In the Philippine commercial leasing landscape, disputes often arise not during the occupancy, but at the point of exit—specifically regarding who owns the renovations, fixtures, and improvements made by the tenant. Unlike residential tenancies, commercial leases are heavily governed by the Civil Code of the Philippines and the specific nuances of the lease contract.

1. The Governing Law: Article 1678

The primary legal basis for improvements made by a lessee (tenant) is Article 1678 of the Civil Code. It distinguishes between two types of additions: Useful Improvements and Ornamental Expenses.

Useful Improvements

These are additions that increase the value of the property or facilitate its use (e.g., installing a mezzanine, built-in shelving, or partitioned offices).

The Right of Reimbursement: If the tenant makes such improvements in good faith and they are suitable for the use intended by the lease, the lessor (landlord) must pay the tenant one-half (1/2) of the value of the improvements at the time the lease terminates.
The Right of Removal: If the landlord refuses to reimburse this half-value, the tenant has the right to remove the improvements, even if the principal thing suffers some damage, provided the damage is not substantial.

Ornamental Expenses

These are additions made for pure luxury or aesthetics (e.g., decorative moldings, high-end light fixtures, or custom wallpaper).

No Reimbursement: The tenant is not entitled to reimbursement for ornamental expenses.
The Right of Removal: The tenant may remove these ornaments, provided the principal property suffers no injury and the landlord does not choose to retain them by paying their value at the time the lease ends.

2. The Supremacy of the Contract

While Article 1678 provides a default rule, it is suppletory. This means that if the Lease Contract contains specific clauses regarding improvements, the contract prevails over the Civil Code.

Most Philippine commercial lease contracts include a "Waive of Article 1678" or an "Automatic Ownership" clause. Common provisions include:

Ownership Transfer: A stipulation that all permanent improvements made by the tenant automatically become the property of the landlord upon the expiration of the lease without need for compensation.
Restoration Clause: A requirement that the tenant must "revert" the space to its original "warm shell" or "bare shell" condition at their own expense upon move-out.

3. The Requirement of Consent

For a tenant to claim any rights under Article 1678, the improvements must generally be made with the written consent of the landlord.

Without Consent: If a tenant makes structural changes without permission, they may be considered in breach of contract. The landlord can demand the removal of the improvements at the tenant's expense or keep them without paying any indemnity.
The "Good Faith" Requirement: To be considered in "good faith," the tenant must believe they had the right to make the improvement, usually backed by an approved renovation plan.

4. Categorizing Improvements: Real vs. Personal

In legal disputes, the court often looks at how the improvement is attached to the property:

Immovables (Real Property): Things like flooring, built-in HVAC systems, and concrete partitions that cannot be removed without "substantial injury" to the building. These fall under Article 1678.
Moveables (Personal Property): Office furniture, modular partitions, and plug-in equipment. These remain the property of the tenant and can be pulled out at any time, provided no damage is caused to the premises.

5. Summary Table of Rights under the Civil Code

Type of Addition	Reimbursement Right	Right of Removal
Useful Improvement	1/2 of the value (if landlord opts to keep)	Yes, if reimbursement is refused.
Ornamental Expense	None	Yes, if no injury to property.
Unauthorized Alteration	None	Only if landlord demands restoration.

6. Key Practical Considerations

Inventory of Condition: Tenants should take high-resolution photos and a signed "Turnover Certificate" before starting renovations to document the original state of the space.
Permit Requirements: Commercial improvements in the Philippines usually require a Building Permit and a Business Permit update. Failure to secure these can render the improvement "illegal," voiding claims for reimbursement.
Negotiation Tip: If a tenant intends to spend significantly on fit-outs, they should negotiate a Rent-Free Fitting-out Period or a Rent Escalation Grace Period in exchange for the improvements remaining with the landlord at the end of the term.