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The Rental Option

If Randy and Delia had a choice, they would prefer to amortize for their own property even at a higher price than they would pay monthly rental for their home. They did try to scout for a place they could amortize with their meager salaries but could not find one which would fulfill all their requirements.

Yes, there were houses well within their budget, even for an ordinary worker like them, but its distance from their workplace often cancelled out the benefits they would have had if they bought the property. Public transport fare, the growing urban traffic, less quality time for the family, and even health problems brought about by stress and pollution weighed much in their decision making. One other important consideration is that houses for sale are usually not readily available and will need a year or so to construct. During that period, the buyer will have to pay equity which still paying rent. This can be quite prohibitive for some individuals.

Randy and Delia concluded that they had to content themselves with renting a decent place for now, one that they could afford and still have enough to save for a future home.  Many more are like Randy and Delia.  Wanting to live nearer their workplace, several workers have preferred to rent a place. True enough, in Cebu City, the business of rental housing is booming.  Look for house or rooms for rent signs. Come back to it a week or two later and chances are the signage isn’t there anymore.  In fact, some cooperatives now offer loans for its members to convert certain portions of their houses into rooms for rent, owing to the fact that it is quite lucrative.

Need for Protection

With the evident lack of houses for each Filipino family, rental has become a growing industry. It is in fact an important cornerstone for any growing economy, much more for Cebu. While ideally, people should have security of tenure by owning a house, practical realities point to the fact that rental, as is the case above, is the only option for many families and individuals or may be the best option given certain circumstances.

As the number of persons flocking to urban centers grow, so does the need for government to ensure that those who rent houses are protected, while at the same time making sure not to discourage individuals to go into the rental housing business to continue filling in the housing needs of the cities. Delicate balance between the two sectors should be kept.

Enter Rent Control Act of 2005.  This is actually a short law which aims to limit the annual increase of rental rates of houses for those costing below P10,000.00 a month in highly urbanized centers and P5,000.00 in other localities. 

Limit in rent increase

Under this law, rental housing falling under the coverage of the act shall not be allowed to increase rental rates by more than 10% annually for those renewing their rental contracts. There are no ceilings, however, for new renters. This means that if you rent a place, there will not be an increase of more than 10% in the succeeding year. But if a lessee gives up a place and a new one comes to rent it, the owner may increase the rental rate for the new comer up to any amount he or she sees fit. The law further states that the ceiling does not apply to rent to own schemes.

Security deposits and advances

Another important feature in the rent control act is that limits as to the amount of advance payment and security deposit have been set. According to the law, a landlord may only ask for one month advance and two months security deposit and no more for those falling within the coverage of the law.  The security deposit is used if the lessee fails to settle rent, electric, telephone, water or such other utility bills or destroys any house components and accessories.

A little known fact is that the owner is obligated to put into a bank account the security deposit made by its tenants. This is to be returned to the renter upon termination of their contract (assuming good cause) together with the interest earnings. In many case, though, the lessee may decide not to collect it, but consumes it by staying in the rented house for a period equivalent to the value of the deposit.

Subleasing

There is also a provision on subleasing. Subleasing is the practice of leasing out a place or a part of it by a person who is in turn merely leasing the place from the owner. Such practices are prohibited without prior consent of the owner.

Grounds for ejectment

The law has provisions for the ejectment of lessees.  One important provision is that the owner may repossess the property for his own use provided that the contract of lease has already expired, the renter is given written notice three months prior to the repossession by the owner, and that the owner shall not rent out the property to a third party within a year from the time he or she has taken over possession of the property.

The renter may also be ejected if repairs are needed subject of an existing order of condemnation by appropriate authorities. However, the renter should have first preference in renting the place and that the new rental rates shall be commensurate to the cost of repairs done. In case the building is totally demolished, the rule of first preference given to the lessee shall not apply.

Benefits of the law

A study by the Philippine Institute for Development Studies done prior to the enactment of this law reveal that with this set up, the Philippines is said to be moderate only in its control of rental practices as compared to the 60 other countries that have rent control laws.  Other are considered more stringent in terms of coverage (to include new renters), new construction, and enforcement.

The limit in increase was designed to allow more economic breathing space for the low income groups. The upper income groups, however, also have access to the affordable rental houses and may share, if not, lessen the opportunities for the lower income groups to gain access to these affordable rental houses.  Moreover, benefits on limitations of the rent increase are felt only by those who rent long term, since new renters are not protected by a rate ceiling.

Monitoring and enforcement of rent control is seen as weak.  It is quite known that some landlords ask deposits and advances way beyond what is acceptable by law. Actually, there is no such agency which neither monitors such violations nor hears complaints by both owner and renter.

The study also suggests that rent control in the Philippine context has not deterred investments in the P10,000 and below bracket. This is in part because rates for new renters are not limited in any way by the law.

Penalties for violations are actually quite weak considering that only P15,000.00 or imprisonment of less than one month is given to violators.

 

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