2. Rights and Obligations of the Lessor and of the Lessee

B. Rights and Obligations of Lessor and Lessee (Civil Code, arts. 1654-1679)

Civil Code, arts. 1654-1679

Rights and Obligations of the Lessor and the Lessee

Article 1654. The lessor is obliged:

(1) To deliver the thing which is the object of the contract in such a condition as to render it fit for the use intended;

(2) To make on the same during the lease all the necessary repairs in order to keep it suitable for the use to which it has been devoted, unless there is a stipulation to the contrary;

(3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract. (1554a)

Article 1655. If the thing leased is totally destroyed by a fortuitous event, the lease is extinguished. If the destruction is partial, the lessee may choose between a proportional reduction of the rent and a rescission of the lease. (n)

Article 1656. The lessor of a business or industrial establishment may continue engaging in the same business or industry to which the lessee devotes the thing leased, unless there is a stipulation to the contrary. (n)

Article 1657. The lessee is obliged:

(1) To pay the price of the lease according to the terms stipulated;

(2) To use the thing leased as a diligent father of a family, devoting it to the use stipulated; and in the absence of stipulation, to that which may be inferred from the nature of the thing leased, according to the custom of the place;

(3) To pay expenses for the deed of lease. (1555)

Article 1658. The lessee may suspend the payment of the rent in case the lessor fails to make the necessary repairs or to maintain the lessee in peaceful and adequate enjoyment of the property leased. (n)

Article 1659. If the lessor or the lessee should not comply with the obligations set forth in articles 1654 and 1657, the aggrieved party may ask for the rescission of the contract and indemnification for damages, or only the latter, allowing the contract to remain in force. (1556)

Article 1660. If a dwelling place or any other building intended for human habitation is in such a condition that its use brings imminent and serious danger to life or health, the lessee may terminate the lease at once by notifying the lessor, even if at the time the contract was perfected the former knew of the dangerous condition or waived the right to rescind the lease on account of this condition. (n)

Article 1661. The lessor cannot alter the form of the thing leased in such a way as to impair the use to which the thing is devoted under the terms of the lease. (1557a)

Article 1662. If during the lease it should become necessary to make some urgent repairs upon the thing leased, which cannot be deferred until the termination of the lease, the lessee is obliged to tolerate the work, although it may be very annoying to him, and although during the same, he may be deprived of a part of the premises.

If the repairs last more than forty days the rent shall be reduced in proportion to the time - including the first forty days - and the part of the property of which the lessee has been deprived.

When the work is of such a nature that the portion which the lessee and his family need for their dwelling becomes uninhabitable, he may rescind the contract if the main purpose of the lease is to provide a dwelling place for the lessee. (1558a)

Article 1663. The lessee is obliged to bring to the knowledge of the proprietor, within the shortest possible time, every usurpation or untoward act which any third person may have committed or may be openly preparing to carry out upon the thing leased.

He is also obliged to advise the owner, with the same urgency, of the need of all repairs included in No. 2 of article 1654.

In both cases the lessee shall be liable for the damages which, through his negligence, may be suffered by the proprietor.

If the lessor fails to make urgent repairs, the lessee, in order to avoid an imminent danger, may order the repairs at the lessor's cost. (1559a)

Article 1664. The lessor is not obliged to answer for a mere act of trespass which a third person may cause on the use of the thing leased; but the lessee shall have a direct action against the intruder.

There is a mere act of trespass when the third person claims no right whatever. (1560a)

Article 1665. The lessee shall return the thing leased, upon the termination of the lease, as he received it, save what has been lost or impaired by the lapse of time, or by ordinary wear and tear, or from an inevitable cause. (1561a)

Article 1666. In the absence of a statement concerning the condition of the thing at the time the lease was constituted, the law presumes that the lessee received it in good condition, unless there is proof to the contrary. (1562)

Article 1667. The lessee is responsible for the deterioration or loss of the thing leased, unless he proves that it took place without his fault. This burden of proof on the lessee does not apply when the destruction is due to earthquake, flood, storm or other natural calamity. (1563a)

Article 1668. The lessee is liable for any deterioration caused by members of his household and by guests and visitors. (1564a)

Article 1669. If the lease was made for a determinate time, it ceases upon the day fixed, without the need of a demand. (1565)

Article 1670. If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but for the time established in articles 1682 and 1687. The other terms of the original contract shall be revived. (1566a)

Article 1671. If the lessee continues enjoying the thing after the expiration of the contract, over the lessor's objection, the former shall be subject to the responsibilities of a possessor in bad faith. (n)

Article 1672. In case of an implied new lease, the obligations contracted by a third person for the security of the principal contract shall cease with respect to the new lease. (1567)

Article 1673. The lessor may judicially eject the lessee for any of the following causes:

(1) When the period agreed upon, or that which is fixed for the duration of leases under articles 1682 and 1687, has expired;

(2) Lack of payment of the price stipulated;

(3) Violation of any of the conditions agreed upon in the contract;

(4) When the lessee devotes the thing leased to any use or service not stipulated which causes the deterioration thereof; or if he does not observe the requirement in No. 2 of article 1657, as regards the use thereof.

The ejectment of tenants of agricultural lands is governed by special laws. (1569a)

Article 1674. In ejectment cases where an appeal is taken the remedy granted in article 539, second paragraph, shall also apply, if the higher court is satisfied that the lessee's appeal is frivolous or dilatory, or that the lessor's appeal is prima facie meritorious. The period of ten days referred to in said article shall be counted from the time the appeal is perfected. (n)

Article 1675. Except in cases stated in article 1673, the lessee shall have a right to make use of the periods established in articles 1682 and 1687. (1570)

Article 1676. The purchaser of a piece of land which is under a lease that is not recorded in the Registry of Property may terminate the lease, save when there is a stipulation to the contrary in the contract of sale, or when the purchaser knows of the existence of the lease.

If the buyer makes use of this right, the lessee may demand that he be allowed to gather the fruits of the harvest which corresponds to the current agricultural year and that the vendor indemnify him for damages suffered.

If the sale is fictitious, for the purpose of extinguishing the lease, the supposed vendee cannot make use of the right granted in the first paragraph of this article. The sale is presumed to be fictitious if at the time the supposed vendee demands the termination of the lease, the sale is not recorded in the Registry of Property. (1571a)

Article 1677. The purchaser in a sale with the right of redemption cannot make use of the power to eject the lessee until the end of the period for the redemption. (1572)

Article 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased, the lessor upon the termination of the lease shall pay the lessee one-half of the value of the improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He shall not, however, cause any more impairment upon the property leased than is necessary.

With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he may remove the ornamental objects, provided no damage is caused to the principal thing, and the lessor does not choose to retain them by paying their value at the time the lease is extinguished. (n)

Article 1679. If nothing has been stipulated concerning the place and the time for the payment of the lease, the provisions of article 1251 shall be observed as regards the place; and with respect to the time, the custom of the place shall be followed. (1574)

RIGHTS AND OBLIGATIONS OF THE LESSOR AND THE LESSEE

Grounds for Ejectment

• When the period agreed upon or that which is fixed for the duration of leases (Arts.1682, 1687) has expired (see Duration of Lease).
• Lack of payment of the price stipulated.
• In case lessor refuses to accept rentals, lessee should make tender of payment, and consignation otherwise there is no payment.
• Willingness to pay is not payment.
• Violation of any of the conditions agreed upon in the contract.
• When the lessee devotes thing leased to any use or service not stipulated which causes the deterioration thereof, or if he does not observe the requirement in Art. 1657.

In a contract of lease, the twin remedies of rescission and judicial ejectment become available after either the failure to pay rent or to comply with the conditions of the lease.

Technically, no extrajudicial rescission effectively takes place as a result of the violations until the demand to pay or comply is duly served and is rejected or disregarded by the lessee.

The tenant's refusal to heed the demand to vacate, coming after the demand to pay or to comply similarly went unheeded, renders unlawful the continued possession of the leased premises. (Cebu Autometic Motors, Inc. and Tirso Uytengsu III v. General Milling Corporation, G.R. No. 151168, August 25, 2010)

Rights and obligations arising from lease contract are transmissible to the heirs

• A lease contract is not essentially personal in character;
• The rights and obligations are transmissible to the heirs; and
• The death of the party does not excuse nonperformance of contract which involves a property right, and the rights and obligations pass to the successors or representatives of the deceased.

OBLIGATIONS OF THE LESSOR

• Delivery of the property
• The thing leased must be delivered, in such conditions as to render it fit for the use intended, in order that the lessee may enjoy or use the same. [NCC, Art. 1654(1)] Delivery may, of course, be actual or constructive. [NCC, Arts. 1497–1498]
• A lease is perfected by consent; delivery is an obligation of the lessor, not a requirement for the lease contract to exist. The lessor must deliver the thing in a condition fit for its intended use. [NCC, Art. 1654(1)]
• Making of necessary repairs
• Includes all the repairs needed, whether the damage be caused by nature, fortuitous event or lapse of time, but not those brought about by the fault of the lessee himself or by his privies or his servants, whether the defect was caused prior to or after the delivery of the object.
• Article 1654 of NCC speaks of necessary repairs to keep the thing leased suitable for the use to which it has been devoted unless there is a stipulation to the contrary. In default of a special stipulation, the custom of the place shall be observed as to the kind of repairs on urban property. (NCC, Art. 1686) In case, the lessor fails in the performance of this duty, the lessee may suspend the payment of rent (NCC, Art. 1658) or avail himself of the other remedies provided in the law. The lessor is not liable for repairs for damages or deterioration caused by the lessee himself.

NOTE: The word “repairs” implies the putting back of something in the condition in which it was originally, while an “improvement’’ is the adding of something new thereto; hence, the filling of a vacant lot is not a repair [Albano v. Villanueva, 7 Phil. 277 (1906)] (Coca-Cola Bottlers Philippines, Inc. v. CA, et al, G.R. No. 100957, January 27, 1994) nor is the construction of a house. [Valencia v. Ayala de Roxas, 13 Phil. 45 (1909)] (Parilla, et al v. Pilar, G.R. No. 167680, November 30, 2006)

• Duty of the lessee to notify lessor (NCC, Art. 1663)
• Peaceful and adequate enjoyment refers to legal, not physical possession. Hence, a lessor is not, for instance, liable for physical disturbances in the neighborhood, but is liable if the lessee is evicted due to non-payment of taxes by the lessor.
• The lessor’s obligation to maintain the lessee arises when acts termed “legal trespass” disturb, dispute, or place difficulties in the lessee’s peaceful and adequate enjoyment of the leased premises that in some manner or other cast doubt upon the right of the lessor to execute the lease. The lessor must answer for such legal trespass. (Nakpil v. Manila Towers Development Corporation, G.R. No. 160867, September 20, 2006)
• There is mere act of trespass when a third person claims no right whatsoever. In trespass in law, the third person claims a legal right to enjoy the premises.

NOTE: When it is merely trespass in fact, the lessor cannot be faulted for any breach. The lessee can file a direct action against the trespasser such as forcible entry or unlawful detainer.

• Duty not to Alter Form

The lessor has also the duty not to alter the form of the thing leased as to impair the use of the said thing to which it is devoted under the terms of the lease. (NCC, Art. 1661)

The lessor may judicially eject the lessee for any of the following causes: (EPCU)

• When the period agreed upon, or that which is fixed for the duration of leases under Articles 1682 and 1687, has Expired;
• Lack of Payment of the price stipulated;
• Violation of any of the Conditions agreed upon in the contract.
• Lessee devotes the thing leased to any Use or service not stipulated which causes the deterioration thereof; or if he does not observe the requirement in No. 2 of Article 1657.

Rules if urgent repairs are necessary (NCC, Art. 1662)

• If repairs last for NOT MORE THAN 40 days

Lessee is obligated to tolerate the work, although it may be annoying to him, and although during the same time, he may be deprived of a part of the premise.

• If repairs last for more than 40 DAYS

Lessee can ask for reduction of the rent in proportion to the time (including the first 40 days and the part of the property of which he is deprived.

NOTE: In either case, rescission may be availed of if the main purpose of the lease is to provide a dwelling place and the repairs make the portion needed by the lessee and his family for that purpose uninhabitable.

Effects if the lessor fails to make urgent repairs

The lessee may:

• If the lessor fails to make urgent repairs, order them at the lessor’s cost to avoid imminent danger (Civil Code, Art. 1663);
• Sue for damages;
• Suspend the payment of the rent; or
• Ask for rescission, in case of substantial damage to him.

If the contract of lease is silent as to who will pay for repair expenses

Major repairs – Shouldered by the lessor; and

Minor repairs – Shouldered by the lessee.

Remedy of the lessee if the lessor fails to make major or necessary repairs

Lessee may ask for:

• Rescission of contract and indemnification for damages; or
• Indemnification only, while the contract remains in force. (NCC, Art. 1659)

Effect of destruction of the thing leased by fortuitous event (BAR AREA)

Rent under Rent Control Act of 2009 (RA 9653)

It is the amount paid for the use or occupancy of a residential unit, whether payment is made on a monthly or other basis. (Sec. (3), R.A. No. 9653, Rent Control Act)

Owner has the right to fix the rent because the contract is consensual and not imposed by law, but increasing the rent is not an absolute right of the lessor. The new rate must be reasonable and in no case shall the lessor be allowed to increase the rental when the term has not yet expired, unless the tenant consents.

Total destruction

• The lease is extinguished if the thing is totally destroyed;
• The lessee cannot compel the lessor to reconstruct the destroyed property;
• The lessee of the lot and building which has been totally destroyed by a fortuitous event cannot be considered as lessee of the land after the building had been totally destroyed by the fortuitous event (Roces v. Rickards, [CA] 45 O.G. [Supp.] 97); and
• While the land has not been affected, consideration should be taken of the fact that generally the land was leased only as an incident to the lease of the building. (Rohde Shotwell v. Manila Motors Co., Inc., G.R. No. L7637, December 29, 1956)

Partial Destruction

Lease is not extinguished. If the thing leased is partially destroyed by a fortuitous event, the lessee may choose between a proportional reduction of rent and rescission of the lease. (Civil Code, Art. 1655)

If reduction of rent is chosen, the same shall be retroactive to the date when the partial destruction occurred. In case of rescission, the general rule is that it will not be granted for slight or trivial causes. The partial destruction, under the circumstances, should be important or substantial as to defeat the purpose of the lessee in entering into the contract of lease.

NOTE: The choice is on the LESSEE, and not on the lessor.

When lessee may suspend payment of rent

• When lessor fails to undertake necessary repairs; and
• When lessor fails to maintain the lessee in peaceful and adequate enjoyment of the property leased.

Principal Obligations of the Lessee (NCC, Art. 1657)

• Payment of agreed price of lease

The lessee must pay rent according to the stipulated terms, including any valid agreement for advance payment. The lessor must deliver the thing in a condition fit for its intended use.

• Proper use of the thing leased

The lessee must exercise the diligence of a good father of a family in the use of the thing leased.

He must devote the thing to the use stipulated, and if none was stipulated, to that which may be inferred from the nature of the thing leased, according to the custom of the place.

NOTE: The use of the thing for an illegal purpose entitles the lessor to terminate the contract.

• Payment of expenses for deed of lease

In lease, the law imposes upon the lessee the obligation to pay the expenses for the deed of lease. By agreement, the obligation may be assumed by the lessor.

Other Obligations of the Lessee

• To tolerate the urgent repairs upon the thing leased even if annoying to him, and although during the same, he may be deprived of a part of the premises [NCC, Art. 1662(1)];
• To notify the proprietor within the shortest possible time of every usurpation or untoward act committed or openly being prepared by a third person upon the thing leased, and to advise the owner with the same urgency of the need for all repairs covered by Article 1654(2) (NCC, Art. 1663); and

NOTE: If the lessee fails to comply, he would be liable for damages which the lessor would suffer and which could have been avoided by lessee’s diligence.

• To return the property leased upon the termination of the lease in the same condition as he received it, save what has been lost or impaired by:
• Lapse of time
• Ordinary wear and tear; or
• Inevitable cause/fortuitous event. (NCC, Art. 1665)

Responsibility for deterioration or loss of the thing leased

GR: The presumption is that the lessee is responsible for the deterioration or loss of the thing leased unless he proves that it took place without his fault. Such liability also extends to deterioration caused by the members of his household and by guests and visitors.

XPN: When destruction is due to earthquake, flood, storm or other natural calamity.

Q: Jude owned a building that he had leased out to several tenants. Without informing his tenants, Jude sold the building to Ildefonso. Thereafter, the latter notified all the tenants that he is the new owner of the building. Ildefonso ordered the tenants to vacate the premises within thirty (30) days from notice because he had other plans for the building. The tenants refused to vacate, insisting that they will only do so when the term of their lease shall have expired. Is Ildefonso bound to respect the lease contracts between Jude and his tenant? Explain your answer.

A: YES. Ildefonso must respect the lease contracts between Jude and his tenants. While it is true that the said lease contracts were not registered and annotated on the title to the property, Ildefonso is still not an innocent purchaser for value. He ought to know the existence of the lease because the building was already occupied by the tenants at the time he bought it. Applying the principle of caveat emptor, he should have checked and known the status of the occupants or their right to occupy the building before buying it.

Right of lessee if new owner terminates the unrecorded lease

The lessee may demand that he be allowed to gather the fruits of the harvest which corresponds to the current agricultural year and that the vendor indemnify him for damages suffered. [NCC, Art. 1676 (2)]