Subdivision Developer Liability After Selling to a Private Corporation (Philippine Legal Context)
1. Why the question matters
The original owner-developer of a subdivision sometimes divests its entire project (or a substantial portion of it) to another private corporation instead of turning it over to the homeowners’ association (HOA) or the local government. Buyers and HOAs then ask: “If something goes wrong, who is answerable—the old developer, the new corporate buyer, or both?”
Under Philippine law, subdivision projects are a highly regulated business. Obligations imposed by Presidential Decree 957 (PD 957) and related statutes do not automatically disappear when ownership changes hands; they “run with the project.” (Lawphil)
2. Core legal framework
| Instrument | Key provisions on post-sale liability |
|---|---|
| PD 957 (Subdivision & Condominium Buyers’ Protective Decree) | §§ 20-22 (completion, bond, substitution of developer); § 23 (one-year structural warranty); § 38 (criminal penalties). (Lawphil) |
| PD 1216 (amending § 31 of PD 957) | Roads, open spaces, parks are for public use; developer must donate them to the LGU—duty survives any transfer. (Lawphil) |
| RA 9904 (Magna Carta for Homeowners & HOAs) | §§ 20-22: mandatory turnover of common areas; successor-developer is bound until formal turnover. (Lawphil) |
| RA 6552 (Maceda Law) | Protects installment buyers; rights are enforceable against the current project owner. (Lawphil) |
| Civil Code (Arts. 1624-1635, 1291-1294) | Assignment of credit/obligation and novation: an obligor cannot evade responsibility without the creditor’s (buyers’) consent. |
| RA 11201 & EO 103 (2019-2020) | Split HLURB into DHSUD (regulator) and HSAC (adjudicator); jurisdiction over all PD 957 disputes continues. (RESPICIO & CO.) |
3. Regulatory mechanics of a “substitution of developer”
Prior DHSUD approval is mandatory. The incoming corporation must apply for the amendment of the Certificate of Registration (CR) and License to Sell (LTS); the outgoing developer remains solidarily liable until DHSUD issues an amended LTS. (Human Settlements and Urban Development, Human Settlements and Urban Development)
Performance bond & development timetable carry over. The bond posted by the first developer stays in force; if inadequate, DHSUD may require the substitute to post a new one.
No waiver of buyer rights. The IRR of PD 957 expressly provides that substitution “shall not exempt the original owner/developer from civil or criminal liability.” (Human Settlements and Urban Development)
4. How the Supreme Court has ruled
| Case | What happened | Doctrine on liability |
|---|---|---|
| San Miguel Properties v. BF Homes (G.R. 169343, 18 Aug 2015) | SMPI bought BF Homes’ water-distribution facilities; homeowners sued SMPI to compel service | A buyer of specific assets is not ipso facto the successor-developer unless the sale expressly includes developer obligations and DHSUD approves the substitution. (Lawphil) |
| Spouses Panotes v. City Townhouse Dev. Corp. (G.R. 154739, 15 Jan 2007) | CTDC bought unsold lots; HOA tried to enforce an NHA order for an open-space donation | A mere lot buyer is not a successor-developer; liability sticks to the entity that held the LTS. (Lawphil) |
| Emeteria Liwag v. Happy Homes (G.R. 189755, 11 Jan 2016) | Subdivision sold to a new firm that continued marketing | Court treated the purchaser as successor-in-interest because it stepped into the shoes of the developer and profited from continued sales; thus jointly liable. (eLibrary) |
| G.R. 200683 (2021) | Buyers who acquired mortgaged lots sued the bank & new owner | Transferee or mortgagee that takes over the project assumes PD 957 duties vis-à-vis end-buyers. (Scribd) |
Take-away: Courts look at substance, not labels—if the new corporation markets, manages, or profits from the project, it is a successor-developer even with no formal substitution.
5. Specific obligations that survive a project sale
| Obligation | Source | Enforcement / prescriptive period |
|---|---|---|
| Complete development according to approved plans (roads, drainage, lighting, amenities) | PD 957 § 20; DHSUD work-program rules | Buyers/HOA may file with HSAC anytime before full completion; criminal action within 5 years. (Human Settlements and Urban Development, Human Settlements and Urban Development) |
| Warranty against structural defects (1 year) | PD 957 § 23 | Runs from issuance of individual title or acceptance of the unit/lot. |
| Delivery of clean title after full payment | PD 957 § 25 | Action to compel title may be brought within 10 years (Civil Code). |
| Donation of roads/open spaces to LGU | PD 1216 | LGU or HOA may compel via mandamus; no prescription so long as area is undeveloped public use. |
| Turnover of common areas & governance to HOA | RA 9904 § 20 | HSAC may order turnover; fine up to ₱50,000/day of delay. |
| Proper use of buyers’ payments; prohibition on unsanctioned mortgages | PD 957 § 18 | Criminal penalties; buyers may demand release of mortgage even against the bank. (Lawphil) |
6. Civil-law theories buyers can invoke
- Solidary liability (Civil Code Art. 1207) – old and new developers may be sued together.
- Novation requiring creditor consent – without the buyers’ written conformity, a transfer does not extinguish the original obligation.
- Quasi-delict – if construction defects cause damage, both corporations and their officers may be liable in tort.
7. Criminal exposure of corporate officers
Section 38 of PD 957 punishes violations with up to 5 years’ imprisonment and/or fine. Liability attaches to “the officers directly responsible” of both the outgoing and incoming corporations if they knowingly continue the violation. (Lawphil)
8. Buyer & HOA remedies when obligations are breached
| Forum | Typical relief |
|---|---|
| HSAC (formerly HLURB Arbiter → Board of Commissioners) | Specific performance, damages, suspension/revocation of LTS. |
| DHSUD (regulatory wing) | Cease-and-desist order, fines, blacklist of officers, disapproval of future projects. |
| Regular courts (RTC/SEC Division) | Injunctions, corporate dissolution, derivative suits against directors. |
| LGU | Refusal to issue occupancy permits, enforcement of open-space donation. |
9. Practical pointers for stakeholders
| Party | Action items before/after a sale |
|---|---|
| Outgoing developer | ✓ Secure DHSUD approval of substitution; ✓ Disclose all pending complaints & bonds; ✓ Provide escrow for punch-list items. |
| Incoming corporation | ✓ Conduct legal & engineering due diligence; ✓ Verify LTS status and PD 957 compliance; ✓ Assume performance bond or post a new one. |
| Buyers / HOA | ✓ Check DHSUD website for amended LTS; ✓ Record opposition if substitution is incomplete; ✓ Preserve evidence of defects/delays. |
10. Conclusion
Selling a subdivision project to another private corporation does not wipe the slate clean. Statutory duties under PD 957, PD 1216, RA 9904 and related laws adhere to the project itself. Unless and until DHSUD formally approves a substitution—and even after that—the original developer, the buying corporation, and their responsible officers remain answerable to lot owners, homeowners’ associations, and the State.
Rule of thumb: If you step into the shoes (and profits) of a developer, you also inherit the shoes’ blisters.
This article is intended for general information only and should not be taken as legal advice. For specific situations, consult Philippine counsel experienced in real-estate and PD 957 practice.