In a Philippine commercial lease, the simplest rule is this: each party pays the local business tax on the business it operates, while real property tax is normally the property owner’s responsibility to the local government. However, the lease may require the tenant to reimburse the landlord for real property tax, pay it directly, or shoulder increases caused by the tenant’s particular use. The wording of the lease matters because it determines who ultimately bears the cost between landlord and tenant—even though it does not necessarily change whom the local government may assess or pursue.

Who normally pays each tax?

Tax or charge	Person normally responsible to the LGU	Can the lease shift the cost?
Local business tax on the tenant’s store, office, restaurant, or other business	Tenant or business operator	Generally no as to the tenant’s legal tax liability, although rent may reflect operating costs
Local business tax on the landlord’s leasing business	Landlord or lessor	The lease may economically pass the cost to the tenant, but the landlord remains the person operating the leasing business
Basic real property tax on the land and building	Owner or person in whose name the property is declared	Yes, through reimbursement or direct-payment provisions
Special Education Fund levy attached to real property tax	Usually treated together with the property’s real property tax	Yes, if clearly covered by the lease
Real property tax on tenant-owned machinery or taxable improvements	Potentially the tenant or person with the legal interest in the machinery or improvement	Yes, subject to the lease and the assessor’s records
Business permit, barangay clearance, sanitary, fire, and regulatory fees for the tenant’s operations	Tenant	Normally borne by the tenant
Business permit and local fees for the landlord’s rental business	Landlord	May be included in rent or operating-cost charges if the lease allows it

The controlling national law is Republic Act No. 7160, or the Local Government Code of 1991. Actual rates and classifications depend on the revenue code and ordinances of the city or municipality where the business or property is located. (Supreme Court E-Library)

Who pays local business tax in a commercial lease?

Local business tax, commonly called LBT, is imposed on the person or entity conducting a taxable business within an LGU.

Section 146 of the Local Government Code expressly provides that the tax on a business must be paid by the person conducting that business. It also treats each separate or distinct establishment as independently taxable when applicable. (Supreme Court E-Library)

The tenant pays local business tax on the tenant’s business

A tenant operating a restaurant, retail store, clinic, office, warehouse, salon, school, or other enterprise generally pays the local business tax arising from that operation.

For example:

A corporation rents an office in Makati City. The corporation pays the LBT assessed on its consulting or service business.
A restaurant rents a commercial unit in Quezon City. The restaurant operator pays the LBT based on the restaurant’s taxable gross sales or receipts.
A sole proprietor rents a kiosk in a mall. The sole proprietor pays the local tax and permit charges for the kiosk business.

The landlord does not become liable for the tenant’s LBT merely because the business operates inside the landlord’s property.

The landlord pays local business tax on the leasing business

Renting out commercial property may itself be treated as a taxable business under the applicable local revenue code. The landlord may therefore need to obtain a business permit and pay LBT based on gross rental receipts.

This is a separate tax from the tenant’s business tax.

A landlord should not assume that leasing only one commercial unit, receiving rent through a property manager, or living outside the Philippines automatically removes the local registration and tax obligation. The controlling questions are usually:

How the LGU classifies lessors of real property;
Where the leased property or rental establishment is located;
Whether the landlord maintains several rental locations;
The landlord’s gross rental receipts;
Whether a special exemption applies; and
What the applicable local revenue ordinance provides.

Municipalities may impose tax on businesses not specifically classified elsewhere, while cities generally exercise broader taxing powers under the Local Government Code. The exact rate may differ considerably from one LGU to another. (Lawphil)

A tenant’s payment does not automatically transfer the landlord’s tax liability

A lease may state that the tenant will shoulder “all taxes related to the premises.” That language may give the landlord a contractual right to reimbursement, but it does not necessarily make the tenant the taxpayer for the landlord’s leasing business.

The safer approach is to distinguish:

Taxes legally imposed on the tenant’s business;
Taxes legally imposed on the landlord’s rental business;
Taxes imposed on the property itself; and
Amounts that one party must reimburse to the other.

Without these distinctions, disputes often arise over whether “taxes” include LBT, real property tax, Special Education Fund charges, VAT, withholding tax, association dues, or only increases occurring after the lease begins.

Who pays real property tax on leased commercial property?

Real property tax, often called RPT or amilyar, is imposed on taxable land, buildings, machinery, and improvements.

Under Sections 232 and 233 of the Local Government Code, provinces, cities, and municipalities within Metro Manila may levy basic real property tax based on assessed value. An additional levy for the Special Education Fund may also be imposed. (Supreme Court E-Library)

The property owner is normally responsible

As a practical and legal starting point, RPT on the land and building is normally associated with the owner or declared owner of the property.

The tax accrues on January 1 and becomes a lien on the property. A tax lien is a legal claim attached to the property to secure payment. The lien is superior to mortgages and other private encumbrances and remains until the delinquency is paid. (Supreme Court E-Library)

This is why a landlord cannot safely ignore RPT simply because the lease says the tenant must pay it. If the tenant fails to pay, the LGU may still proceed against the property through levy and public auction.

In Camp John Hay Development Corporation v. Central Board of Assessment Appeals, the Supreme Court explained that the declared owner was presumed to bear the obligation concerning the assessed property and had to follow the statutory payment and protest procedures. The case also emphasizes that real property tax disputes ordinarily pass through the administrative remedies provided by the Local Government Code. Read the Supreme Court decision. (Lawphil)

The tenant may be required to reimburse or directly pay RPT

Commercial leases frequently shift the economic burden of real property tax to the tenant. This is especially common in long-term ground leases, warehouse leases, industrial leases, build-to-suit arrangements, and “triple net” leases.

A clause may require the tenant to:

Reimburse the landlord for the full annual RPT;
Pay only the portion attributable to the leased area;
Pay increases above a stated base year;
Pay RPT caused by the tenant’s improvements or machinery;
Pay directly to the city or municipal treasurer; or
Deposit estimated tax amounts with the landlord monthly.

Such arrangements are generally possible because Articles 1159 and 1306 of the Civil Code allow contracting parties to establish binding terms, provided they do not violate law, morals, public order, or public policy. See the Civil Code of the Philippines. (Lawphil)

The important distinction is:

The lease may shift the cost between landlord and tenant, but it does not remove the real property tax lien or prevent the LGU from enforcing collection against the property.

Tenant-owned machinery and improvements need separate review

Commercial tenants often install elevators, generators, industrial machinery, tanks, production equipment, cold-storage systems, or permanent improvements.

Some machinery and improvements may be classified as real property for local taxation even when the tenant—not the landowner—purchased or installed them. The assessor may consider ownership, permanence, actual use, attachment to the property, and the applicable definitions under the Local Government Code.

The lease should therefore state:

Who must declare tenant improvements to the assessor;
Who owns the improvement during and after the lease;
Who pays any resulting RPT;
Whether the tenant may remove the improvement;
Who handles assessment appeals; and
What happens to unpaid taxes when the lease ends.

The Civil Code also contains separate rules on useful improvements made by a lessee, including Article 1678, but tax treatment and ownership rights should not be assumed to be identical. (Supreme Court E-Library)

Why the lease agreement is crucial

The Civil Code does not contain a blanket rule saying that every tax in a commercial lease must always be paid by either the lessor or the lessee.

Articles 1654 and 1657 set out basic obligations: the lessor must deliver and maintain the property for its intended use, while the lessee must pay the agreed rent and use the premises properly. Tax allocation is usually addressed through the parties’ additional contractual stipulations. (Lawphil)

Tax clauses that should appear in a commercial lease

Clause	What it should clarify
Definition of taxes	Whether the term includes LBT, RPT, SEF levy, special assessments, permit fees, VAT, withholding tax, and association assessments
Legal taxpayer	Which party is legally assessed by the government
Economic burden	Which party ultimately bears or reimburses the cost
Base year	Whether the tenant pays all RPT or only increases above a specified year
Allocation formula	How taxes are divided for multi-tenant buildings or partially leased land
Payment method	Whether the landlord pays first or the tenant pays the LGU directly
Supporting documents	Requirement to provide assessments, statements of account, official receipts, and computations
Payment deadline	How many days the reimbursing party has to pay
Penalties	Who pays interest or penalties caused by late submission or late payment
Contesting an assessment	Who decides whether to protest and who controls the proceedings
Refunds and credits	Who receives the benefit of a successful protest or reassessment
Lease commencement and termination	How annual taxes are prorated for partial years

A clause stating only that the tenant will pay “all taxes” is often too vague. It may not answer whether the tenant must pay the landlord’s income-related taxes, the landlord’s LBT, historical RPT arrears, or penalties caused before the tenant took possession.

Practical steps for landlords and tenants

1. Read the entire tax and operating-expense section

Do not review only the paragraph labeled “taxes.” Related obligations may appear under:

Additional rent;
Common-area charges;
Operating expenses;
Government assessments;
Permits and licenses;
Utilities;
Tenant improvements;
Default; or
Indemnity.

Check whether taxes charged to the tenant are treated as additional rent. If they are, nonpayment may trigger the same default remedies as unpaid basic rent.

2. Identify the charge and the taxing office

Ask for the actual assessment, statement of account, or official billing document.

Determine whether the charge comes from:

The Business Permits and Licensing Office;
The city or municipal treasurer;
The city or municipal assessor;
The barangay;
The Bureau of Fire Protection;
A condominium corporation or property association; or
The Bureau of Internal Revenue.

A charge from the BIR is not a local business tax merely because it relates to rent.

3. Verify the property’s RPT status

Request:

The current tax declaration;
Latest RPT official receipts;
Current statement of account;
Separate tax declarations for land, building, machinery, and improvements;
Any notice of reassessment or delinquency; and
Proof that prior-year arrears have been cleared.

This is particularly important before signing a long-term lease. Payments are generally applied first to prior-year delinquencies, interest, and penalties before being credited to the current period. (Supreme Court E-Library)

4. Confirm the local business tax classification

Both landlord and tenant should review the LGU’s current revenue code rather than relying only on the Local Government Code’s national ceilings.

The local treasurer may require documents such as:

DTI, SEC, or Cooperative Development Authority registration;
Barangay clearance;
Mayor’s or business permit;
Previous year’s gross sales or receipts;
Audited financial statements or tax returns;
Contract of lease;
Occupancy, zoning, fire, and sanitary clearances; and
Prior official receipts.

Requirements vary by LGU and business type.

5. Keep proof of payment

A tenant paying RPT on behalf of the landlord should obtain an official receipt and promptly give a copy to the landlord.

The receipt should be checked against:

Property index or tax declaration number;
Registered or declared owner;
Covered tax year and quarter;
Land, building, or machinery classification;
Basic tax, SEF levy, penalties, and discounts; and
Amount actually credited.

A screenshot of an online payment confirmation should be retained together with the final electronic or printed official receipt.

Payment deadlines, discounts, and penalties

Obligation	General statutory schedule
Local business tax	Within the first 20 days of January, or within the first 20 days of each subsequent quarter when paid quarterly
First RPT installment	On or before March 31
Second RPT installment	On or before June 30
Third RPT installment	On or before September 30
Fourth RPT installment	On or before December 31
Advance-payment RPT discount	May be granted by local ordinance, up to 20%
Interest on unpaid RPT	2% per month or fraction, subject to a maximum of 36 months
General local tax surcharge	Up to 25%, if imposed by the applicable ordinance
General local tax interest	Up to 2% per month, subject to a maximum of 36 months

An LGU may adopt extensions or specific administrative schedules, so the current local ordinance and official payment notice should still be checked. (Supreme Court E-Library)

Common commercial lease situations

The lease says the tenant pays “all real estate taxes”

This usually shifts the economic burden to the tenant, but the landlord should continue monitoring the property’s tax account. The owner should require receipts and retain the right to pay directly if the tenant is late.

The landlord adds RPT to the monthly bill

The lease should state whether the monthly amount is an estimate, a fixed charge, or a reconciliation against actual tax paid. At year-end, the landlord should provide the assessment and official receipt if the amount is based on actual RPT.

The tenant occupies only one unit in a large building

The tenant should not automatically be charged the entire building’s RPT. The lease should provide a reasonable allocation method, such as:

Leased floor area divided by total leasable floor area;
Exclusive-use area plus a share of common areas;
Assessor’s separate valuation for the unit; or
A fixed negotiated percentage.

Vacant units should not automatically be allocated to existing tenants unless the lease clearly permits it.

The tenant’s operations increase the assessment

Conversion of a property from residential or agricultural use to commercial or industrial use may affect classification and assessed value. Major tenant improvements may also create new taxable improvements.

The lease should state whether the tenant bears only the increase caused by its use or whether it must shoulder the property’s entire revised RPT.

The landlord is abroad

An overseas landlord may authorize a Philippine representative to obtain tax statements and make payments. LGUs commonly request a special power of attorney, valid identification, and proof of authority.

A document executed abroad may need consular notarization or an apostille from the competent authority in an Apostille Convention country before it is used in the Philippines. Requirements should be confirmed with the specific LGU because some offices request an original or certified copy. (Philippine Embassy New Delhi)

The property is sold during the lease

The parties should obtain an updated RPT clearance and determine who bears taxes for the year of sale. A private allocation between seller, buyer, landlord, and tenant does not erase unpaid taxes already attached to the property.

The tenant subleases the premises

The head tenant may become a sublessor conducting a rental activity. This can create additional business-registration and local-tax questions separate from the original landlord’s obligations.

How to dispute an incorrect tax assessment

Disputing a local business tax assessment

When the local treasurer issues a notice of assessment for alleged deficiency local taxes, the taxpayer generally has 60 days from receipt to file a written protest. If no timely protest is filed, the assessment may become final and executory.

The treasurer has 60 days to decide. The taxpayer generally has 30 days from receipt of the denial—or from the lapse of the treasurer’s 60-day decision period—to appeal to the proper court. Refund claims also require a written administrative claim and are subject to a two-year period. (Supreme Court E-Library)

A lease cannot normally authorize the tenant to protest the landlord’s LBT assessment without proper written authority from the landlord.

Disputing a real property assessment

An owner or person with a legal interest who disagrees with the assessor’s action may appeal to the Local Board of Assessment Appeals within 60 days from receipt of the written notice of assessment.

For a protest involving payment of RPT, Section 252 requires payment first, with the receipt marked “paid under protest,” followed by a written protest to the proper treasurer within 30 days from payment. The treasurer has 60 days to decide. Collection generally continues while the assessment appeal is pending. (Supreme Court E-Library)

Because assessment appeals and payment protests address related but distinct issues, the affected party should carefully preserve every applicable deadline.

Real Property Valuation and Assessment Reform Act

Republic Act No. 12001, the Real Property Valuation and Assessment Reform Act, was enacted in 2024 to establish more consistent valuation standards, use market value as a common valuation base, improve schedules of market values, and strengthen the Bureau of Local Government Finance’s role.

The law affects how properties may be valued and reassessed, but it does not eliminate the need to examine who is identified in the lease as the party bearing RPT. The Local Government Code continues to apply suppletorily where consistent with RA 12001. Read Republic Act No. 12001. (Lawphil)

Frequently Asked Questions

Is the tenant legally required to pay the landlord’s real property tax?

Not automatically. The owner or declared owner normally bears responsibility for the property’s RPT, but the lease may validly require the tenant to reimburse or pay it.

Can a landlord charge both rent and real property tax?

Yes, when the lease clearly provides that RPT is payable in addition to basic rent. The landlord should provide the assessment, computation, and proof of payment.

Who pays local business tax—the landlord or tenant?

Each pays the LBT on the business that party conducts. The tenant pays for its operating business, while the landlord may pay separate LBT on the leasing business.

Can the tenant pay RPT directly to the city hall?

Yes. A person with a legal interest in the property may make payment, subject to the LGU’s documentary requirements. The tenant should ensure the payment is credited to the correct tax declaration and year.

What happens if the tenant was supposed to pay RPT but failed?

The landlord may enforce the lease, but the LGU’s tax lien remains attached to the property. Interest may accrue, and the property may eventually be levied and sold at public auction.

Does “all taxes” include the landlord’s income tax or VAT?

Not necessarily. General wording is often disputed. Income tax, VAT, withholding tax, LBT, and RPT are different obligations and should be listed separately.

Who pays penalties caused by late payment?

The lease should allocate responsibility. Generally, the party whose delay caused the penalty should bear it, but vague contracts may leave the issue open to dispute.

Is the Rent Control Act applicable to commercial leases?

No. Rent-control protections generally concern covered residential units, not ordinary commercial premises. Commercial tax allocation is primarily governed by the lease, the Civil Code, and applicable tax laws.

Can a landlord evict a tenant for refusing to reimburse taxes?

Potentially, if reimbursement is a clear lease obligation and the breach falls within the contract’s default provisions. Article 1673 of the Civil Code also recognizes violation of agreed lease conditions as a possible ground for judicial ejectment. Self-help eviction without the proper legal process should not be used. (Lawphil)

Key Takeaways

The tenant pays local business tax on the tenant’s business.
The landlord may separately owe local business tax on rental or leasing operations.
Real property tax on the land and building is normally associated with the owner or declared owner.
A commercial lease may require the tenant to reimburse or directly pay RPT.
A private lease clause does not remove the LGU’s tax lien over the property.
Tenant-owned machinery and permanent improvements may create separate RPT exposure.
Tax clauses should distinguish LBT, RPT, SEF levy, VAT, withholding tax, permits, and penalties.
Both parties should retain assessments, official receipts, tax declarations, and written computations.
LBT and RPT disputes follow different protest and appeal procedures, with strict deadlines.