To buy or to lease: That is the question

(Editor’s note: This second of two parts discusses the contracts, and the rights of buyers and sellers. The lease part was published on March 29.)

The law defines a sale as a contract whereby one of the contracting parties, the seller, transfers the ownership of and delivery of a determinate thing to the other party, the buyer, and to pay a price certain in money or its equivalent. A sale may be absolute or conditional.

The essential elements of a contract of sale are 1. consent or the meeting of the minds of the parties to transfer ownership in exchange for the price; 2. a determinate subject matter, and 3. a price certain in money or its equivalent.

Ownership of the property is the basic end game from a buyer’s point of view. An owner has the right to enjoy and dispose of a thing, without other limitations than those established by law. A lessor, while having the right to enjoy the property, may not dispose of or sell the property because it is not his. An owner has the right to use and abuse his property in such any manner, provided it does not injure the rights of other persons.

One thing an owner and a lessee or lawful possessor has is that both have the right to exclude any person from enjoyment and disposal of the property. Furthermore, they may use such force as may be reasonably necessary to repel or prevent an actual or threatened unlawful physical invasion or usurpation of his property. This is an exception to the general rule that no person should take the law into his own hands.

The ownership of property gives the right by accession to everything which is produced by the property or which is incorporated or attached to it, either naturally or artificially. A lessee has limited rights over the accessions to the leased property.

A sale involves the obligation to absolutely transfer title to or ownership of a property while a lease involves the use of the property for a lease price coupled with an obligation to return the property at the expiration of the term agreed upon.

A contract of sale is also different from a contract to sell. The latter is an agreement between a seller and a buyer where the seller promises to sell and the buyer promises to buy the subject property. Ownership or title to the property is not transferred until upon the compliance with conditions set. This is common with the sale of real property from developers especially on installment. Possession may be turned over to the buyer but ownership is retained by the developer-seller. When all conditions are met, the parties shall execute the contract of sale. Only then shall title transfer to the buyer.

There are instances wherein a conditional sale is made by means of a “lease with option to buy.” The lease price is actually installment payments of the purchase price.

The most common practice now is the purchase of property on pre-selling and on installment basis. Note that such sale may be covered by R.A. No. 6552 or the  “Realty Installment Buyer Act” or more popularly referred to as the “Maceda Law.” The law covers all transactions or contracts involving the sale or financing of real estate on installment payments including residential condominium apartments but excluding industrial lots, commercial buildings and sale to tenants under agrarian laws. The law allows for the defaulting buyer who has paid installments a grace period to pay before the cancellation of the sale.

The parties to a sale are the seller and the buyer. Either may be natural persons or juridical persons such as corporations, partnerships, and associations that have a distinct personality from each shareholder, partner or member. It is important that the party entering into the contract are duly authorized to transact and bind the person they represent. Therefore, prudence would dictate that one requests for documentation of the authority to transact such as a power of attorney, a board resolution or partnership resolution.

Remember that whether you are a seller or buyer, you want the sale to be consummated. It would be in the best interest of both parties to exert due diligence to achieve this goal. At this point however, let us focus on the things that a prospective buyer should include in a basic due diligence checklist.

• Check the title. Request for a certified true copy of the certificate of title from the seller or the representative. The title contains the name of the registered owner or owners of the property. See if that is the person you are dealing with. The title also indicates the technical description of the property, and if there are encumbrances over the property such as an outstanding mortgage or easements. If there are annotations, the title is not “clean.”

• Ask for a survey. Be certain of the subject matter of the sale. If it is a parcel of land, see if there is a lot plan. It would be best to have a survey of the property. If it is a condominium unit, request for a floor plan.

• Get the latest tax declaration and tax clearance. See if there are outstanding real property taxes. Note that there may be more than one Tax Declarations, one for the land and one for improvements. You may go to the local Municipal or City Assessor’s Office for these documents.

• Inspect the property. Do an ocular inspection of the property. Take the time to visit the property and get a look and feel personally. Aside from finding out if the property is really for you, you may discover if there are occupants of the property, the neighbors, access to and from the property.

• Utilities. Check if there are utilities like electricity, water, telephone and internet available. Also see if there are existing accounts that may be transferred, cancelled or if there are outstanding accounts.

• Taxes and fees. Determine the tax obligations due from the transaction. Note taxes to be paid such as documentary stamps tax and capital gains tax. Also check registration fees and notarization fees. These amounts may add on to cash a buyer has to shell out on top of the down payment and purchase price if buying on installment.

• Legal representation. Engage the services of a real estate attorney to represent you. Sellers and their representatives may make it convenient to have their attorneys do the paperwork. Never agree to this. An attorney of your choice will protect your interest and safeguard your rights. Bring your attorney on board as soon as possible and not after concluding negotiations and worse, after signing documents.

The key take away in this can be summed up in two words: due diligence. Whether you are opting for a lease or a sale, whether you are a seller or buyer, it is necessary to exercise due diligence in the transaction and documentation. The business of property is already expensive to begin with. Life savings may be put at risk if not done diligently. Avoid the inconvenience and risk of litigation by knowing the nature of the contracts you are entering into and the respective rights, duties and obligations of the parties.

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Raymund may be reached by email at [email protected]. Visit for more details.