December 22, 2001

AN ACT ESTABLISHING REFORMS IN THE REGULATION OF RENTALS OF CERTAIN RESIDENTIAL UNITS, PROVIDING THE MECHANISMS THEREFOR AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

Section 1. Short Tittle. – This ACT shall be known and cited as the "Rental Reform Act of 2002"

Section 2. Declaration of Policy. – The State shall for the common good, undertake a continuing of urban land reform an housing which will make available at affordable cost decent housing and basic services to underprivileged and homeless citizens in urban centers and resettlement areas.

Toward this end, the State shall establish reforms in the regulation of retails of certain residential units.

Section 3. Monthly Rental and Maximum Increase. – Beginning 01 January 2002 and for a duration of three (3) years thereafter ending on 31 December 2004, the monthly rentals of all residential units in the National Capital Region and other highly urbanized cities not exceeding Seven thousand five hundred pesos (P7,500.00) and the monthly rentals of all residential units is all other areas not exceeding Four thousand pesos (P4,000.00) shall not be increased annually by the lessor, without prejudice to existing contracts, by more than ten (10%).

Section 4. Definition of Terms. – The following terms as used in this Act shall be understood as:

(a) "Rental" shall mean the amount paid for the use or occupancy of a residential unit whether payment is made on a monthly or other basic.

(b) "Residential unit" shall refer to an apartment, house and/or land on which another's dwelling is located and used for residential purpose and shall include not only buildings parts or units thereof used solely as dwelling places, boarding houses, dormitories, rooms and bedspaces offered for rent by their owners, except motels, motel rooms, hotels, hotels rooms, but also those used for home industries, retail stores or other business purposes if the owner thereof and his or her family actually live therein and use it principally for dwelling purposes.

(c) "Immediate members of family of the lessee or lessor" for purposes of repossessing the leased promises, shall be limited to his or her spouse, direct descendants or ascendants, by consanguinity or affinity.

(d) "Lessee" shall mean the person renting a residential unit.

(e) "Owner/Lessor" shall include the owner or administrator or agent of the owner of the residential unit.

(f) "Sublessor" shall mean the person who leases or rents out a residential unit leased to him by an owner.

(g) "Sublessee" shall mean the person who leased or rents out a residential unit from a sublessor.

(h) "Assignment of lease" shall mean the act contemplated in Article 1649 of the Civil Code of the Philippines.

Section 5. Rental and Deposit. – Rental shall be paid in advance within the first five (5) days of every current month or the beginning of the lease agreement unless the contract of lease provides for a later date of payment. The lessor cannot demand more than one (1) month advance rental and two (2) month's deposit.

Section 6. Assignment of Lease of Subleasing. – Assignment of lease of subleasing of the whole or any portion of the residential unit, including the acceptance of boarders or bedspacers, without the written consent of the owner/lessor is prohibited.

Section 7. Grounds for Judicial Ejectment. – Ejectment shall be allowed on be the following grounds;

(a) Assignment of lease or subleasing of residential units in whole or part, including the acceptance of boarders or bedspacers, without the written consent of the owner/lessor.

(b) Arrears in payment of rent for a total of three (3) months Provided. That in the case of refusal by the lessor to accept payment of the rental agreed upon, the leased may either deposit by way of consignation, the amount in court, or with the city or municipal treasurer, as the case may be, or in a bank in the name of and with notice to the lessor, within one (1) month after the refusal of the lessor to accept payment.

The lessee shall thereafter deposit the rental within ten (10) days of every current month. Failure to deposit the rental for three (3) month shall constitute a ground for ejectment. If an ejectment case is already pending, the court upon proper motion may order the lessee or any person or persons claiming under him to immediately vacate the leased premises without prejudice to the continuation of the ejectment proceedings. At any time, the lessor may, upon the authority of the court, withdraw the rentals deposited.

The lessor, upon authority of the court in case of consignation or upon joint affidavit by him and the lessee to be submitted to the city or municipal treasure and to the bank where deposit was made, shall be allowed to withdraw the deposits;

(c) Legitimate need of the owner/lessor to repossess his or her property for his or her own use or for the use of any immediate member of his or her family as a residential unit: Provided, however. That the lease for a definite period has expired: Provided, further, That the lessor has given the lessee formal notice three (3) months in advance of the lessor's intention to repossess the property and: Provided finally; That the owner/lessor is prohibited from leasing the residential unit or allowing its use by a third party for a period of at least one year from the time of repossession;

(d) Need of the lessor to make necessary repairs of the leased premises which is the subject of an existing order of condemnation by appropriate authorities concerned in order to make the said premises safe and habitable: Provided. That after said repair, the lessee ejected shall have the first preference to lease the same promises: Provided, however. That the new rental shall be reasonably commensurate with the expenses incurred for the repair of the said residential unit and: Provided, finally; That if the residential unit is condemned or completely demolished, the lease of the new building will no longer be subject to the aforementioned first-preference rule in this subsection; and

(e) Expiration of the period of the lease contract.

Section 8. Prohibition Against Ejectment by Reason of Sale or Mortgage. – No lessor or his successor-in-interest shall be entitled to eject the lessee upon the ground that the leased premises have been sold or mortgaged to a third person regardless of whether the lease or mortgage is registered or not.

Section 9. Ret-to-Own Scheme. – At the option of the lessor, he or she may engage the lessee in a written rent-to-own agreement that will result in the transfer or ownership of the particular dwelling in favor of the latter. Such an agreement shall be except from the coverage of Section 3 of this Act.

Section 10. Application of the Civil Code and Rules of Court of the Philippines. – Except when the lease is for a definite period, the provisions of paragraph (1) of Article 1673 of the Civil Code of the Philippines, insofar as they refers to residential units covered by this Act, shall be suspended during the effectivity of this Act, but other provisions of the Civil Code and the Rules of Court on lease contracts, insofar as they are not in conflict with the provisions of this Act shall apply.

Section 11. Coverage of this Act. - All residential units in the National Capital Region and other highly urbanized cities the total monthly rental for each of which does not exceed Seven thousand five hundred pesos (P7,500.00) and all residential units in all other areas the total monthly rental for each of which does not exceed Four thousand pesos (P4,000.00) as of the effectivity date of this Act shall be covered, without prejudice to existing contracts.

Section 12. Penalties. - a fine of not less than Five thousand pesos (P5,000) nor more than Fifteen thousand pesos (15,000.00) or imprisonment of not less than one (1) month and (1) day to not more than six (6) month or both shall be imposed on any person,natural or juridical, found guilty of violating any provision of this Act.

Section 13. Information Drive. - The Department of the Interior and Local Government and the Housing and Urban Development Coordinating Council, in coordination with other concern agencies, are hereby mandated to conduct a continuing information drive about the provisions of this Act.

Section 14. Transition Program. - The Housing and Urban Development Coordinating Council is hereby mandated to formulate, within six (6) months from effectivity hereof, a transition program which will provide for safety measures to cushion the impact of a free rental market.

Section 15. Separability Clause. - If any provision or part hereof is held invalid or unconstitutional, the remainder of the law or the provision not otherwise affected shall remain valid and subsisting.

Section 16. Repealing Clause. - Any law, presidential decree or issuance, executive order, letter of instruction, administrative order, rule or regulation contrary to or inconsistent with, the provisions of this Act is hereby repealed, modified or amended according.

Section 17. Effectivity Clause. - This Act shall take effect on 01 January 2002 following its publication in at least two (2) newspapers of general circulation.