may strike down unconscionable rates. Keep default interest/penalties conservative and clearly stated.
Specific performance: If you retained title/possession and buyer defaults, you can demand payment (and penalties) rather than rescind, depending on your strategy and the contract’s acceleration clause.

4) Registration, title control, and securing unpaid balances

A. Keep title until full payment (Contract to Sell)

You do not execute a DOAS until buyer fully pays.
You may allow limited possession (with safeguards below) or keep possession.

Pros: Maximum control; simpler if buyer defaults. Cons: Some buyers demand earlier DOAS; financing may require title in buyer’s name.

B. Transfer now but secure the price (Purchase-Money Mortgage or Annotation)

Execute DOAS and register a real estate mortgage (REM) in your favor (a purchase-money mortgage).
Alternatively, annotate the installment sale/conditional sale or vendor’s lien on the title at the Registry of Deeds.

Pros: Buyer gets title; you hold a recorded lien; easier to enforce via foreclosure if drafted properly. Cons: You must follow foreclosure procedures; remedies focus on the security, not forfeiture.

Never rely on private, unregistered side agreements. Unrecorded interests are vulnerable to double sale rules (Civil Code Art. 1544) and to subsequent innocent purchasers.

5) Possession strategy: keep leverage, avoid ejectment drama

If you deliver possession before full payment:

Use a separate occupancy agreement (or an integrated “use and occupancy” section) that:
- States possession is by tolerance/licence pending full payment; not a lease creating protected tenancy.
- Requires association dues, utilities, insurance to be shouldered by buyer.
- Bars alterations and sub-leasing without consent.
- Allows inspection on notice.
- Provides for liquidated damages for over-holding after cancellation and attorney’s fees.
If default occurs, you may file unlawful detainer (ejectment) in the proper court (first-level courts) after compliance with Maceda cancellation steps.

If you withhold possession until full payment, state that clearly, and keep the property insured while you control it.

6) Taxes and closing costs (seller-side realities)

Capital Gains Tax (CGT) on the sale of capital assets is generally 6% of the higher of (i) contract price, (ii) zonal value, or (iii) fair market value; typically due shortly after notarization of the DOAS, even if the price is payable on installments.
Documentary Stamp Tax (DST) (commonly 1.5%) and local transfer tax also apply.
Registration fees, notarial fees, and association dues/real property tax (RPT) prorations should be allocated in the contract.

Because CGT is commonly due upfront, sellers face a cash-flow risk when agreeing to long installment periods. Structure the deal so you can fund taxes (e.g., sizeable down payment; escrow; or defer DOAS until full payment).

(Exact tax mechanics vary by asset classification, parties, and BIR issuances; build tax allocation clauses and cooperation covenants for CAR release into your contract.)

7) Developer-specific compliance (if you’re selling multiple units or pre-selling)

P.D. 957 and related rules require project registration and License to Sell before marketing.
Escalation clauses, open-ended turnover dates, and change orders are regulated.
Use DHSUD-compliant Reservation Agreements, CTS, and Deeds.
Maceda Law rights still apply to residential buyers.

8) Foreign buyers and special assets

Land ownership by foreigners is restricted; foreigners may buy condo units (subject to the 40% foreign ownership limit of the condominium corporation) or take long-term leases.
For agricultural land, DAR/land conversion and retention limits can surface; perform elevated due diligence.

9) Common risks for sellers—and how to manage each

Risk	What it looks like	Strong safeguards
Buyer default	Missed installments; stalling	Clear schedule, acceleration clause, reasonable penalties, Maceda-compliant cancellation, notarial notices; if DOAS issued, REM + foreclosure route
Eviction friction	Buyer refuses to vacate	Deliver possession only after full payment, or use tight occupancy agreement; preserve ejectment route post-cancellation
Property deterioration	Damage during buyer occupancy	Security deposit, insurance naming seller as loss payee, inspection rights, repair covenants
Double sale / adverse claims	Unregistered buyer assignments	Register interests (annotation/REM), require consent to assignment, issue single source receipts, block multiple “sales”
Title defects	Old liens, overlapping areas	Upfront title due diligence, tax/RPT lien checks, survey, proper legal descriptions
Tax cash-flow	CGT due before full collection	Large down payment, escrow for taxes, or CTS until full payment
Unconscionable penalties struck down	Courts reduce penalties	Keep default interest moderate; separate penalty and late charges; justify commercially
Regulatory exposure	No license to sell	DHSUD registration and LTS before marketing pre-selling units
AML concerns	Large cash payments	KYC, bank-to-bank payments, receipt protocols

10) Deal structures that balance protection and marketability

Contract to Sell (CTS) with title retention
- Down payment (e.g., 20–30%), monthly amortization, no DOAS until full payment.
- Allow possession only after a % threshold (e.g., 80%) or upon full payment.
- If allowing early possession, use occupancy agreement + insurance.
Lease-to-Own (careful)
- True lease with separate option to purchase. Option premiums and rentals must be clearly allocated.
- Courts may re-characterize a “lease” that is substantively an installment sale—so keep lease formalities (deposits, rent, right to inspect, eviction route) clean.
Immediate DOAS + Purchase-Money Mortgage
- Buyer gets title; seller registers REM to secure the unpaid balance.
- Use due-on-sale clause to block transfers without consent.
- Provide events of default leading to foreclosure.
Escrowed DOAS
- DOAS signed up front but held in escrow until full payment or financing take-out.
- Clear escrow instructions; neutral escrow agent; automatic release triggers.

11) Clauses every seller should have (with drafting tips)

Price & Schedule: itemized installments; due dates; acceptable payment channels; official receipts protocol.
Acceleration: all unpaid installments become immediately due upon default (define “default” precisely).
Default Interest & Penalties: set reasonable rates; separate interest (compensatory) from penalty (punitive). Provide a cap.
Grace Periods & Maceda Compliance:
- Spell out statutory grace rights;
- State method of notice (registered mail/courier/email) plus notarial notice requirement;
- Acknowledge CSV rules and computation method.
Notarial Cancellation: name who will issue the notarial notice, where sent, and start of the 30-day clock.
Assignment/Resale Controls: require seller’s written consent before assignment; set fees; require assignee to assume obligations in writing.
Use & Occupancy (if early possession): insurance, repairs, alterations, over-holding fees, access, prohibition on introducing tenants or encumbrances.
Taxes & Fees Allocation: who pays CGT, DST, transfer tax, registration, HOA dues, RPT; cooperation on BIR CAR.
Condition of Property: describe as-is state; disclose known issues; risk of loss before delivery on seller, after delivery on buyer (state the transfer point).
Dispute Resolution & Venue: choose venue; attorney’s fees; optional mediation/conciliation.
Data Privacy & AML: consent to process identification documents; bank-to-bank payments.

12) Evidence, notices, and payment integrity

Receipts: Issue ORs for every payment; cross-reference buyer name, unit/lot details, running balance.
Demand & cancellation: Keep affidavits of service, courier proofs, and notarial notices.
Running ledger: Maintain a ledger that is auditable; this wins cases.

13) Due diligence checklist before you sell on installment

Title (TCT/CCT) latest certified copy; encumbrances page reviewed.
Tax: RPT clearance / No delinquency; estate tax settled if inherited title.
Zonal value and LGU FMV checked for tax computations.
Technical: Survey plan, lot/condo plan, tie-points, right-of-way easements.
HOA/condo: Dues status, house rules.
Occupancy: Existing tenants or adverse possessors?
Regulatory (developers): DHSUD project/LS approvals; compliance history.
Buyer KYC: IDs, source of funds, proof of capacity to pay.

14) Handling default step-by-step (seller playbook)

Detect delinquency (per contract definition; often after 1 missed installment and cure period).
Send demand (non-notarial) to cure within the contract cure period.
Apply Maceda:
- If < 2 years paid: give ≥ 60 days grace.
- If ≥ 2 years paid: compute grace of 1 month per paid year; advise CSV if cancellation follows.
After grace lapses, serve Notarial Notice of cancellation/demand; calendar 30 days from proven receipt.
If possession was delivered: after cancellation, demand vacate; if refused, file ejectment (unlawful detainer).
Settle accounts: refund CSV (if applicable) less lawful deductions; prepare statements.
Re-market the property; clear annotations if any; update taxes/dues.

15) Practical negotiation levers

Bigger down payment (15–30%) lowers default risk and funds taxes.
Shorter term (≤ 3–5 years) reduces exposure; beyond that, consider bank financing take-out at a fixed milestone.
Interest step-ups after set periods (within reason).
Early payment discounts to accelerate take-out.
Insurance naming seller as additional insured/loss payee while title is retained.
Security deposits tied to possession, not to price.

16) Frequently asked seller questions

Can I forfeit all payments upon default? Not if Maceda applies; CSV rules limit forfeiture. Courts disfavor windfalls.
Can I cancel by simple letter? Effective cancellation under Maceda requires notarial notice and observance of statutory periods.
Do I have to issue ORs? Yes. For tax compliance and to prove payments in litigation.
What interest/penalty rate is “safe”? There’s no hard cap, but courts strike down unconscionable rates. Many sellers keep default interest in the single digits annually plus modest late fees.
Can I sell to a foreigner on installments? Land: generally no (ownership barred). Condo: yes, within the 40% foreign cap project-wide.

17) Model clause starter pack (illustrative only)

Acceleration. “Upon failure of Buyer to pay any installment within ___ days from due date, the entire unpaid balance shall, at Seller’s option, become immediately due and demandable, without need of judicial or extrajudicial demand.”

Maceda Compliance. “This Contract complies with R.A. 6552. If Buyer has paid at least two (2) years of installments, Buyer shall be entitled to a grace period of one (1) month per year of paid installments to pay unpaid installments without additional interest; in case of cancellation, Buyer shall receive a cash surrender value as provided by law. If Buyer has paid less than two (2) years, Buyer shall have a grace period of at least sixty (60) days. Cancellation shall be effective only after the lapse of the applicable grace period and thirty (30) days from Buyer’s receipt of notarial notice of cancellation.”

Occupancy (if any). “Occupancy prior to full payment is by tolerance only and shall not create a lease or tenancy. Buyer shall maintain insurance on the Property naming Seller as additional insured and shall vacate the Property within ___ days from effective cancellation; otherwise, Buyer shall pay over-holding damages of ₱___ per day.”

Assignment. “No assignment of this Contract or of rights over the Property shall be valid without Seller’s prior written consent. Any approved assignment shall be by a written Deed of Assignment whereby the assignee assumes all Buyer’s obligations.”

Taxes and Charges. “Capital Gains Tax shall be for the account of ___; Documentary Stamp Tax and transfer/registration fees for ___; parties shall cooperate to secure BIR CAR and to register title.”

(Have counsel tailor language to your facts.)

18) Seller’s quick pre-signing checklist

Title & encumbrances verified; tax clearances obtained
Buyer KYC and capacity to pay assessed
Installment schedule, acceleration, default interest, penalties drafted
Maceda rights spelled out; notarial notice workflow set
Possession plan decided; occupancy agreement/insurance ready
Tax allocation and escrow for CGT/DST/transfer fees planned
If issuing DOAS now: REM/vendor’s lien annotated
Dispute resolution, venue, and attorney’s fees included
Receipt/ledger system in place

19) Bottom line

Selling on installment is safe if you control title/possession, register security, respect Maceda timelines and CSV, and design cash-flow to cover taxes. The strongest posture is either (a) Contract to Sell with title retention and delayed possession, or (b) Immediate DOAS with a properly registered purchase-money mortgage. Everything else in your documents should support those two pillars.

If you want, I can convert this into a fill-in-the-blanks CTS/REM template and an operational playbook (notarial notice forms, CSV calculator, and timelines) tailored to your property and payment plan.