Republic Act (RA) No. 9653, also known as the Rent Control Act of 2009, was signed into law by President Gloria Macapagal-Arroyo at the Rizal Ceremonial Hall last Tuesday, July 14, 2009, and exempts rent-to-own agreements from its coverage.
This was mentioned in this article from the Philippine Daily Inquirer. I’m quite sure a lot of real estate investors engaged in the business of rentals and rent-to-own have been waiting for updates with regard to the new rent control law.
However, I believe rent-to-own agreements would not have been affected by the new law even if they were to become covered because most lease option contracts often have a fixed monthly rental rate all throughout the lease term. Still, having rent-to-own agreements exempted from the new law offers greater flexibility to landlords and real estate investors in general. For rentals however, in my opinion, the new law helps establish a very clear basis on when rentals should be paid, how much advanced rent and deposit a landlord can ask from their tenants, what are the grounds for judicial ejection, etc.
According to the new rent control law, rent will have to be paid in advance within the first five days of every month, or at the beginning of the lease agreement, unless the contract of lease provides for a later date of payment. It also allows the owner to ask for a maximum of one month advance rent and two months deposit. Deposits will be forfeited in favor of the unit owner to cover any arrears and/or cost to repair damages just in case the tenant fails to pay rent or utility bills like water and electricity, or damages the property.
Do take note that the new law prohibits the ejection of tenants on the grounds that a rental unit has been sold or mortgaged to a third person. For example, if you purchased a foreclosed property that has existing tenants, the tenants cannot be ejected and the new owner will have to honor the existing lease agreement. However, failure to pay rent for three months, sub-leasing of the rental unit without the consent of the unit owner, and the owner’s need to repossess the property or make necessary repairs to make it more safe and habitable, are grounds for judicial ejection.
In summary, RA 9653 will not allow any increase on the rent of any residential unit for the next year and after this, the maximum rent increase will be seven percent each year and this covers all residential units in Metro Manila with a monthly rent of Php1.00 to Php10,000.00 and all units in urban cities with a monthly rent of Php1.00 to Php5,000.00. Violators face a fine of Php25,000.00 to Php50,000.00, or imprisonment of one month and a day up to six months, or both.
As I have stated in my post about the old rent control law that expired, market forces basically dictate the rental rates. With or without rent control, landlords can’t just dictate rates if the rental rates in the area are low. They’ll end up with no tenants for sure. At the end of the day, a landlord needs tenants in the same way that tenants need landlords, so the landlord should not be too greedy and should only ask for rental rates that are fair and just under the circumstances, and as prescribed by the new rent control law.
Here’s a tip: whether you are a landlord or a tenant, make sure you have a valid lease agreement in writing!
To our financial freedom!
Text by Jay Castillo. Copyright © 2009 All rights reserved.