Subdivision and Condominium Buyer Protection

Policy and purpose declarations

The Decree addresses misrepresentations and failures of subdivision and condominium owners, developers, operators, and sellers to provide and maintain basic requirements such as roads, drainage, sewerage, water systems, lighting systems, and similar facilities, endangering buyers’ health and safety.
The Decree targets swindling and fraudulent manipulations including failure to deliver titles, delivering titles free from liens and encumbrances, and failure to pay real estate taxes, as well as fraudulent multiple sales of the same subdivision lots to different purchasers.
The Decree states that these acts undermine the government land and housing program and defeat objectives of the New Society, including peace and order and improvement of the Filipino people’s economic, social, and moral condition.
The Decree declares it imperative to supervise and regulate subdivision and condominium businesses and impose penalties on fraudulent practices related to them.

Core definitions under the Decree

“Person” means a natural or juridical person, and a juridical person includes a business firm such as a corporation, partnership, cooperative, association, or a single proprietorship (Section 2).
“Sale” or “sell” covers every disposition or attempted disposition for valuable consideration of a subdivision lot (including building and improvements, if any) in a subdivision project, or a condominium unit in a condominium project; it includes contract to sell, contract of purchase and sale, exchange, attempt to sell, option, solicitation, and offer to sell directly or through agents and promotional materials (Section 2).
A privilege given to a cooperative/corporation/partnership/association member, or the issuance of a certificate evidencing participation/right to land upon payment of membership fees/dues, is deemed a sale (Section 2).
“Subdivision Project” means land registered under Act No. 496 partitioned primarily for residential purposes into individual lots offered to the public for sale in cash or installments; it includes residential, commercial, industrial, and recreational areas, open spaces, and other community/public areas (Section 2).
“Subdivision Lot” covers any lot (residential, commercial, industrial, or recreational) in a subdivision project (Section 2).
“Complex Subdivision Plan” is a subdivision plan of registered land where a street, passageway, or open space is delineated (Section 2).
“Condominium Project” is the entire parcel of real property divided primarily for residential purposes into condominium units, including structures thereon (Section 2).
“Condominium Unit” is a part of the condominium project intended for independent use or ownership, including rooms/spaces on floors (or parts of floors) and appended accessories (Section 2).
“Developer,” “Owner,” “Dealer,” “Broker,” “Salesman,” and “Authority” are defined in Section 2, with Authority meaning the National Housing Authority.

Coverage: registrations and licensing

The National Housing Authority has exclusive jurisdiction to regulate subdivision and condominium real estate trade and business under this Decree (Section 3).
To convert land into a subdivision project, the registered owner must submit the subdivision plan to the Authority for approval based on compliance with Subdivision Standards and Regulations in force when submitted (Section 4).
A similar process applies for a condominium project, and the Authority must approve the plan not only for compliance with subdivision standards but also with respect to the building(s) under the National Building Code (R.A. No. 6541) (Section 4).
After Authority approval, the subdivision plan is submitted to the Director of Lands for approval under Section 44 of the Land Registration Act (Act No. 496, as amended by R.A. No. 440); for complex subdivision plans, court approval is no longer required (Section 4).
The condominium plan is submitted to the Register of Deeds of the province or city where the property lies and is acted upon under the procedure in Section 4 of the Condominium Act (R.A. No. 4726) (Section 4).
The owner or the real estate dealer seeking to sell lots/units must register the project with the Authority by filing a sworn registration statement and must attach specified documents (Section 4).

Registration statement requirements

The sworn registration statement must include: (a) name of the owner; (b) location of principal business office and, for non-resident Filipinos, name/address of authorized agent or representative in the Philippines to receive notice; (c) names/addresses of directors and officers for corporations/associations/trusts/other entities and partners for partnerships; (d) general character of business actually or to be transacted; and (e) the owner’s capitalization including authorized and outstanding capital stock and the paid-up proportion (Section 4).
Attached documents must include: (a) copy of subdivision/condominium plan as approved; (b) copy of any circular/prospectus/brochure/advertisement/letter/communication used for public offering; (c) for business firms, a balance sheet showing assets and liabilities and copies of articles of incorporation/partnership/association with amendments and existing by-laws/instruments; and (d) a title free from all liens and encumbrances, except that if a unit/lot is mortgaged, it is sufficient if the mortgage instrument stipulates the mortgagee will release the mortgage on any lot/unit as soon as full purchase price is paid (Section 4).
The applicant must pay the registration fees prescribed by the Authority (Section 4).
The Authority must publish a notice of filing in two newspapers of general circulation—one English and one Pilipino—once a week for two consecutive weeks, at the applicant’s expense, stating that the registration statement and attachments are open to inspection during business hours and copies will be furnished upon payment of proper fees (Section 4).
The project is deemed registered upon completion of the publication requirement, and the fact is evidenced by a registration certificate issued to the applicant-owner or dealer (Section 4).

Licensing to sell and bonds

A registered owner/dealer may not sell any subdivision lot or condominium unit in the registered project without first obtaining a license to sell within two weeks from registration of the project (Section 5).
The Authority issues a license only after examination and when convinced that: (1) the owner/dealer is of good repute; (2) the business is financially stable; and (3) proposed sales to the public would not be fraudulent (Section 5).
No license to sell is issued unless the owner/dealer files an adequate performance bond approved by the Authority to guarantee: construction and maintenance of roads, gutters, drainage, sewerage, water system, lighting systems, full development, and compliance with applicable laws and rules/regulations (Section 6).
The performance bond is executed in favor of the Republic of the Philippines and authorizes the Authority to use proceeds in case of forfeiture for the purposes of its undertaking as provided by this Decree (Section 6).

Exemptions from licensing and bonding

A license to sell and performance bond are not required for: (a) sale of a subdivision lot resulting from partition among co-owners and co-heirs; (b) sale/transfer of a subdivision lot by the original purchaser and any subsequent sale of the same lot; and (c) sale of a subdivision lot or condominium unit by or for a mortgagee in the ordinary course of business when necessary to liquidate a bona fide debt (Section 7).

Suspension and revocation powers

Upon a verified complaint by a buyer or any interested party, the Authority may immediately suspend the owner’s/dealer’s license to sell pending investigation and hearing under Section 13 (Section 8).
The Authority may motu proprio suspend if it believes information in the registration statement is or has become misleading, incorrect, inadequate, or incomplete, or if the sale/offering may work or tend to work a fraud upon prospective buyers (Section 8).
Suspension may be lifted after notice and hearing when the Authority is convinced registration statement is accurate, deficiencies are corrected/supplemented, or the sale will neither be fraudulent nor result in fraud; it is also lifted upon dismissal of the complaint for lack of legal basis (Section 8).
Before final entry of a suspension order, the suspension of the right to sell is confidential except when the order has been violated (Section 8).
The Authority may revoke the project’s registration and the license to sell, motu proprio or upon a verified complaint, by issuing an order with findings after examination/hearing under Section 14 when evidence shows the owner/dealer: (a) is insolvent; (b) has violated any provision/rule/regulation, or undertaking under performance bond; (c) has been or is engaged or about to engage in fraudulent transactions; (d) made misrepresentation in prospectus/brochure/circular or similar literature distributed to prospective buyers; (e) is of bad business repute; or (f) does not conduct business in accordance with law or sound business principles (Section 9).
If the owner/dealer is a partnership, corporation, or unincorporated association, cancellation is sufficient if any member/officer/director/association officer has committed an act/omission that would justify refusal or revocation for an individual under the corresponding provisions (Section 9).

Procedures for hearings and contempt

Hearings for grounds of suspension and/or revocation under Sections 8 and 9 must comply with Section 13 requirements (Section 13).
Notice is required: no hearing proceeds unless the respondent is furnished a copy of the complaint or is notified in writing of the purpose of the hearing (Section 13).
Venue is set by designation of officers/officers by the Authority and scheduled date/place stated in the notice (Section 13).
Proceedings are non-litigious and summary, without regard to court legal technicalities; the Rules of Court do not apply, except by analogy, in a suppletory character, and whenever practicable and convenient (Section 13).
Designated officers have powers to administer oaths, subpoena witnesses, conduct ocular inspections, take depositions, and require production of relevant books/papers/correspondence/memoranda/records (Section 13).
Direct contempt may be summarily adjudged by designated officers for misbehavior in or near the hearing obstructing proceedings, refusal to be sworn or to answer or subscribe an affidavit/deposition when lawfully required; the penalty is a fine not exceeding Fifty (P50.00) Pesos or imprisonment not exceeding five (5) days, or both (Section 14).
Indirect contempt may be adjudged under the manner prescribed in Rule 71 of the Revised Rules of Court (Section 14).
Decisions must be rendered within thirty (30) days from submission for decision (Section 15).

Decisions, execution, and cease-and-desist

The Decision may order: revocation of project registration, suspension/cancellation/revocation of the license to sell, and/or forfeiture (whole or part) of the performance bond under Section 6 (Section 15).
If forfeiture is ordered, the Decision may direct the provincial or city engineer to undertake or cause construction of roads and other subdivision requirements stipulated in the bond, charged to the forfeited amount (Section 15).
The Decision is immediately executory and becomes final after 15 days from date of receipt (Section 15).
The Authority may issue a cease and desist order after due notice and hearing if any person is engaged or is about to engage in an act or practice constituting or that will constitute a violation of this Decree or any rule/regulation (Section 16).

Registration of sale instruments and titles

All contracts to sell, deeds of sale, and similar instruments relating to subdivision lots and condominium units must be registered by the seller with the Office of the Register of Deeds where the property is situated, whether or not the purchase price is fully paid (Section 17).
When an approved subdivision plan under Section 4, together with the owner’s duplicate certificate of title, is presented for registration, the Register of Deeds registers it under the Land Registration Act (as amended) (Section 17).
For complex subdivision plans with streets/passageways/required open spaces delineated, the Register of Deeds annotates on the new certificate that, except by way of donation to a city or municipality, no portion of delineated street/passageway/open space may be closed or otherwise disposed of without the requisite approval under Section 22 (Section 17).

Mortgage approval and buyer protections

No mortgage on any unit or lot may be made by the owner/developer without prior written approval of the Authority (Section 18).
Authority approval requires proof that mortgage proceeds will be used for development of the project and effective measures are provided to ensure such utilization (Section 18).
The loan value of each mortgaged lot/unit is determined, and the buyer is notified before release of the loan (Section 18).
The buyer may pay installment obligations directly to the mortgagee, and the mortgagee must apply these payments to the corresponding mortgage indebtedness secured by the particular lot/unit to enable prompt title issuance upon full payment (Section 18).

Sales promotion, advertising, and completion

Advertisements made by the owner/developer through newspapers, radio, television, leaflets, circulars, or any other form must reflect real facts and must be presented so they do not tend to mislead or deceive the public (Section 19).
The owner/developer is answerable and liable for facilities, improvements, infrastructures, or other representations/promises in brochures, advertisements, and sales propaganda disseminated by the owner/developer or its agents; these representations form sales warranties enforceable against the owner/developer jointly and severally (Section 19).
Failure to comply with these warranties is punishable under the penalties provided in this Decree (Section 19).
Every owner/developer must construct and provide within one year from issuance of the license for the subdivision or condominium project, the facilities, improvements, infrastructures, and other forms of development (including water supply and lighting facilities) offered/indicated in approved plans, brochures, prospectus, printed matters, letters, or advertisements; the Authority may fix another period (Section 20).

Timing for prior sales and installment rules

For subdivision lots or condominium units sold or disposed of before effectivity, the owner/developer must complete compliance with the obligations under the time-completion requirement within two years from the date of the Decree, unless extended by the Authority or unless an adequate performance bond is filed under Section 6 (Section 21).
Failure to comply constitutes a violation punishable under Sections 38 and 39 (Section 21).
Installment payments made by a buyer may not be forfeited in favor of the owner/developer when the buyer, after due notice to the owner/developer, desists from further payment due to the failure of the owner/developer to develop according to approved plans and within the time limit for compliance (Section 23).
The buyer may be reimbursed the total amount paid including amortization interests, but excluding delinquency interests, with interest at the legal rate (Section 23).
The consequences for failure to pay installments for reasons other than failure to develop are governed by Republic Act No. 6552 (Section 24).
For contracts entered into prior to effectivity of Republic Act No. 6552 on August 26, 1972, a defaulting buyer is entitled to the corresponding refund based on installments paid after effectivity, absent any contract provision to the contrary (Section 24).

Title issuance, fees, and taxes

The owner/developer must deliver title to the buyer upon full payment of the lot/unit (Section 25).
No fee may be collected for issuance of title except fees required for registration of the deed of sale in the Registry of Deeds (Section 25).
If a mortgage is outstanding at the time title is to be issued to the buyer, the owner/developer must redeem the mortgage or corresponding portion within six months from issuance so the title over fully paid lots/units is secured and delivered (Section 25).
Real estate tax and assessment are paid by the owner/developer without recourse to the buyer as long as title has not passed; if the buyer has actually taken possession and occupied, the buyer is liable for such tax/assessment effective the year following taking of possession and occupancy (Section 26).

Prohibited charges and access rights

An owner/developer may not levy upon a lot/unit buyer any fee for an alleged community benefit (Section 27).
Fees to finance services for common comfort, security, and sanitation may be collected only by a properly organized homeowners association and only with the consent of a majority of the lot/unit buyers actually residing in the project (Section 27).
The owner/developer may not deny any person free access to any government office or public establishment located within the subdivision or which may be reached only by passing through the subdivision (Section 28).

Public road right of way and associations

A subdivision without access to an existing public road or street must secure a right of way to a public road or street, and the right of way must be developed and maintained according to government requirements and concerned authorities (Section 29).
The owner/developer must initiate the organization of a homeowners association among buyers and residents to promote/protect mutual interests and assist community development (Section 30).

Donations, phases, waivers, visitorial powers

Upon completion, the registered owner/developer may, at its option, convey by donation roads and open spaces found within the project to the city or municipality where the project is located; once accepted, no portion of donated area may be converted to other purposes unless after hearing the proposed conversion is approved by the Authority (Section 31).
The owner/developer may divide development and sale into phases, each phase covering not less than ten hectares; the requirements imposed on the subdivision as a whole are deemed imposed on each phase (Section 32).
Any contract condition/stipulation/provision in a contract of sale where a person waives compliance with this Decree or rules/regulations is void (Section 33).
The Authority may conduct visitorial powers: examine business affairs/administration/condition of persons and entities selling subdivision lots/condominiums; require examination under oath of directors/officers/stockholders/members; issue subpoenas or subpoenas duces tecum; authorize provincial/city/municipal engineers to conduct ocular inspections; and keep books/papers/letters/documents open to inspection by the Authority or authorized representatives (Section 34).

Take-over development by the Authority

The Authority may take over and cause development and completion at the expenses of the owner or developer, jointly and severally, when the owner/developer has refused or failed to develop or complete as provided by the Decree (Section 35).
After take-over, the Authority may demand, collect, and receive from buyers the installment payments due on the lots, which must be used for development of the subdivision (Section 35).

Standards, deputization, fines, and criminal penalties

The Authority must issue necessary standards, rules, and regulations for effective implementation, which take effect immediately after publication three times a week for two consecutive weeks in a newspaper of general circulation (Section 36).
The Authority may deputize the Philippine Constabulary or any law enforcement agency to execute its final orders, rulings, or decisions (Section 37).
The Authority may prescribe and impose administrative fines not exceeding ten thousand pesos for violations of this Decree or any rule/regulation; fines are payable to the Authority and enforceable via writs of execution under the Rules of Court (Section 38).
Criminal penalties: Any person violating this Decree and/or rules/regulations issued pursuant to it, upon conviction, is punished by a fine of not more than twenty thousand (P20,000.00) pesos and/or imprisonment of not more than ten years.
For corporations, partnerships, cooperatives, or associations, the President, Manager or Administrator, or the person in charge of the business administration, is criminally responsible for violations (Section 39).

Liability of controlling persons and additional remedies

Controlling persons are jointly and severally liable with the controlled person to the same extent unless the controlling person acted in good faith and did not induce the violation or cause the act(s)/omissions constituting the violation (Section 40).
Remedies under this Decree are in addition to any other rights and remedies under existing laws (Section 41).

Dealer, broker, salesman registration system

No real estate dealer, broker, or salesman may engage in selling subdivision lots or condominium units unless registered with the Authority (Section 11).
Registration is granted when the Authority finds the applicant of good repute, compliant with applicable rules, and has paid the prescribed fee; the Authority registers the applicant as dealer/broker/salesman upon filing a bond or other security in lieu, in a sum fixed by the Authority conditioned on faithful compliance with this Decree (Section 11).
Salesman registration ceases upon termination of employment with a dealer or broker (Section 11).
Registration expires on December 31 of each year (Section 11).
Renewal must be applied for not less than thirty nor more than sixty days before January 1 of the succeeding year and includes payment of the prescribed fee, without necessity of filing further statements or information unless the Authority specifically requires additional information (Section 11).
Applications filed beyond the renewal period are treated as original applications (Section 11).
The Authority keeps a Register of Brokers, Dealers and Salesmen open to public inspection (Section 11).
The Authority may refuse registration or revoke any registration if, after reasonable notice and hearing, the registrant/applicant: violated the Decree/rules; made a material false statement in the application; committed a fraudulent act connected with sale; or is unworthy to transact the business (Section 12).
In charges against a salesman, notice is also given to the broker or dealer employing the salesman (Section 12).
Pending hearing, the Authority may order suspension of a dealer’s/broker’s/salesman’s registration; the order must state the cause (Section 12).
Suspension or revocation of a dealer’s registration carries with it suspension or revocation of all salesmen registrations under the dealer (Section 12).

Cease-changing plans, forfeiture, and void waivers

No owner/developer may change or alter roads, open spaces, infrastructures, facilities for public use, or other subdivision development elements contained in the approved plan and/or represented in advertisements without Authority permission and the written conformity/consent of a duly organized homeowners association; in the absence of such association, consent must be obtained from the majority of lot buyers (Section 22).

Nullity, repeals, and legal continuity

Any inconsistent laws, executive orders, rules, regulations, or parts thereof are repealed or modified accordingly (Section 42).
This Decree provides that its effectivity is upon approval (Section 43).