The inflation rate continues to soar as the Philippines struggles to recover from the devastating financial impacts of the COVID-19 pandemic and the Russian-Ukraine conflict. The costs of goods and services continue to rise, while the wage growth of low- and middle-income families lags behind, resulting in the continued reduction of the purchasing power of these households. Arguably, the adverse effects of a contracted economy are more significant for people who lease their homes because their incomes are further diminished by their monthly payments to their landlords. Unfortunately, rental payments might constitute a larger portion of a tenant’s income when a landlord increases the price for continued occupancy of the unit. In cases where the rent increase is steep, it may result in the eviction of tenants due to their inability to pay the new rates.
From the perspective of the landlords, the adverse effects of the current economic downturn are indiscriminate, as they affect both lessors and lessees alike. Therefore, it makes sense for them to raise rents to some extent in order to ensure the survival, if not the profitability, of their businesses. For small- to medium-sized businesses that offer relatively low rent rates, the profits gained from leasing to tenants may not even be sufficient to yield a profit or even cover the cost of maintenance, thus unavoidably necessitating an increase in their monthly rates. For large businesses, landlords may be compelled to increase their rental prices if their profits shrink lower than an acceptable threshold limit due to the costs of goods and services associated with maintaining the security, utility, and aesthetics of their properties as a result of inflation.
Arguably, a lessor’s inclination to increase rental prices to a level that the lessees could still afford in the pursuit of maintaining the profitability of a leasable unit is justifiably within his or her rights and should be permissible because it is reasonable. Provided, of course, that the landlord has sufficiently provided the tenant with enough time before rent prices were increased. However, it would be unacceptable if the latter arbitrarily increased rent costs to a level that tenants, particularly middle- to lower-income families, could not possibly afford. For this reason, the Rent Control Act of 2009 (Republic Act 9653) was passed to regulate rent prices in order to safeguard tenants from exorbitant increases in their monthly rent. In addition, the law also stipulates the grounds and procedures for justifiable eviction that both tenants and landlords must adhere to.
Coverage of the Rent Control Act
RA 9653 stipulates that all residential properties with monthly rents ranging from one peso (Php 1) to ten thousand pesos (Php 10,000) in Metro Manila are subject to the law. In addition, the Law also applies to housing properties with monthly rates between one peso (Php 1) to five thousand pesos (Php 5,000) in other densely populated areas throughout the country. The law explicitly considers the following types of properties:
- Residential units that are part of a residential building (or multiple residential buildings) or a distinct space within a house that is primarily used for residence, such as apartments, dormitories, boarding rooms, studio rooms, bed spaces.
- Condominiums that charge less than Php 10,000 monthly rent are also subject to the law.
- Residential homes and/or land properties fit for human habitation and used for residential purposes.
However, RA 9653 does not apply to rental spaces that cater to the hospitality, commercial, retail, and leisure sectors. These include the following: hotel rooms, motel bedrooms, and rooms that are used for commercial, business, or other non-residential purposes.
Moreover, rent-to-own units are also not covered by the law because the ownership of these properties is eventually transferred from one party to another. This goes beyond the basic mechanics of renting a unit from a lessor to a lessee and has its own legally binding contract.
Furthermore, the law does not cover non-rental payments associated with leasing a housing unit, these include invoices for electricity, water, utilities, maintenance, security, and garbage disposal. Moreover, if the lessor personally resides within the leased unit, then the aforementioned unit is not subject to the Rent Control Law. Finally, residential properties that are priced higher than ten thousand pesos (Php 10,000) are also exempt from the provisions of RA 9653.
The Government Agency Authorized to Facilitate Rental Regulation
Under Section 6 of RA 9653, the Housing and Urban Development Coordinating Council (HUDCC) is authorized to uphold the provisions of the Law. Among the primary duties and responsibilities of HUDCC are the following:
- Establish the categories of residential property that fall under the purview of the law.
- Ensure that all residential properties subject to the law strictly adhere to the prescribed rent increases.
- Ascertain the duration and extension of the period at which residential lease rates are regulated.
- Adjust the limit at which lease rates are annually increased after considering the current leasable housing census, residential lease rates, rental price index, and the monthly inflation rate of residential units (year-on-year).
Under Section 15, of RA 9653, the HUDCC is also required to review its implementation and conduct a study on rental regulation every three (3) years starting with the effective date of the Act. The HUDCC is also required to submit its recommendation to Congress on whether further regulation is still required or whether deregulation is already justified.
Limitations on Rent Increases
Section 4 of RA 9653 stipulates the degree at which landlords are allowed to raise their rental rates per year in order to protect lessees from unfair rent hikes imposed by the former. Table 1 shows the maximum annual percentage at which a landlord is permitted to increase their monthly rates based on the lease’s placement within the monthly rent range as specified in the law and the recency of the lessee’s tenancy in the lessor’s property.
Residential units cost below Php 5,000 per month are permitted to increase rent by no more than 2% each year. Meanwhile, landlords that charge between Php 5,000 and Php 8,999 per month are entitled to raise their rates by a maximum of 7% per year, provided that the lessee has already occupied the unit prior to the rent increase. Lastly, units that are priced between Php 9,000 and Php 10,000 per month are entitled to increase their rents by a maximum of 11% each year, so long as the same renter currently resides in the same unit.
On the other hand, conditions are drastically different for new tenants as landlords are permitted to set their own rental rates, regardless of whether their lease rates exceed the maximum 7–11% rent hike restrictions on rental housing units that charge between Php 5,000 and Php 10,000 per month. In this case, lessees can only expect fair rental rates through a mutual legal agreement with their landlord.
As for students, the recency of their tenancy in rooms, bedspaces, dormitories, and boarding houses is irrelevant to the frequency at which lessors can increase their rent rates. This is because the Rent Control Law stipulates that they can only do so once a year. This means that landlords cannot increase the rent each time a new student moves into their premises during the entire course of one academic year.
Table 1: The maximum allowable rent increase per year in accordance with its respective monthly rent range.
Rent and Requirement of Bank Deposit
Section 7 of RA 9653 stipulates that, unless the lease agreement specifies a later date of payment, the lessor is entitled to receive an advance payment from the lessee during the first five (5) days of each subsequent month or at the start of the lease’s term. However, the landlord is not permitted to demand an advance payment for more than one month. In addition, the former is prohibited from compelling the latter to make a deposit of more than two months’ worth of rent payments.
Throughout the entire term of the lease, the deposit must be retained in a bank account under the landlord’s name. At the end of the lease, the proprietor shall return the deposit to the tenant, along with all the accrued interest. However, if it is beyond the financial capacity of the leaseholder to pay for non-rental payments associated with residential tenancy or if he or she incurs any damage to the landlord’s property, then the latter is entitled to receive the former’s deposit and all interest it accrued in order to settle all remaining financial obligations.
Justifiable Eviction of Residential Tenants
Under Section 9 of RA 9653, landlords are legally permitted to evict their tenants under the following conditions:
- Lease Contract Expiration: a tenant’s leasing agreement for the rental home has already expired.
- Unauthorized Subleasing: a tenant illegally subleased his or her residential unit to another tenant without receiving formal written approval from the landlord to whom the property belongs.
- Overdue Rental Payments: a tenant was unable to meet his or her monthly payments to the landlord for three (3) months, thus incurring a significant amount of accrued expense.
- Essential Property Reparations: a tenant must vacate his or her unit so that the landlord can make the necessary reparations to preserve the safety and habitability of the property, whose condition may merit condemnation by the appropriate authorities. If the tenant still desires to lease the unit after the completion of its repairs, then he or she is entitled to first preference for leasing the same property.
Despite this, the lease of the new building should not be subject to the foregoing first priority criterion if the residential unit is condemned or entirely demolished. Moreover, the landlord is entitled to raise the rent for the same property in proportion to the expenses incurred during the unit’s reparation and renovation.
- Owner’s Necessity to Use the Property: A tenant’s lease agreement is approaching its expiration; however, the landlord is unwilling to renew the leasing contract due to a genuine and legitimate reason to reclaim or repossess the unit for personal or familial use. Three months prior to the day of eviction, the landlord must inform the tenant of his or her intent to discontinue the renewal of the lease agreement and repossess the property. In addition, the law only permits the landlord to lease the property to a third party one year after the event of repossession.
Unjustifiable Eviction of Residential Tenants
Landlords are prohibited to evict their tenants under the following conditions:
- Eviction after the Acquisition of a Third Party: Under Section 9 of RA 9653, neither the old nor the new lessor of an occupied unit is permitted to evict the residing tenant, irrespective of whether or not the lease or mortgage was documented.
- Eviction of a Healthcare Worker or Sick Patients: it is illegal for landlords to evict health care and emergency workers as well as patients afflicted with highly infectious diseases, such as COVID-19.
- Eviction of a Tenant in areas Subject to Community Quarantine: landlords are prohibited from evicting tenants who are unable to meet their financial obligations during the enforcement of strict COVID-19 quarantine protocols in Enhanced Community Quarantine (ECQ), Modified Community Quarantine (MCQ), and General Community Quarantine (GCQ) areas. Unsettled rents are expected to be paid in installments within a period of six month after the cessation of the grace period, without incurring any penalties, fees, interest and other related charges. Provided that, the tenant provides the proprietor with a promissory note or any letter of similar nature.
- Eviction of a Tenant that registered the lease before the Registry of Deeds: Under the Civil Code, landlords are prohibited to unlawfully terminate a lease agreement and evict their tenants if the latter has registered the leased property before the Registry of Deeds.
- Eviction of a Tenant Through the use of Force or Intimidation: Under Article 536 of the New Civil Code, a landlord cannot place a tenant under extreme duress of any kind in order to evict them.
Advantages and Disadvantages of Rent Control
RA 9653 is arguably limited as the country’s rent control policies primarily regulate rent increases for lease renewals of existing tenants. Unfortunately, the law does not stipulate rent control policies that significantly benefit new tenants other than students; this opens opportunities for tenant abuse and exploitation.
In areas where the supply of residential units is low and the demand for such properties is high, the law’s limitation renders new tenants extremely vulnerable to exploitative landlords who seek to drastically increase their profits by pricing unoccupied units at a significantly higher price relative to the current market value of other residential units within the same area.
In such cases, tenants in the same area may be discouraged from searching for new housing units that provide better amenities, comfort, and convenience for fear of being charged exorbitantly high rent for overvalued residential properties.
Among the primary arguments opposing rent control are:
- The availability of livable residential units decreases because lessors would prefer to turn their properties into condominiums or commercial real estate rather than decrease their asset’s profitability by abiding by the Rent Control Law.
- The investors’ appetite for new developments of leasable residential units is significantly reduced.
- The landlord’s motivation to constantly maintain their properties steadily diminishes, hence the gradual decay and dereliction of leasable units.
The principal justifications for regulation include the following:
- Induced deceleration of the drastic and uncontrolled rise of rental rates in relation to the slow growth of moderate-income wages
- Enablement of moderate-income households and those on fixed incomes to live a comfortable life without worrying about an unexpected and unreasonable rent increase.
- Security and safety of apartments that have long-term residents.
Penalty for Rent Control Law offenders
Lessors who violate the law shall receive a fine between Php 25,000 and Php 50,000, or imprisonment for one month and one day to six months. Depending on the severity of the crime, the offender may be imprisoned as well as receive a fine. With regard to litigation, the existing rental legislation in many areas lacks clarity in the case of whether you can file a lawsuit against a landlord for infringing upon the rights of a tenant. However, a tenant may not need to file a lawsuit against his or her landlord if both parties come to an agreement. If no agreement is reached, a tenant may contact the nearby barangay chairman, who has the authority to enforce the Rent Control Law.
Written By Kevin Kyle B. Santos
Aviso Valuation and Advisory Corp. is a real estate consultancy firm that offers valuation and business advisory services compliant to international standards such as the International Valuation Standards (IVS) and International Financial Reporting Standards (IFRS). To assure that we only produce high-quality deliverables, as needed, we do tasks beyond the usual appraisal process like verifying pertinent property documents (i.e. land titles, tax declarations, etc.) with the appropriate government agencies for due diligence purposes prior to the acquisition of the properties.
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References
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- Ballesteros, M. M., Ramos, T. P., & Magtibay, J. E. (2016). Rent Control in the Philippines: An Update (2016-40). Philippine Institute for Development Studies. https://psa.gov.ph/sites/default/files/5.6.1%20Unintended%20Consequences%20of%20Rent%20Control%20in%20the%20Philippines_0.pdf
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- The Lawphil Project. (2009). Republic Act No. 9653. The Lawphil Project – Arellano Law Foundation, Inc. https://lawphil.net/statutes/repacts/ra2009/ra_9653_2009.html
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