In a commercial lease in the Philippines, the usual rule is simple: the tenant pays the local business tax for the tenant’s own business, while the property owner or person assessed for the property is primarily responsible to the local government for real property tax. But commercial leases often shift expenses by contract, so a tenant may agree to reimburse real property tax, and a landlord may separately owe local business tax on its leasing business. The safest answer depends on three things: the law, the wording of the lease contract, and how the local government unit actually assesses and collects the tax.

The Short Answer: Local Business Tax vs. Real Property Tax

Tax	What it is	Usually paid by	Important lease point
Local Business Tax (LBT)	A local tax on the privilege of doing business in a city or municipality	The person or entity conducting the business	The tenant pays LBT for its store, office, clinic, restaurant, or other business. The landlord may also pay LBT for its leasing business.
Real Property Tax (RPT), often called amilyar	A tax on land, buildings, machinery, and improvements	The owner, administrator, or person assessed as having legal interest in the property	The lease may require the tenant to reimburse RPT, but the LGU’s lien attaches to the property if unpaid.
Business permit / mayor’s permit fees	Regulatory and local charges connected with operating a business	The business operator	A tenant normally needs its own business permit for the leased premises.
BIR taxes on rent	National taxes such as income tax, VAT or percentage tax, and withholding tax when applicable	Depends on BIR rules and taxpayer status	These are different from LBT and RPT and should not be confused with LGU taxes.

What Is Local Business Tax in a Commercial Lease?

Local Business Tax is imposed by a city or municipality on persons or entities doing business within its territory. It is not a tax on the building itself. It is a tax on the business activity.

Under the Local Government Code of 1991, Republic Act No. 7160, cities and municipalities may impose business taxes on different categories of businesses. Section 146 is especially important because it says that taxes under Section 143 are payable for every separate or distinct establishment where the taxable business is conducted, and that the tax on a business must be paid by the person conducting the business.

In a commercial lease, this usually means:

A restaurant tenant pays LBT for operating the restaurant.
A retail tenant pays LBT for operating the store.
A clinic tenant pays LBT for operating the clinic, subject to the LGU’s classification and applicable rules.
A foreign-owned corporation operating in the leased space pays LBT if it is registered and doing business there.
A landlord engaged in leasing commercial property may also pay LBT on its rental business, depending on the local revenue ordinance.

The tenant’s local business tax is not automatically the landlord’s obligation just because the landlord owns the property. The key question is: Who is conducting the business being taxed?

Does the Landlord Also Pay Local Business Tax?

Often, yes.

A landlord who regularly leases commercial spaces for income may be considered engaged in the business of leasing. Many LGUs classify commercial lessors under their local revenue codes and require them to secure a business permit, declare gross receipts from rent, and pay local business tax or other local charges.

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

For example:

The landlord owns a commercial building and leases units to tenants.
Tenant A operates a café.
Tenant B operates a pharmacy.
Tenant C operates an accounting office.

In that situation:

The landlord may owe LBT as a lessor on rental receipts.
Tenant A may owe LBT as a café or restaurant.
Tenant B may owe LBT as a retailer or pharmacy.
Tenant C may owe LBT as a service provider or professional/business establishment, depending on the LGU classification.

Each taxpayer is responsible for its own business activity.

What Is Real Property Tax in a Commercial Lease?

Real Property Tax or RPT is a tax on real property: land, buildings, machinery, and other improvements.

Section 232 of the Local Government Code authorizes provinces, cities, and municipalities within Metro Manila to levy an annual ad valorem tax on real property such as land, buildings, machinery, and improvements. Section 233 sets the basic RPT rate limits:

Provinces: not more than 1% of assessed value
Cities and Metro Manila municipalities: not more than 2% of assessed value

There is also an additional 1% Special Education Fund (SEF) tax under Section 235 of the Local Government Code.

In practice, RPT is usually paid at the City or Municipal Treasurer’s Office where the property is located. Many LGUs now also allow online assessment or payment, but availability depends on the city or municipality.

Who Is Legally Responsible for Real Property Tax?

For LGU purposes, real property is listed and assessed in the name of the owner, administrator, or anyone having legal interest in the property under Section 205 of the Local Government Code.

That means the LGU generally looks to the tax declaration, assessment roll, title records, and property records. If RPT is unpaid, the LGU’s remedy is not limited to suing the person who promised to pay under the lease. The unpaid RPT becomes a lien on the property.

Section 257 of the Local Government Code provides that basic RPT and other real property taxes constitute a lien on the property subject to tax, superior to other liens and enforceable by administrative or judicial action.

In plain English: even if the lease says the tenant must reimburse or pay RPT, the property itself may still be exposed to levy or auction if RPT remains unpaid.

This is why landlords should be careful about clauses saying “tenant shall pay all real property taxes.” That clause may create a private contractual obligation between landlord and tenant, but it does not necessarily stop the LGU from proceeding against the property if the tax is delinquent.

Can a Commercial Lease Shift Real Property Tax to the Tenant?

Yes, as between the landlord and tenant, the lease may validly allocate who will shoulder RPT.

The legal basis is the freedom of contract under the Civil Code of the Philippines, Republic Act No. 386. Article 1306 allows contracting parties to establish stipulations, clauses, terms, and conditions, provided they are not contrary to law, morals, good customs, public order, or public policy. Article 1159 also states that obligations arising from contracts have the force of law between the parties.

So a lease may provide that:

the landlord pays RPT entirely;
the tenant reimburses RPT as part of common area charges;
the tenant pays a proportionate share of RPT based on leased area;
the tenant pays RPT increases caused by the tenant’s improvements;
the tenant pays taxes on machinery or improvements it installed; or
RPT is already included in the monthly rent.

But the lease should be clear. Vague phrases like “tenant shall pay all taxes” often cause disputes because it may be unclear whether “all taxes” means the tenant’s business taxes only, the landlord’s RPT, BIR withholding taxes, VAT, permit fees, or all of them.

Practical Rule: Who Should Pay What?

The tenant should usually pay:

Local business tax on the tenant’s business
Business permit or mayor’s permit fees for the tenant’s operations
Barangay business clearance fees
Sanitary permit, fire safety inspection fees, signage fees, and similar operational permits when applicable
BIR taxes connected with the tenant’s own income and operations
Withholding tax on rent, if the tenant is required by BIR rules to withhold
Taxes or fees on tenant-owned machinery, equipment, signs, or improvements, if assessed separately or agreed in the lease

The landlord should usually pay:

Real property tax assessed on the land and building, unless the lease shifts reimbursement to the tenant
Local business tax on the landlord’s leasing business, if required by the LGU
BIR taxes on rental income
Taxes or assessments arising from the landlord’s ownership of the property
Capital gains tax, documentary stamp tax, transfer tax, and registration-related taxes if the property is sold, unless a separate sale agreement validly allocates them

Either party may pay, depending on the lease:

RPT reimbursement
SEF tax reimbursement
Insurance premiums
Common area maintenance charges
Association dues in malls, office buildings, or commercial condominiums
Incremental taxes caused by tenant improvements
Penalties caused by late submission of documents

Why Lease Wording Matters So Much

Philippine commercial leases often use broad tax clauses copied from templates. This can create expensive confusion.

A good tax clause should answer:

Which taxes are covered? Say “real property tax and SEF tax on the land and building,” not just “all taxes.”
Is the tenant paying directly or reimbursing the landlord? Direct payment may require the landlord to provide the tax declaration, statement of account, and authority to pay.
Is the tenant paying the full RPT or only a share? In multi-tenant buildings, the fairer method is usually proportionate share based on gross leasable area.
Are penalties included? If the landlord forgot to send the RPT bill, should the tenant pay penalties? If the tenant delayed reimbursement, should the tenant pay penalties? Spell it out.
What proof of payment is required? Require official receipts from the Treasurer’s Office or valid online payment confirmation.
What happens if one party fails to pay? The lease should state whether non-payment is a default, whether it can be deducted from security deposit, and whether it can lead to termination after notice.

Step-by-Step Guide for Tenants Before Signing a Commercial Lease

Ask for a copy of the latest RPT official receipt. This helps confirm whether the property has unpaid amilyar. A landlord who refuses to show any RPT proof may be hiding delinquencies.
Ask for the tax declaration number and property identification details. You may need these for business permit processing, especially if the LGU requires proof of occupancy.
Check if the lease says you must pay or reimburse RPT. Look for words like “real property tax,” “SEF,” “real estate tax,” “property tax,” “assessments,” “impositions,” and “all taxes.”
Clarify your share if the property has multiple tenants. Do not agree to pay the entire building’s RPT if you are leasing only one unit, unless the rent was priced with that burden clearly in mind.
Confirm business permit requirements with the LGU. Requirements vary. Common requirements include a notarized lease contract, valid IDs, DTI or SEC registration, barangay clearance, occupancy permit or locational clearance, fire safety inspection certificate, and proof of authority from the owner.
Make sure the lease is notarized. Many LGUs require a notarized lease for business permit applications. Some LGUs also require the lease to show the exact unit number, floor area, lessor and lessee details, rental amount, lease term, and property description.
Budget for local taxes before opening. New businesses often underestimate permit costs, local business tax, garbage fees, sanitary permits, signage permits, fire inspection fees, and barangay charges.

Step-by-Step Guide for Landlords

Update the property’s RPT records. Make sure the tax declaration reflects the correct classification, improvements, and ownership or administration details.
Pay RPT on time even if the tenant must reimburse it. Since the tax lien attaches to the property, landlords should avoid letting RPT become delinquent.
Register the leasing business if required by the LGU. A landlord earning rental income from commercial property may need a business permit as a lessor, depending on the local ordinance.
Issue proper BIR invoices or receipts for rent. Leasing is also subject to national tax rules. LGU compliance does not replace BIR compliance.
Use a precise tax clause. Avoid generic clauses. State exactly which taxes the tenant shoulders and which remain for the landlord.
Send RPT bills to tenants early if reimbursement is required. Give enough time before LGU deadlines so disputes do not create penalties.
Keep official receipts. Tenants, buyers, banks, and government offices may ask for proof that RPT is updated.

Deadlines, Penalties, and Practical Timelines

Local Business Tax deadlines

Under Sections 165 to 167 of the Local Government Code, local taxes generally follow the calendar year and are usually payable within the first 20 days of January or of each subsequent quarter, unless the applicable ordinance provides otherwise. Many LGUs require annual business permit renewal in January.

Typical LBT payment schedule:

Period	Usual deadline
Annual payment or 1st quarter	January 20
2nd quarter	April 20
3rd quarter	July 20
4th quarter	October 20

Late payment may result in a surcharge not exceeding 25% and interest not exceeding 2% per month, subject to limits under the Local Government Code and the local ordinance.

Real Property Tax deadlines

RPT may be paid annually or in quarterly installments. Under Section 250 of the Local Government Code, the basic RPT and SEF may be paid without interest in four equal installments:

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

Many LGUs give discounts for early or prompt payment, but discounts vary by local ordinance.

What Happens if Real Property Tax Is Not Paid?

If RPT is not paid, the consequences can be serious.

The LGU may:

issue a notice of delinquency;
impose interest and penalties;
issue a warrant of levy;
annotate the levy on the tax declaration and certificate of title;
advertise the property for public auction;
sell the property or a usable portion to satisfy the tax delinquency; and
allow redemption within the period provided by law.

Sections 256 to 261 of the Local Government Code govern collection remedies, levy, sale, and redemption. The key practical point is this: RPT delinquency follows the property, not merely the private promise in the lease.

For tenants, this matters because a landlord’s RPT delinquency can disrupt business operations, financing, permits, or lease stability. For landlords, this matters because relying on a tenant to pay RPT without monitoring actual payment can expose the property to enforcement.

Common Commercial Lease Scenarios

Scenario 1: The lease is silent on real property tax

If the lease does not say the tenant must pay or reimburse RPT, the practical and legal default is that the landlord should shoulder RPT as the property owner or assessed party. The tenant still pays its own LBT and business permit charges.

Scenario 2: The lease says “tenant shall pay all taxes”

This is risky wording. A tenant may argue that it means taxes related to the tenant’s business. A landlord may argue that it includes RPT. If the amount is significant, this can become a serious dispute.

Better wording would separately identify:

tenant’s business taxes;
landlord’s real property taxes;
reimbursement method;
share computation;
deadlines;
penalties; and
proof of payment.

Scenario 3: The tenant built improvements

If the tenant constructs improvements, installs heavy machinery, or makes additions that affect assessment, the City or Municipal Assessor may require declaration or reassessment. Section 203 of the Local Government Code requires a person acquiring real property or making improvements to file a sworn statement declaring the true value within 60 days after acquisition, completion, or occupancy, whichever comes earlier.

The lease should state who declares the improvements, who owns them during and after the lease, who pays taxes on them, and what happens upon expiration.

Scenario 4: The landlord demands RPT reimbursement after several years

The answer depends on the lease. If the lease clearly requires reimbursement, the tenant may be contractually liable. But the landlord should still prove the amount through tax declarations, statements of account, and official receipts.

If the lease is unclear or the landlord never billed the tenant for years, issues may arise about waiver, prescription, estoppel, or interpretation of ambiguous contract terms.

Scenario 5: The tenant needs a business permit but the landlord has unpaid RPT

Some LGUs may ask for documents connected with the property, including tax declaration, lease contract, occupancy permit, zoning or locational clearance, and sometimes proof that property-related obligations are updated. Requirements differ by LGU.

A tenant should resolve this before paying large deposits or renovation costs. If the landlord’s property records are problematic, the tenant’s permit application may be delayed.

Scenario 6: The leased property is government-owned

Special rules may apply when the property is owned by the Republic, a government instrumentality, or a local government, but the beneficial use is granted to a taxable person.

Section 234 of the Local Government Code exempts real property owned by the Republic or its political subdivisions, except when beneficial use is granted, for consideration or otherwise, to a taxable person. The Supreme Court has repeatedly applied the beneficial-use principle in RPT cases involving government properties and taxable private users.

So if a private company leases and commercially uses government property, RPT exposure may arise depending on the property, the user, and the applicable doctrine.

Special Notes for Foreigners and Foreign-Owned Businesses

Foreigners and foreign-owned companies doing business in the Philippines should separate two issues: property rights and tax obligations.

Under Article XII, Section 7 of the 1987 Philippine Constitution, private land generally cannot be transferred to foreigners, except in limited cases such as hereditary succession. But foreigners and foreign-owned entities may lease property subject to Philippine law.

For foreign investors, Republic Act No. 12252 of 2025 amended the Investors’ Lease Act and allows qualified foreign investors to lease private lands for an aggregate period not exceeding 99 years, subject to conditions such as approved and registered investment, proper use of the leased premises, and registration of the lease contract with the Registry of Deeds.

For ordinary commercial tenants, a foreigner or foreign-owned company operating a business in leased premises still needs proper registration and permits, such as:

SEC registration for corporations or partnerships;
DTI registration for sole proprietorships where legally allowed;
barangay clearance;
mayor’s permit or business permit;
BIR registration;
permits required for the specific activity, such as FDA, DOH, tourism, PEZA, BOI, fire, sanitary, or signage permits when applicable.

A foreign tenant is not exempt from local business tax merely because the tenant is foreign. If it is doing business in the city or municipality, the LGU will usually require local tax and permit compliance.

Documents Commonly Needed

Purpose	Common documents
Tenant business permit	Notarized lease contract, DTI/SEC/CDA registration, BIR registration, barangay clearance, valid IDs, occupancy or locational clearance, fire safety inspection certificate, sanitary permit when applicable
RPT verification	Tax declaration, latest RPT official receipt, statement of account from Treasurer’s Office, property identification number, title details when requested
RPT payment	Previous official receipt, current tax bill or assessment, authorization if a representative pays, valid ID
Lease review	Draft lease, tax clauses, common area charges schedule, building rules, proof of authority of lessor, title or tax declaration, condominium certificate of title if applicable
Tenant improvements	Building permit when required, plans, owner’s consent, occupancy permit, assessor declaration if improvement is taxable

Red Flags to Watch For

Be careful if you see any of these:

The lease says the tenant pays “all taxes whatsoever” without explanation.
The landlord refuses to show the latest RPT receipt.
The property has unpaid amilyar for several years.
The tenant is asked to pay the entire building’s RPT despite occupying only a small unit.
The landlord charges “RPT reimbursement” but cannot show official receipts.
The tenant cannot get a business permit because the property records are incomplete.
The lease makes the tenant pay penalties caused by the landlord’s delay.
The landlord and tenant both assume the other is handling the business permit.
The tenant installs major improvements but the lease says nothing about tax, ownership, removal, or reimbursement.
A foreign tenant signs a long-term land lease without checking registration, investment law requirements, and constitutional restrictions.

How to Resolve a Dispute Over LBT or RPT in a Lease

Read the lease carefully. Start with the tax, rent, default, reimbursement, common area maintenance, and compliance clauses.
Identify the tax being charged. Ask whether the amount is local business tax, RPT, SEF, garbage fee, fire inspection fee, mayor’s permit fee, BIR withholding tax, VAT, or another charge.
Ask for official documents. For RPT, request the tax declaration, statement of account, and official receipt. For LBT, request the assessment and official receipt from the LGU.
Check the LGU classification. Business tax classifications and permit requirements vary by city or municipality.
Document all objections in writing. If you dispute a charge, send a written letter or email. Avoid relying only on verbal conversations.
Pay undisputed amounts if possible. This helps avoid default while preserving your position on the disputed items.
Use the contract’s dispute mechanism. Some leases require negotiation, mediation, arbitration, venue in a specific court, or notice-and-cure periods before termination.
Consider barangay conciliation when applicable. If both parties are individuals residing in the same city or municipality, barangay conciliation under the Katarungang Pambarangay system may be required before filing certain court actions. Corporate parties and disputes involving juridical entities often fall outside the usual barangay conciliation setup.
Go to the proper court if necessary. Lease disputes involving unpaid rent, ejectment, or unlawful detainer commonly go to the first-level courts, now the Metropolitan Trial Court, Municipal Trial Court in Cities, Municipal Trial Court, or Municipal Circuit Trial Court, depending on location. Collection or damages cases may depend on amount and nature of relief.

Frequently Asked Questions

Who pays local business tax in a commercial lease in the Philippines?

The tenant pays local business tax for the tenant’s own business because the tax is imposed on the person or entity conducting business. The landlord may separately pay local business tax if the landlord is engaged in the business of leasing commercial property.

Who pays real property tax, the landlord or the tenant?

As far as the LGU is concerned, RPT is assessed against the property owner, administrator, or person with legal interest in the property. However, the lease may require the tenant to reimburse or shoulder RPT. That agreement is binding between landlord and tenant, but unpaid RPT can still become a lien on the property.

Can a landlord require the tenant to pay real property tax?

Yes, a commercial lease may validly require the tenant to pay or reimburse RPT, provided the clause is clear and not contrary to law. The lease should specify whether the tenant pays the full RPT or only a proportionate share.

If the lease is silent, can the landlord later charge RPT to the tenant?

Usually, if the lease is silent, the landlord should not assume that the tenant agreed to shoulder RPT. The landlord may still ask, but the tenant can dispute the charge unless there is a clear contractual basis, established billing practice, or other legal ground.

Is real property tax the same as local business tax?

No. RPT is a tax on land, buildings, machinery, and improvements. Local business tax is imposed on the privilege of doing business in a city or municipality. A commercial tenant may have to deal with both, but they are different taxes.

Can unpaid RPT affect the tenant’s business?

Yes. Unpaid RPT can create problems if the LGU takes collection action, if the tenant needs property-related documents for permits, or if the property is levied or sold for tax delinquency. This is why tenants should ask for proof that RPT is updated before signing or renewing a lease.

Should RPT be included in rent?

It can be. Some landlords price rent as “all-in,” meaning RPT is already factored into the rent. Others charge RPT separately as reimbursement or common area expense. The lease should say this clearly to avoid double charging.

Does a foreign tenant pay local business tax?

Yes, if the foreign tenant or foreign-owned company is doing business in the LGU and is required to secure a business permit. Foreign status does not automatically exempt a business from local taxes.

Can the tenant pay RPT directly to the Treasurer’s Office?

Sometimes yes, if the tenant has the required property details and authorization or if the LGU accepts payment from a representative. But the tenant should make sure the payment is properly credited to the correct property and should keep the official receipt.

What proof should a tenant ask for before reimbursing RPT?

Ask for the tax declaration, statement of account or tax bill, computation showing the tenant’s share, and the official receipt from the City or Municipal Treasurer. For multi-tenant properties, ask how the share was computed.

Key Takeaways

Local business tax is usually paid by the person conducting the business. In a commercial lease, that is normally the tenant for the tenant’s business.
The landlord may also owe local business tax if the landlord is engaged in the business of leasing commercial spaces.
Real property tax is primarily connected to the property and is assessed in the name of the owner, administrator, or person with legal interest.
A lease may shift RPT to the tenant by reimbursement, but that is a private contractual arrangement and does not erase the LGU’s remedies against the property.
Unpaid RPT can become a lien on the property, so landlords should monitor payment even if the tenant agreed to shoulder it.
Tenants should review tax clauses before signing, especially phrases like “all taxes,” “assessments,” and “government charges.”
Foreign tenants must still comply with LGU tax and permit rules if doing business in the Philippines.
The best lease clauses are specific: they identify the tax, payer, computation, deadline, proof of payment, and consequence of non-payment.