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Case: Developer's No License to Sell, Is the Sale Valid?

You purchased a property (house or condo unit) from a developer. You paid the reservation fee, signed the notarized Contract to Sell, and started paying for the monthly equity of the down payment. Later on, you discovered that the developer has no certificate of registration and license to sell. Panic mode, right?


Does it mean that the sale is invalid? The sale is still valid, but the developer pays the penalties. Section 29 and Section 30, Rule VI, of the Revised Rules and Regulations of PD 957 (2009) discussed the penalties:


Section 29. Administrative Fines Any owner or dealer who fails to register an existing subdivision project or condominium project within the period prescribed under these rules and regulations shall be penalized in accordance with the approved schedule of fines. The implementation and payment of these administrative fines shall not preclude criminal prosecution of the offender under Section 39 of the Decree. Section 30. Criminal Penalties Any person violating any provisions of these rules shall be guilty of an offense and shall suffer the penalties provided for under Section 39 of the Decree.

The Supreme Court said that as long as the Contract to Sell has the elements of a valid contract, the Contract to Sell is legal and binding to both parties. What are your options? You can (1) cancel the purchase and demand a refund or (2) continue the sale at your own risk.


As long as the developer delivered the unit as promised in the Contract to Sell (and no legal issues in the title) and you accepted unit after full payment of the total contract price and other closng expenses, the sale is valid.


You occupy the house and transfer the title to your name. No legal issues arise in your purchase of the property. Then, there is no problem at all.


The problem arises when the developer failed to deliver his promise to build you a condo or a house or he delivered the unit but there is a problem with the title.


A Supreme Court Case

In Sps. Co Chien v. Sta. Lucia Realty & Dev., Inc., et al., G.R. No. 162090 (2007), the Supreme Court said: "A review of the relevant provisions of P.D. 957 reveals that while the law penalizes the selling of subdivision lots and condominium units without prior issuance of a Certificate of Registration and License to Sell by the HLURB, it does not provide that the absence thereof will automatically render a contract, otherwise validly entered, void."


The Supreme Court explained:

The penalty imposed by the decree is the general penalty provided for the violation of any of its provisions. It is well-settled in this jurisdiction that the clear language of the law shall prevail. This principle particularly enjoins strict compliance with provisions of law which are penal in nature, or when a penalty is provided for the violation thereof. With regard to P.D. 957, nothing therein provides for the nullification of a contract to sell in the event that the seller, at the time the contract was entered into, did not possess a certificate of registration and license to sell. Absent any specific sanction pertaining to the violation of the questioned provisions (Secs. 4 and 5), the general penalties provided in the law shall be applied. The general penalties for the violation of any provisions in P.D. 957 are provided for in Sections 38 and 39. As can clearly be seen in the aforequoted provisions, the same do not include the nullification of contracts that are otherwise validly entered. (emphasis added).

In case of unregistered developer or sales agent and/or the subdivision/condominium project has no License to Sell, the contract -- as long as all the elements of a valid contract are present and not contrary to law, morals, good customs, public order or public policy -- is binding to all parties. Note: Always ask for the notarized contract to sell or contract of sale.


The unregistered owner/developer/dealer/broker/salesperson will be imposed a penalty. The penalties "do not include the nullification of contracts that are otherwise validly entered."


This is a legal remedy to buyers who bought a property from unregistered developer and sales agent or project without LTS. It doesn't mean that you can transact with them without fear of losing your money. When you do so, you are exposing your hard-earned money to a very high risk. The law simply recognizes the value of your hard-earned money and protects your rights as a buyer... so that, in your next transaction you may be careful and do your due diligence. Let us discuss two important real estate laws (PD 957— The Subdivision and Condominium Buyers Protective Decree and RA 9646—Real Estate Service Act (Resa) of the Philippines) that have direct bearing to the issue.


PD 957— The Subdivision and Condominium Buyers Protective Decree (1976)


PD 957 — The Subdivision and Condominium Buyers Protective Decree — was a response of the Marcos administration to the alarming cases of swindling and fraudulent real estate sales by unscrupulous owners, developers, sellers, and/or operators.


PD 957 has specific description of the terms: owner, developer, and dealer.

Owner. - "Owner" shall refer to the registered owner of the land subject of a subdivision or a condominium project.
Developer. - "Developer" shall mean the person who develops or improves the subdivision project or condominium project for and in behalf of the owner thereof.
Dealer. - "Dealer" shall mean any person directly engaged as principal in the business of buying, selling or exchanging real estate whether on a full-time or part-time basis.

In this blog, I simply called them "developer" as most owners of the property are also the developers and the dealers (sellers) of the subdivision or condominium project. However, we must take note that these three entities are not the same. Some owners of the property do not develop their property and entered into a contract with the developer. Some developers do not engage themselves in the marketing and sales of the subdivision or condominium project. The dealer or seller can be a department of the corporation or a separate corporation.

Another important terms to consider are the "broker" and the "salesman".

Broker. - "Broker" shall mean any person who, for commission or other compensation, undertakes to sell or negotiate the sale of a real estate belonging to another.
Salesman. - "Salesman" shall refer to the person regularly employed by a broker to perform, for and in his behalf, any or all functions of a real estate broker.

In project selling, the broker sells or negotiates the sale of unit (residential lot, house-and-lot, or condo unit) sold by the developer/dealer to the market. The broker is compensated through a commission per sale. The industry practice is 5% of the selling price of the property. Some developer/dealer offer monetary and non-monetary incentives for the performing brokers.


In the Revised Rules and Regulations of PD 957 (2009), under Section (i), Rule VI, "A bulk buyer shall mean any person who acquires a lot or a portion of the subdivision and who, with or without re-subdividing or introducing housing or other facilities, sells the same, under its previous license to sell or in a new license to sell in his name to the public." Some brokers are engaged into this business. They buy bulk units in the subdivisions and let their salespersons market them. They can negotiate the price, enjoy the commission, and enjoy the profit per sale.


Each broker can hire a salesman (salesperson) to perform, for and in his behalf, the sale of the residential lot, house-and-lot, and condo unit. The compensation is usually based on the commission of the broker per sale of the property. If the commission per unit is 5%, the broker can offer 2% or higher, depending on the sales performance of the salesman or salesperson.


All of them (owners, developers, dealers, brokers, and salespersons) are regulated by the Housing and Land Use Regulatory Board (HLURB). On February 14, 2019, President Rodrigo Duterte signed Republic Act (RA) 11201, creating the Department of Human Settlements and Urban Development (DHSUD) as the central housing authority in the Philippines. It has absorbed the duties and functions of the Housing and Urban Development Coordinating Council (HUDCC) and the Housing and Land Use Regulatory Board (HLURB).


RA 9646—Real Estate Service Act (Resa) of the Philippines


Today, there is a growing call for non-registered real estate agents to be registered and accredited by the PRC/HLURB (DHSUD). The aim is to professionalize the real estate industry in the Philippines.


"No person shall practice or offer to practice real estate service in the Philippines or offer himself/herself as real estate service practitioner, or use the title, word, letter, figure or any sign tending to convey the impression that one is a real estate service practitioner, or advertise or indicate in any manner whatsoever that one is qualified to practice the profession." (Sec. 29, RA 9646)


I attended the 120-hours of Comprehensive Real Estate Seminar and Special Review (equivalent of 120 academic units or continuing professional education units) in preparation for broker's exams. The lectures were conducted whole day (8 hours) every weekend for 15 or 20 days. It was a comprehensive seminar and review as it covered all aspects in the real estate transactions and pertinent laws dealing with real properties. Effective 2016, under Republic Act No. 9646, known as the Real Estate Service Act (Resa) of the Philippines, only graduates of bachelor's degree in Real Estate Management can take the licensure examinations for real estate broker.


Accreditation of salesperson


To be accredited real estate salesperson by the HLURB (DHSUD), the applicant must attend the Salesperson's PRC Accreditation Seminar (now 15 units) and thereafter, apply for registration to the Professional Regulatory Board of Real Estate Service. Once approved, the applicant can apply for the accreditation to HLURB/DHSUD.


The risk in dealing with non-registered agents has no bearing with the validity of the sale. The absence of registration certificate and license to sell of the developer/dealer does not also affect the validity of the sale as we discussed above. Some people claims that when the developer failed to finish the project, the property buyer will have difficulties in demanding for a refund due to the absence of the registration and license to sell. The penalties for violators of PD957 are stipulated in Section 38 and 39, to wit:


SECTION 38. Administrative Fines. - The Authority may prescribe and impose fines not exceeding ten thousand pesos for violations of the provisions of this Decree or of any rule or regulation thereunder. Fines shall be payable to the Authority and enforceable through writs of execution in accordance with the provisions of the Rules of Court.
SECTION 39. Penalties. - Any person who shall violate any of the provisions of this Decree and/or any rule or regulation that may be issued pursuant to this Decree shall, upon conviction, be punished by a fine of not more than twenty thousand (P20,000.00) pesos and/or imprisonment of not more than ten years: Provided, That in the case of corporations, partnership, cooperatives, or associations, the President, Manager or Administrator or the person who has charge of the administration of the business shall be criminally responsible for any violation of this Decree and/or the rules and regulations promulgated pursuant thereto.

The law does not differentiate in the criminal penalties under Section 39 of PD 957 against fraudulent and unscrupulous owner/developer/dealer. The subdivision and condominium buyers can seek redress and demand justice regardless the owner/developer/dealer is registered or not, with or without license to sell.


If the intention is to encourage property buyers to "deal only with the registered broker/salesperson," there is a better way to doing it. For one, let the registered broker or salesperson demonstrate his/her competence and professionalism. That's the better way of promoting the professionalization of the industry.


So, what is the reason for "dealing only with registered broker/salesperson"? It has something to do with the effort to professionalize the industry. It has something to do with the inability of the person to give you the needed information about the project and your rights as home buyer.


The risk is more in the misinformation or misrepresentation of the project and its features. Dealing with non-registered agents (developers and projects) does not affect the validity of the Contract to Sell or sales transactions (as we discussed above). For instance, the case of condo buyer who paid the down payment but could not find a bank for his home mortgage because he/she is not qualified for the required loan. In some condo projects, especially preselling condos, the down payment is really affordable as low as P5,000 per month payable in 36 months. The agent only discussed the monthly installments for the condo unit and did not bother (perhaps intentionally) to discuss the monthly amortization of the home mortgage which is usually bigger because the term is shorter (10-15 years) and really burdensome to some buyers.


For your protection, transact only with the registered and licensed real estate agent. He is educated in the real estate laws and knows the market. With his guidance, you are assured that you are buying the right property and avoid the buyer's remorse.


The campaign for non-registered real estate agents to get registered in the PRC and HLURB is to professionalize the real estate industry.


SOME CLOSING REMARKS


If you are buying a residential lot, a house-and-lot, or a condo unit from the developer, and/or dealing with non-registered real estate agent is not really a major concern. The absence of the registration and license of the developer, the project and the sales agent does not render the Contract to Sell void as long as it is a valid contract. However, you must ask for the Certificate of Registration of the developer and the License to Sell of the project. The presence of the License to Sell is sufficient document to give you peace of mind that you are buying the right property with no legal issues. Read our in-depth discussion here.


Our discussion on property law is only to give you an idea about your rights as property buyer. For your specific case, you have to visit the HLURB?DHSUD to seek legal remedies. If not resolved, you hire a competent lawyer for legal resolution of your case.


For more information about the topic or any inquiries about buying a property in Cebu, please contact us at 0908-301-7398 or email us at cebuhousefinder@yahoo.com. We help home buyers to find their dream house at the best price and location… for free!




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