Rules on Improvements on Leased Properties

QUESTION: Sir John, upon termination of the lease, what are the rules relative to the improvements introduced by the lessee?

ANSWER: Below are the rules:

(1) If the improvements are useful and suitable for the purpose of the lease, the lessor shall pay the lessee one half (1/2) of the value of the improvements. If the lessor is not willing to reimburse said amount, the lessee may or may not remove the improvements as long as the original premises of the property, on which the improvement is attached to, will not suffer damages.

(2) If the improvement is merely ornamental (not permanent), the lessee is not entitled to any reimbursement. But he may remove it provided no damage is caused to the principal thing and the lessor does not choose to retain it by paying its value. If there are damages, the lessor may compel the lessee to pay for the restoration.


QUESTION: Sir John, how is property improvement treated at termination of lease contract? Mr. Bernardo, the owner of the residential house in Quezon City, leased the property to Mr. Cruz, lessee, for ten (10) years. There was no stipulation between the parties as to improvements. The property had a driveway for cars but it had no garage. Mr. Cruz built a garage. What is the legal nature of the garage as an improvement?

ANSWER: The garage is useful improvement. It must be observed that it is suitable to the use for which the lease is intended, considering the fact that there is a driveway for cars. Besides, it has enhanced the utility of the property.


QUESTION: Can Mr. Bernardo retain the garage after the expiration of the lease?

ANSWER: YES. Mr. Bernardo can retain the garage after the expiration of the lease, provided that he shall pay one half of its value at that time.


QUESTION: Can Mr. Bernardo require Mr. Cruz to remove the garage after the expiration of the lease?

ANSWER: Mr. Bernardo cannot require or compel Mr. Cruz to remove the garage after the expiration of the lease.


QUESTION: How would lessor/lessee disputes are to be avoided?

ANSWER: The lessee should always ask permission from the lessor before introducing any improvement on the property. Absentee lessors are advised to get a Property Manager (Real Estate Broker) who have full-time to monitor the property and attend to the lessee's requests.

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