Introduction

In the Philippines, lease contracts are governed primarily by the Civil Code of the Philippines (Republic Act No. 386), which defines a lease as a contract where one party binds himself to grant another the enjoyment or use of a thing for a certain period in exchange for a price. For leases exceeding one year, such as a 7-year lease contract, additional legal formalities come into play to ensure enforceability, particularly against third parties. These include notarization and potential registration with the Registry of Deeds. Associated with these processes are various fees, including notarial fees and documentary stamp taxes (DST), which are essential for compliance with Philippine laws.

This article provides a comprehensive overview of the typical notarial and documentary fees applicable to a 7-year lease contract. It covers the legal basis, calculation methods, payment responsibilities, and other related costs. Note that while these fees are standardized under national laws, actual amounts may vary slightly based on location, the value of the lease, and specific notary practices. Parties to the lease—lessor and lessee—should consult with legal professionals for precise computations tailored to their agreement.

Legal Requirements for Notarization and Documentation

Under Article 1358 of the Civil Code, contracts involving the lease of real property for more than one year must be in writing to be enforceable. However, for such contracts to bind third parties (e.g., subsequent buyers of the property), they must appear in a public instrument, which typically means notarization before a notary public. A 7-year lease falls squarely into this category, as it exceeds the one-year threshold.

Notarization serves as an acknowledgment that the parties voluntarily executed the document. Without it, the lease may still be valid between the parties but lacks protection against third-party claims. Additionally, the contract may need to be registered with the local Registry of Deeds under the Property Registration Decree (Presidential Decree No. 1529) if the leased property is real estate, further incurring fees.

Documentary requirements include the lease contract itself, identification documents of the parties, and proof of payment for taxes and fees. The Bureau of Internal Revenue (BIR) mandates the affixation of documentary stamps as evidence of tax payment.

Notarial Fees

Notarial fees are regulated by the 2004 Rules on Notarial Practice (A.M. No. 02-8-13-SC), as amended. Notaries public are prohibited from charging exorbitant fees and must adhere to reasonable standards. For a lease contract, the notarial act is typically an "acknowledgment" of the signatures.

Standard Notarial Fee Structure

Basic Acknowledgment Fee: For documents like lease contracts, the fee is generally between PHP 500 to PHP 1,000 per document. This covers the notary's acknowledgment of up to three signatories. Additional signatories may incur extra charges of PHP 100 to PHP 200 each.
Value-Based Fees: If the lease involves significant value (e.g., high rental amounts), notaries may charge based on a percentage of the contract's value, typically 1% to 2% of the total lease consideration, but capped to prevent overcharging. For a 7-year lease, the total rent over the period is considered.
Additional Services:
- Drafting the lease contract (if the notary assists): PHP 2,000 to PHP 5,000, depending on complexity.
- Jurat (if affidavits are attached): PHP 200 to PHP 500.
- Travel or out-of-office notarization: Additional PHP 500 to PHP 1,000 plus transportation costs.
Regional Variations: In Metro Manila and urban areas, fees tend to be higher (e.g., PHP 800–1,500) compared to provincial areas (PHP 300–800). Notaries in government offices or those affiliated with law firms may have fixed rates.

The Supreme Court emphasizes that notarial fees should be "reasonable and commensurate to the services rendered." Overcharging can lead to disciplinary action against the notary. Parties are advised to agree on fees upfront and request a receipt.

Documentary Stamp Tax (DST)

The primary documentary fee for lease contracts is the Documentary Stamp Tax under Section 194 of the National Internal Revenue Code (NIRC) of 1997 (Republic Act No. 8424), as amended. DST is a tax on documents, instruments, and papers evidencing certain transactions, and it must be paid before the document can be notarized or registered.

Calculation of DST for Lease Contracts

For leases of lands, buildings, or improvements, the DST is computed based on the average annual rent or the total consideration for the lease term, whichever is higher. The rate is:

PHP 3.00 for the first PHP 2,000 (or fractional part thereof) of the consideration per year.
PHP 1.00 for every PHP 1,000 (or fractional part thereof) in excess of the first PHP 2,000 per year.

Since the tax is applied "for each year of the term," the calculation involves determining the annual equivalent rent and then multiplying by the number of years. For a 7-year lease:

Calculate the total rent over 7 years.
Divide by 7 to get the average annual rent.
Apply the DST rate to this annual amount.
Multiply the result by 7 (the term length).

Example Calculation

Assume a 7-year lease with a monthly rent of PHP 50,000 (annual rent = PHP 600,000; total over 7 years = PHP 4,200,000).

Average annual rent: PHP 600,000.
DST per year: PHP 3 for first PHP 2,000 + PHP 1 for each PHP 1,000 thereafter.
- Excess over PHP 2,000: PHP 598,000 / PHP 1,000 = 598.
- DST per year: PHP 3 + (598 × PHP 1) = PHP 601.
Total DST for 7 years: PHP 601 × 7 = PHP 4,207.

If the rent escalates annually, the calculation uses the highest annual rent or averages accordingly. DST must be affixed to the original contract and paid to the BIR or an authorized agent bank. Failure to pay can result in penalties of 25% to 50% of the tax due, plus interest.

Exemptions and Special Cases

Leases involving government entities or low-income housing may be exempt or subject to reduced rates under certain BIR rulings.
If the lease includes options to renew, DST is initially computed only for the fixed 7-year term.
For subleases, additional DST applies based on the sublease terms.

Registration Fees with the Registry of Deeds

While not mandatory for validity between parties, registering a 7-year lease with the Registry of Deeds (under the Land Registration Authority) is advisable to annotate the lease on the property title, protecting against third-party claims.

Fee Structure

Entry Fee: PHP 30 to PHP 50 per document.
Registration Fee: Based on the value of the lease (total rent over the term):
- For values up to PHP 1,700: PHP 24.
- Graduated scale up to 1% for higher values, but typically PHP 500 to PHP 2,000 for a standard 7-year lease.
Annotation Fee: PHP 100 to PHP 300 for noting the lease on the title.
Certified True Copy Fee: PHP 50 to PHP 100 if copies are requested.
IT Fees: Additional PHP 100–200 for computerization services.

Processing time is usually 5–10 working days, and fees are paid to the Registry of Deeds in the property's jurisdiction. Non-registration does not invalidate the lease but limits its enforceability.

Other Related Fees and Costs

Beyond notarial and documentary fees, several ancillary costs may arise:

BIR Certification or Clearance: If required for high-value leases, PHP 100–500.
Local Business Taxes: Lessors may need to pay local government unit (LGU) fees, such as business permits (0.5%–2% of gross receipts), which indirectly affect lease costs.
Legal Consultation Fees: Engaging a lawyer to draft or review the contract: PHP 5,000–20,000.
Printing and Miscellaneous: PHP 100–500 for document preparation.
Value-Added Tax (VAT): If the lessor is VAT-registered, 12% VAT applies to the rent, but not directly to the fees discussed here.
Withholding Tax: Lessees may withhold 5% creditable withholding tax on rent payments, remitted to the BIR.

For commercial leases, additional compliance with the Securities and Exchange Commission (SEC) or Department of Trade and Industry (DTI) may incur nominal fees if the parties are corporations.

Responsibilities and Best Practices

Typically, the lessee bears the DST and notarial fees, but this can be negotiated in the contract. The lessor often handles registration to protect their interests. Parties should ensure the contract includes clauses on fee allocation to avoid disputes.

To minimize costs:

Use standard templates from reliable sources.
Notarize promptly to avoid surcharges.
Pay taxes online via BIR's eFPS system for efficiency.

Non-compliance can lead to fines, interest, or even nullification of the lease in extreme cases. Always verify current rates with the BIR or a notary, as fees may be adjusted by administrative orders.

Conclusion

A 7-year lease contract in the Philippines involves a structured set of notarial and documentary fees designed to ensure legal validity and fiscal compliance. Notarial fees provide authentication, DST fulfills tax obligations, and registration fees offer protection. Understanding these costs—ranging from a few hundred to several thousand pesos depending on the lease value—helps parties budget effectively and avoid pitfalls. For complex scenarios, such as leases with foreign elements or special properties, professional legal advice is indispensable to navigate nuances under Philippine law.