Contract signed

by Steve Van Derodar

| Photo by Scott Graham on Unsplash

Several foreign-based buyers may not be so acquainted with the processes involved in a Philippine property purchase. After all, while it is generally understandable, it could still be very new to some buyers, especially since countries may have different application processes.

As condo property purchase is open to non-Filipinos versus a house and lot purchase, it might also be important to get familiar with how sales transactions go in real property dealings.

When buying a Philippine property, it is expected that after reserving the unit, and upon fulfillment of the down payment, a Contract to Sell soon follows in the purchase. It is a document with all the final terms and conditions of the sale. It is issued to the buyer by the seller after the down payment has been made. Ownership of the property remains with the seller until the full purchase price has been completed.

According to batasnatin.com, a Contract to Sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the latter upon his fulfillment of the conditions agreed upon, i.e., the full payment of the purchase price and/or compliance with the other obligations stated in the contract to sell. Given its contingent nature, the failure of the prospective buyer to make full payment and/or abide by his commitments stated in the contract to sell prevents the obligation of the prospective seller to execute the corresponding deed of sale to effect the transfer of ownership to the buyer from arising.

The reservation fee usually stands for a month before the actual down payment is due. It gives us an understanding that signing a reservation agreement alone and paying for a fee doesn’t provide complete assurance to the sale. The reservation is to make sure that such a unit won’t be given to other buyers and would prioritize the unit.

Further, according to batasnatin.com, a contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor’s obligation to transfer title is subordinated to the happening of a future and uncertain event so that if the suspensive condition does not take place, the parties will stand as if the conditional obligation had never existed.

“Contract to Sell applies only to installment purchases and is not made with spot cash purchases which would instead have to proceed directly with the deed of absolute sale.”

To note, while the quality of contingency inheres in a contract to sell, the same should not be confused with a conditional contract of sale. In a Contract to Sell, the fulfillment of the suspensive condition will not automatically transfer ownership to the buyer, although the property may have been previously to him. The prospective seller still has to convey the title to the prospective buyer by entering into a final sale contract. On the other hand, in a conditional contract of sale, the fulfillment of the suspensive condition renders the sale absolute. The previous delivery of the property automatically transfers the seller’s ownership or title to the property to the buyer.

Please note, however, that Contract to Sell applies only to installment purchases and is not made with spot cash purchases which would instead have to proceed directly with the deed of absolute sale. If it’s an installment purchase, a contract to sell is a powerful document that details all information about your purchase and the buyer and sellers’ commitments to the purchase.

For example, I happen to have clients who are both hospitality managers who have decided to purchase a loft unit in a Makati condo. They are based abroad but were in town then, a contract to sell was accomplished. Several pages were signed, including payment terms, unit sizes, deliverables in the said unit, etc. They were lucky that they didn’t need to have the document consularized since they were in town. It had to be notarized still and just having their passports stamps that they were in the Philippines upon executing the contract. Typically, if buyers are abroad, the said document must be consularized to the nearest consulate or embassy. Fast forward, they finally had their unit rented out after paying monthly installments and securing a bank loan and fully paying the unit balance just in time when the building was completed. They turned over units.

Of the hundreds of contracts that I have assisted, there were a few others that, for some, the unit couldn’t be delivered to them and are said to have defaulted. The contract also stipulates whether they could give back some monies to the buyers or a percentage thereof depending on how much has been paid. The agreement will also stipulate change of ownership, transfers, and even assignments to some extent. It can also specify delinquency and provisions of default.

“The Contract to Sell is vital because it provides the body and soul of your agreement with the developer to buy and the developer to sell the property; CTS establishes your legal personality in the sale transaction. The contract to sell is just one of the many vital aspects of a sale.”

As an example, it reads as: “That in case the BUYER shall fail to pay, when due, any of the monthly installments herein stipulated for three consecutive months before the two years from and after this date, all rights and interest of said BUYER to the above-described property, including the improvements thereon, shall ipso facto cease and terminate, and all payments made by him/her before said default shall be deemed forfeited and waived in favor in favor of the SELLER in settlement of rents and liquidated damages without prejudice, however, to the rights of such BUYER under Republic Act 6552 if he/she shall have completed paying at least two years of installments….”

The Contract to Sell is vital because it provides the body and soul of your agreement with the developer to buy and the developer to sell the property; CTS establishes your legal personality in the sale transaction. The contract to sell is just one of the many vital aspects of a sale. However, the same agreement will protect you from other exploitive policies and repressive acts of the developer. Your developer will have to deal with you, and government regulatory agencies will recognize you; It lays down all your responsibilities as the buyer and those of the developer as the seller; it specifies your commitments (payment term) and the commitments of the developer (delivery of the property). This document can be your basis when you run into conflict with the developer and seek redress or arbitration with government regulatory agencies.

A Contract signed is the beginning of recognizing your obligations and commitments to the purchase. It is what makes promises fulfilled.

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(Stevenson’s experience in Philippine Real Estate spans more than 15 years. He has been involved in horizontal, vertical, vacation, and commercial properties. He has worked as an International Property Specialist to markets in Asia, Europe, and North America with Ayala Land, Federal Land, and Century Properties. Through PhilHouseHunters, he offers real estate investment opportunities, marketing, and consultancy with a key focus on Metro Manila and Mega Cebu areas. Visit www.philhousehunters.com. Email at derodarsales@gmail.com.)

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