In a Philippine commercial lease, the person who pays local business tax is usually the person or company conducting the taxable business, while real property tax is generally tied to the owner or taxable beneficial user of the property. The confusion starts because lease contracts often shift the economic burden of taxes from landlord to tenant. So the real question is not only “Who does the city hall collect from?” but also “Who agreed to shoulder the cost under the lease?”

Quick Answer

For most private commercial leases in the Philippines:

Tax or charge	Who is legally liable to the LGU?	Can the lease shift the cost?	Practical answer
Local business tax on the tenant’s business	Tenant/business operator	No need; it is already the tenant’s tax	Tenant pays
Local business tax on the landlord’s rental business	Landlord/lessor	Yes, if clearly agreed	Landlord pays the LGU, but tenant may reimburse if the lease says so
Real property tax on privately owned land/building	Usually the owner or person with legal interest	Yes, if clearly agreed	Landlord is usually answerable to the LGU, but tenant may be contractually required to shoulder it
Real property tax on government-owned property leased to a taxable private user	Taxable beneficial user may be directly chargeable	Often yes	Private lessee may become directly liable under the beneficial use principle
Barangay clearance, mayor’s permit, sanitation, fire, signage, and similar permit fees for tenant’s business	Tenant/business operator	Usually tenant	Tenant pays

The most important rule is this: a private lease contract cannot prevent the local government unit (LGU) from collecting the tax from the person made liable by law. But the lease can create a separate contractual obligation between landlord and tenant. If the tenant agreed to reimburse real property tax or local business tax, the landlord may enforce that clause as part of the lease.

Local Business Tax vs. Real Property Tax

These two taxes are often lumped together in lease negotiations, but they are legally different.

Local business tax

Local business tax is imposed by a city or municipality on a person or entity doing business within its territory. Under Section 143 of the Local Government Code of 1991, Republic Act No. 7160, municipalities may impose business taxes on different types of businesses, including businesses not otherwise specifically listed. Cities may levy the same types of taxes, generally at higher allowable rates under Section 151 of the same law.

For commercial leases, there are usually two separate businesses:

The landlord’s leasing business, because the landlord earns rental income from leasing commercial space.
The tenant’s operating business, such as a restaurant, clinic, office, salon, warehouse, convenience store, or retail shop.

Each business may have its own local business tax obligation.

Section 146 of RA 7160 is especially important: the tax on a business must be paid by the person conducting that business. This means the tenant pays local business tax on the tenant’s operations, while the landlord pays local business tax on the landlord’s rental business.

Real property tax

Real property tax, often called RPT or amilyar, is imposed on real property such as land, buildings, machinery, and improvements. Section 232 of RA 7160 authorizes provinces, cities, and municipalities within Metro Manila to levy annual real property tax. Section 233 sets the maximum basic RPT rates at:

Location of property	Maximum basic RPT rate
Province	1% of assessed value
City or municipality in Metro Manila	2% of assessed value

On top of basic RPT, Section 235 of RA 7160 allows an additional 1% Special Education Fund (SEF) tax on assessed value. In some cases, idle land tax or special levies may also apply.

RPT is not based on the tenant’s sales. It is based on the assessed value of the property, which comes from the local assessor’s valuation and the applicable assessment level.

The Legal Basis: Who Does the Law Treat as Responsible?

Local Business Tax: The Business Operator Pays

For local business tax, the starting point is simple: the person conducting the business pays the business tax.

Section 146 of the Local Government Code says business taxes under Section 143 are payable for each separate establishment or place where the taxable business is conducted, and that the tax on a business must be paid by the person conducting it.

In real life, this means:

A tenant operating a café in Makati pays Makati local business tax on the café’s gross receipts.
A landlord leasing commercial units in Cebu City pays Cebu City local business tax on rental receipts from leasing.
A tenant with branches in Quezon City, Pasig, and Parañaque may have separate local business tax filings or permit renewals depending on where each branch operates.
A landlord with multiple leasing locations may need to consider the situs, or proper place of taxation, especially if it has a head office in one city and leasing operations or billing in another.

Section 150 of RA 7160 provides situs rules for local business tax. In general, where a branch or sales office makes or records the transaction, the tax accrues to that city or municipality. In a 2026 Bureau of Local Government Finance FOI response on leasing operations, the BLGF explained that the location where the transaction is made and recorded is significant in determining where local business tax is payable, especially when a branch, sales office, or warehouse exists.

For tenants, the practical rule is: pay local business tax where your business is located or conducted, as required by that LGU’s business permit system.

Real Property Tax: The Owner Usually Bears Legal Responsibility

For privately owned commercial property, RPT is generally associated with the owner, administrator, or person with legal interest in the property.

Several Local Government Code provisions point in this direction:

Section 202 requires persons owning or administering real property to declare the property with the assessor.
Section 205 says real property is listed, valued, and assessed in the name of the owner, administrator, or anyone having legal interest.
Section 246 says RPT accrues on January 1 each year and becomes a lien on the property.
Section 257 says unpaid RPT is a lien superior to other liens and is enforceable regardless of owner or possessor.

This is why, even if a lease says “tenant shall pay real property tax,” the LGU will usually still look at the property records, tax declaration, and delinquency records. If RPT is unpaid, the city or municipal treasurer may proceed against the property through notices, levy, and eventually public auction under Sections 254 to 260 of RA 7160.

In practice, the landlord is the party most directly exposed because the delinquency attaches to the land or building. The tenant may be in breach of contract if it promised to pay or reimburse RPT, but the tax lien still burdens the property.

The Beneficial Use Exception

There is an important exception for some properties, especially government-owned property leased to private entities.

Section 234(a) of RA 7160 exempts real property owned by the Republic of the Philippines or its political subdivisions, except when the beneficial use has been granted to a taxable person. In that situation, the private beneficial user may be treated as the taxable person.

The Supreme Court has applied this beneficial use principle in real property tax cases. In Unimasters Conglomeration Inc. v. Tacloban City Government, G.R. No. 214195, the Court explained that liability for RPT generally rests on the owner at the time the tax accrues, but personal liability may also rest on the entity with beneficial use of the property, such as when government property is leased to a private taxable person.

For an ordinary lease of privately owned commercial space, do not automatically assume this exception applies. But for ports, airports, economic zones, public market stalls, government buildings, reclaimed land, public authority properties, and similar arrangements, beneficial use can become a serious RPT issue.

Can the Landlord Make the Tenant Pay RPT or the Landlord’s Local Business Tax?

Yes, if the lease contract clearly says so and the clause is not contrary to law, morals, good customs, public order, or public policy.

The Civil Code allows parties to set their own contract terms. Article 1306 of the Civil Code of the Philippines, Republic Act No. 386, recognizes freedom of contract within legal limits. Article 1159 says obligations arising from contracts have the force of law between the parties and must be complied with in good faith.

This is why commercial leases often contain clauses like:

“Lessee shall pay all taxes, assessments, charges, and impositions relating to the leased premises.”
“Real property tax shall be for the account of the lessee.”
“Tenant shall reimburse landlord for RPT, SEF tax, insurance, common area maintenance charges, and other assessments.”
“Rent is exclusive of VAT, withholding tax, local business tax, real property tax, association dues, and other charges.”

These clauses are common in net leases or triple-net leases, where the tenant shoulders rent plus taxes, insurance, and maintenance costs.

But the wording matters. A vague clause can cause disputes.

Examples

Lease wording	Likely interpretation
“Tenant shall pay its own business permits and taxes.”	Tenant pays taxes connected to tenant’s business, not necessarily landlord’s RPT
“Tenant shall reimburse landlord for real property tax on the leased premises.”	Tenant may be contractually liable for RPT reimbursement
“Tenant shall pay all taxes arising from its operations.”	Tenant pays local business tax, permits, and taxes from its business operations
“Rent is inclusive of all taxes.”	Landlord may have difficulty separately charging RPT or LBT unless the lease has another clear clause
“Tenant shall pay all real estate taxes, assessments, and government charges affecting the property.”	Stronger basis for landlord to charge RPT to tenant

If the landlord wants the tenant to shoulder RPT, the lease should state:

What tax is covered: basic RPT, SEF, idle land tax, special levy, penalties, interest, reassessments.
What portion is chargeable: whole property, leased unit only, pro rata share by floor area, or specific tax declaration.
When payment is due: before LGU deadline, within a fixed number of days from billing, or upon presentation of official receipt.
What documents must be provided: tax declaration, statement of account, official receipt, computation sheet.
Who bears penalties if someone delays.

What Happens If the Lease Is Silent?

If the lease is silent, the safer practical interpretation is:

Tenant pays local business tax, mayor’s permit fees, barangay clearance, sanitary permit, fire safety inspection fees, signage fees, and other charges related to the tenant’s business.
Landlord pays RPT on the land and building, and local business tax on the landlord’s leasing business.
Tenant does not automatically pay the landlord’s RPT or local business tax unless the lease clearly transfers or reimburses those costs.

Silence usually favors treating ordinary ownership costs as the owner’s burden and business operation costs as the tenant’s burden.

That said, commercial leasing practice varies. In malls, PEZA buildings, office towers, warehouses, and build-to-suit arrangements, landlords often pass through RPT, common area charges, insurance, dues, and other assessments as “additional rent.” If the tenant signed that lease, the obligation may be enforceable even if the LGU’s direct taxpayer remains the landlord.

Practical Guide: What to Check Before Paying

1. Identify the tax being billed

Do not rely only on the landlord’s billing label. Ask what the charge actually is.

Common labels include:

Local business tax
Mayor’s permit fee
Barangay clearance fee
Real property tax
SEF tax
Idle land tax
Special assessment or special levy
Garbage fee, sanitary fee, fire inspection fee, signage fee
Association dues or common area maintenance
VAT or withholding tax

A tenant should not pay “taxes” blindly without knowing whether the charge relates to the tenant’s business, the landlord’s business, or the property itself.

2. Read the tax clause in the lease

Look for these words:

“taxes”
“real property tax”
“real estate tax”
“local business tax”
“assessments”
“government impositions”
“additional rent”
“pass-through charges”
“net lease”
“triple net”
“exclusive of taxes”
“inclusive of taxes”

If the clause only mentions the tenant’s permits and licenses, it usually refers to the tenant’s business compliance. If it mentions real property tax or assessments on the leased premises, it likely includes RPT.

3. Ask for supporting documents

Before paying RPT reimbursement, the tenant should ask for:

Document	Why it matters
Latest tax declaration	Shows the property classification, assessed value, and declared owner
LGU RPT billing or statement of account	Shows the amount actually assessed
Official receipt from city/municipal treasurer	Proves actual payment
Computation of tenant’s share	Important if tenant occupies only part of a building
Lease clause relied on by landlord	Confirms contractual basis
Prior year RPT receipts	Helps detect back taxes or sudden reassessments

For local business tax, the tenant should keep its own:

Barangay clearance
Mayor’s permit or business permit
BIR Certificate of Registration
Prior year gross receipts or financial statements required by the LGU
Official receipts from the local treasurer
Assessment or billing from the Business Permits and Licensing Office (BPLO)

4. Check whether penalties are included

RPT and local business tax penalties can grow quickly.

For local taxes, Section 168 of RA 7160 allows LGUs to impose a surcharge of up to 25% and interest of up to 2% per month, subject to a maximum interest period of 36 months.

For RPT, Section 255 imposes interest of 2% per month on unpaid RPT or a fraction of it, also capped at 36 months.

If penalties are included, ask:

Who caused the delay?
Did the landlord bill the tenant on time?
Did the tenant fail to pay despite receiving documents?
Did the delinquency exist before the tenant took possession?
Does the lease expressly make the tenant liable for penalties and surcharges?

A tenant should be especially careful about paying penalties for years before the lease started.

5. Pay the correct office

RPT is usually paid at the city or municipal treasurer’s office where the property is located. Some LGUs allow online payment. The assessor handles valuation and tax declarations, while the treasurer handles billing and collection.

Local business tax is normally processed through the LGU’s business permit renewal system, involving the BPLO and local treasurer. Renewal season is commonly in January, although payment schedules, online systems, documentary requirements, and extensions vary by city or municipality.

Real Property Tax Deadlines and Payment Schedule

Under Section 250 of RA 7160, the owner or person having legal interest may pay basic RPT and SEF tax without interest in four equal installments:

Installment	Deadline
1st quarter	March 31
2nd quarter	June 30
3rd quarter	September 30
4th quarter	December 31

Many LGUs give discounts for early annual payment or advance payment, but the discount rate depends on the local ordinance. Do not assume the same discount applies in every city.

RPT accrues every January 1. This matters in lease turnover. If a tenant starts occupying the property on July 1 and the lease says the tenant shoulders RPT, the parties should clarify whether the tenant pays:

the full year,
only July to December,
only from the commencement date,
only from turnover date,
only from business opening date, or
only after the first LGU billing after possession.

What If the Tenant Refuses to Pay RPT Reimbursement?

If the lease clearly requires the tenant to pay or reimburse RPT, refusal may be treated as a breach of lease. Depending on the wording, it may also be treated as non-payment of “additional rent.”

Possible consequences include:

written demand from the landlord;
application of security deposit, if the lease allows it;
penalties or interest under the lease;
non-renewal of lease;
termination, if the breach is material and the contract allows termination;
ejectment case, if the tenant remains despite valid termination or non-payment.

Article 1673 of the Civil Code allows judicial ejectment for expiration of the lease, lack of payment of the stipulated price, violation of lease conditions, or improper use of the leased property. If tax reimbursement is expressly treated as rent or a material lease obligation, non-payment can become a serious possession issue.

For commercial premises, ejectment usually proceeds in the first-level court with jurisdiction over the property, such as the Metropolitan Trial Court, Municipal Trial Court in Cities, Municipal Trial Court, or Municipal Circuit Trial Court, depending on location. If the parties are in the same city or municipality and are not otherwise exempt, barangay conciliation may also be required before filing, depending on the parties and circumstances.

What If the Landlord Refuses to Pay RPT?

If RPT is unpaid, the risk is not just between landlord and tenant. The property itself can become delinquent.

Under RA 7160, unpaid RPT becomes a lien on the property. The local treasurer may issue notices of delinquency, levy the property, advertise it for sale, and proceed to public auction. The law also gives the owner or person having legal interest a right of redemption within one year from the date of sale.

For tenants, the immediate practical risks are:

difficulty renewing permits if the LGU asks for property tax clearance or proof of compliance;
disputes with the landlord over who should pay;
possible disruption if the property becomes subject to levy or auction;
refusal of landlord to sign renewal documents;
problems with subleases, fit-outs, or assignment of lease.

If the tenant’s business depends heavily on the location, it is sensible to ask for updated RPT receipts every year, especially in long-term leases.

How to Dispute the Tax or the Billing

There are two different types of disputes.

If the dispute is with the LGU

For local business tax assessments, Section 195 of RA 7160 provides that a taxpayer may file a written protest with the local treasurer within 60 days from receipt of the notice of assessment. If denied, or if the treasurer does not decide within 60 days, the taxpayer has 30 days to appeal to the court of competent jurisdiction. Missing these deadlines can make the assessment final.

For RPT assessment disputes, Section 226 allows an owner or person having legal interest in the property to appeal to the Local Board of Assessment Appeals within 60 days from receipt of the written notice of assessment. Under Section 229, the Local Board has 120 days to decide, and a dissatisfied party may appeal to the Central Board of Assessment Appeals within 30 days from receipt of the Local Board’s decision.

For RPT payment protests, Section 252 follows the “pay under protest” rule. No protest is entertained unless the tax is first paid, and the written protest must be filed within 30 days from payment.

If the dispute is between landlord and tenant

This is a contract dispute. The useful steps are:

Compare the exact lease wording with the charge being billed.
Ask for the LGU billing, tax declaration, and official receipts.
Check if the charge is for the leased area only or for the entire building.
Separate current taxes from penalties and old delinquencies.
Put objections in writing before the due date.
Pay undisputed amounts separately when possible.
Keep proof of all payments and communications.

A common mistake is paying a disputed charge without reservation, then trying to recover it later without documentation. Another mistake is refusing to pay everything, including clearly valid business permit taxes, because of a disagreement over RPT.

Common Lease Scenarios

Scenario 1: Small store renting a ground-floor unit

A sari-sari store, laundry shop, pharmacy, or food kiosk rents a private commercial unit.

Usually:

Tenant pays its own business permit, barangay clearance, local business tax, sanitary permit, fire inspection fee, and signage permit.
Landlord pays RPT and landlord’s own local business tax on rental income.
Tenant pays RPT only if the lease clearly requires reimbursement.

Scenario 2: Restaurant lease with “all taxes” clause

A restaurant lease says: “Lessee shall pay all taxes, assessments, and government charges relating to the leased premises and its business operations.”

This may be broad enough for the landlord to bill the tenant for RPT, especially if the clause mentions the premises, assessments, or real estate taxes. But the tenant should still ask for the tax declaration, statement of account, and computation.

Restaurants should also separate RPT from business taxes, sanitary permits, environmental fees, garbage fees, liquor-related permits if applicable, and fire safety requirements.

Scenario 3: Office tenant in a building

A BPO, professional office, clinic, or foreign company representative office leases office space in a building.

The landlord may bill RPT as part of common charges or additional rent, usually pro rata by leased area. The tenant should check whether the computation includes only the leased unit or the entire property including parking, common areas, and landlord-retained spaces.

If the tenant is a foreign corporation, the LGU may require Philippine registration documents, SEC documents, a board resolution, secretary’s certificate, authorized representative ID, and sometimes notarized or apostilled documents if signed abroad.

Scenario 4: Mall tenant

Mall leases commonly pass through many charges: common area maintenance, marketing fees, air-conditioning charges, insurance, RPT, dues, and government assessments.

In this setup, the tenant often pays because the lease is drafted as a net or pass-through arrangement. The key issue is not whether pass-through is common; it is whether the computation is transparent and consistent with the lease.

Scenario 5: Government property leased to private operator

A private company leases government-owned property and uses it for a taxable commercial activity.

Here, the beneficial use principle may make the private user directly chargeable for RPT, even if the government owner is generally exempt. This is a specialized situation and should be reviewed carefully because the tax treatment can depend on the nature of the government entity, the property, the lease, and actual use.

Special Note on RA 12001 and Current RPT Valuations

Republic Act No. 12001, the Real Property Valuation and Assessment Reform Act, signed in 2024, modernizes real property valuation in the Philippines. It adopts market value as a single real property valuation base and strengthens the role of the Bureau of Local Government Finance in valuation standards and schedules of market values.

For landlords and tenants, the practical impact is that RPT assessments may change as LGUs update their schedules of market values. RA 12001 also provides a real property tax amnesty covering penalties, surcharges, and interests from unpaid RPT, SEF, idle land tax, and special levies incurred before the law’s effectivity, subject to the law’s conditions and exclusions.

This does not change the basic lease question: the LGU’s legal taxpayer and the lease’s reimbursement obligation are still separate issues. But it does mean tenants and landlords should pay attention to reassessment clauses, escalation clauses, and who bears future RPT increases.

Clauses to Watch Before Signing a Commercial Lease

Before signing, carefully review tax clauses. These are the phrases that often create future disputes:

“exclusive of all taxes”
“all taxes shall be for lessee’s account”
“real property taxes and assessments”
“now existing or hereafter imposed”
“including penalties and surcharges”
“additional rent”
“tenant shall pay directly to the taxing authority”
“tenant shall reimburse landlord upon demand”
“pro rata share”
“based on gross leasable area”
“including common areas”
“taxes due prior to commencement”

A fair tax clause should answer these questions:

Does the tenant pay only taxes from its business, or also property taxes?
If RPT is passed on, is it based on the tenant’s area or the whole property?
Are prior delinquencies excluded?
Who gets the benefit of early-payment discounts?
Who pays penalties caused by late billing or late payment?
Will the landlord provide official receipts?
What happens if the assessment is reduced, cancelled, or refunded?
Is RPT treated as rent, additional rent, or reimbursable expense?

Frequently Asked Questions

Does the tenant always pay real property tax in a commercial lease?

No. In a private commercial lease, the landlord or property owner is usually the party connected to RPT for LGU collection purposes. The tenant pays RPT only if the lease clearly requires the tenant to pay or reimburse it, or if a special rule applies, such as taxable beneficial use of government property.

Can a landlord charge real property tax to the tenant?

Yes. A landlord can pass the economic cost of RPT to the tenant through a clear lease clause. This is common in commercial leases. But the tenant should ask for the tax declaration, LGU billing, official receipt, and computation of the tenant’s share.

Who pays local business tax, landlord or tenant?

Both may pay, but for different businesses. The tenant pays local business tax on the tenant’s business operations. The landlord pays local business tax on the landlord’s leasing business. A lease may require reimbursement of some landlord taxes, but that must be clearly stated.

Is local business tax the same as real property tax?

No. Local business tax is imposed on the privilege of doing business in a city or municipality. Real property tax is imposed on land, buildings, machinery, and improvements based on assessed value. A tenant’s local business tax is usually based on gross sales or receipts. RPT is based on property valuation.

If my lease says rent is “inclusive of taxes,” can the landlord still bill RPT separately?

Usually, the landlord needs a clear separate clause to bill RPT separately. If rent is stated as inclusive of taxes, and there is no separate RPT pass-through clause, the tenant has a strong argument that RPT should not be separately billed. The full lease wording still matters.

Can the LGU go after the tenant for unpaid RPT?

For ordinary privately owned commercial property, the LGU usually proceeds based on the property records and the statutory lien on the property. However, a tenant may be involved if it is a person with legal interest, an occupant receiving notices, or a taxable beneficial user, especially in government-owned property leased to a private taxable entity.

What if the landlord bills me for RPT from years before my lease started?

Do not assume you must pay. Check the lease. Unless the contract clearly makes the tenant liable for prior delinquencies, RPT before turnover or before the lease commencement date is usually the landlord’s burden. Ask for a year-by-year breakdown.

Can unpaid RPT affect my business permit renewal?

It can, depending on the LGU and the nature of the permit renewal. Some LGUs ask for proof of occupancy, lease documents, property information, or clearances connected to the premises. Even if the RPT is legally the landlord’s issue, unpaid property obligations can create practical bottlenecks.

Should the tenant pay RPT directly to city hall or reimburse the landlord?

Either arrangement can work if the lease allows it. Direct payment gives the tenant proof that the tax was actually paid, but the tenant may need authorization and correct property details. Reimbursement is simpler, but the tenant should require official receipts and a clear computation.

Are foreigners treated differently for these taxes?

Generally, no. A foreigner or foreign-owned company doing business in the Philippines must comply with the same LGU business permit and local tax rules, subject to business registration, nationality, and investment restrictions that may apply to the business itself. If documents are signed abroad, Philippine authorities or landlords may require notarization, consular acknowledgment, or apostille, depending on the document and country of execution.

Key Takeaways

Local business tax is paid by the person conducting the business. The tenant pays tax on the tenant’s business; the landlord pays tax on the leasing business.
Real property tax usually follows the property owner or taxable beneficial user, not automatically the tenant.
A lease can shift the cost of RPT or certain taxes to the tenant, but the clause must be clear.
A private lease does not bind the LGU’s collection powers. The LGU may still enforce tax liens, levy, and auction remedies under the Local Government Code.
Do not pay vague “tax” billings without documents. Ask for the tax declaration, LGU billing, official receipt, and computation.
Watch deadlines. Local business tax is commonly handled during January business permit renewal, while RPT may be paid quarterly by March 31, June 30, September 30, and December 31.
Separate current taxes from penalties and old delinquencies. A tenant should not casually accept liability for years before the lease began.
For government-owned property leased to private users, beneficial use rules may make the private user directly chargeable for RPT.
RA 12001 may affect property valuations and RPT increases, so long-term leases should clearly state who bears reassessments and future increases.