The Supreme Court clarified that a lessee who makes improvements on a leased property is not entitled to full reimbursement for those improvements if the lessor refuses to pay. Instead, the lessee’s right is limited to removing the improvements without causing damage to the property. This decision emphasizes that tenants cannot claim ownership rights over improvements made on leased land and landlords are only obliged to reimburse half the value of improvements made.

When a Helping Hand Turns Into a Legal Battle: Who Pays for Improvements on a Borrowed Property?

This case revolves around a dispute between the Yu siblings (lessors) and the spouses Mores (lessees) regarding a property in Camarines Sur. The Yu siblings allowed the Mores to stay in their property, rent-free, with the understanding that the stay would be temporary. Over time, the Mores made improvements to the property. When the Yu siblings eventually asked the Mores to vacate, a conflict arose over the improvements. The Mores removed the improvements they had made, leading to a lawsuit where the Yu siblings sought damages.

The central legal question is whether the Mores, as lessees, were entitled to reimbursement for the improvements they made on the property. The Regional Trial Court initially dismissed the complaint, but the Court of Appeals partially reversed, awarding moral damages to the Yu siblings. The Supreme Court then reviewed the case to determine the rights and obligations of both parties concerning the improvements made on the leased property. This decision hinges on the application of Article 1678 of the Civil Code, which governs the rights of a lessee who introduces improvements to a leased property.

The Supreme Court referenced the case of Quemuel and Solis v. Olaes and Prudente, clarifying that tenants cannot be considered builders in good faith because they do not have the pretense of ownership over the property they are leasing.

Tenants like the spouses Mores cannot be said to be builders in good faith as they have no pretension to be owners of the property.

It also cited Geminiano v. Court of Appeals, emphasizing that allowing tenants to claim full reimbursement would allow tenants to force landlords out of their own property.

Indeed, full reimbursement of useful improvements and retention of the premises until reimbursement is made applies only to a possessor in good faith, i.e., one who builds on land with the belief that he is the owner thereof. It does not apply where one’s only interest is that of a lessee under a rental contract; otherwise, it would always be in the power of the tenant to “improve” his landlord out of his property.

The court found that Article 1678 of the Civil Code specifically addresses this situation. Article 1678 states:

If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased, the lessor upon the termination of the lease shall pay the lessee one-half of the value of the improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He shall not, however, cause any more impairment upon the property leased than is necessary.

With regard to the ornamental expenses, the lessee shall not be entitled to any reimbursement, but he may remove the ornamental objects, provided no damage is caused to the principal thing, and the lessor does not choose to retain them by paying their value at the time the lease is extinguished.

Applying this provision, the Supreme Court determined that the Mores were entitled to reimbursement for one-half of the value of the useful improvements they made. However, the Yu siblings, as lessors, had the option to refuse reimbursement, in which case the Mores could remove the improvements. The Court found that the Mores had, in fact, demanded reimbursement, but the Yu siblings refused to pay. Consequently, the Mores were within their rights to remove the improvements, as long as they did not cause undue damage to the property.

The appellate court’s decision to award moral damages to the Yu siblings was overturned. The Supreme Court agreed with the trial court’s finding that the Mores had only removed the improvements after the Yu siblings refused to pay for them. The spouses Mores requested for reimbursement of the improvements, to which the Yu siblings refused. With the Yu sibling’s refusal, the spouses Mores were entitled to remove the improvements from the property.

This ruling offers clarity on the rights and obligations of lessors and lessees concerning improvements made on leased property. Lessees who make improvements do so with the understanding that they are not the owners of the property. Therefore, they cannot claim full reimbursement for their expenses. Lessors, on the other hand, have the option to either reimburse the lessee for half the value of the improvements or allow the lessee to remove them. This balances the interests of both parties and prevents unjust enrichment.

FAQs

What was the central issue in the Alida Mores case?	The central issue was whether a lessee is entitled to reimbursement for improvements made on a leased property when the lease is terminated. This involved interpreting Article 1678 of the Civil Code regarding the rights and obligations of lessors and lessees.
Who were the parties involved in the case?	The petitioner was Alida Mores, representing herself and her deceased husband, Antonio Mores (lessees). The respondents were Shirley M. Yu-Go, Ma. Victoria M. Yu-Lim, and Ma. Estrella M. Yu (lessors).
What did the Court rule regarding the lessee’s right to reimbursement?	The Court ruled that the lessee is entitled to one-half of the value of the useful improvements made on the leased property at the time of termination. However, the lessor has the option to refuse reimbursement, in which case the lessee can remove the improvements without causing undue damage.
What happens if the lessor refuses to reimburse the lessee?	If the lessor refuses to reimburse the lessee for the improvements, the lessee has the right to remove those improvements from the property. This right is conditional on the lessee not causing unnecessary damage to the property during the removal process.
Why were moral damages not awarded to the Yu siblings?	Moral damages were not awarded because the Court found that the Mores had only removed the improvements after the Yu siblings refused to reimburse them. The Mores acted within their rights under Article 1678 of the Civil Code.
What is the significance of Article 1678 of the Civil Code in this case?	Article 1678 is crucial because it outlines the specific rights and obligations of lessors and lessees regarding improvements made on leased property. It provides a legal framework for resolving disputes related to reimbursement and removal of improvements.
Can a lessee be considered a builder in good faith?	No, a lessee cannot be considered a builder in good faith because they do not have a claim of ownership over the property. Their rights are governed by the lease agreement and the provisions of the Civil Code related to lease contracts.
What should a lessee do if they want to make improvements on a leased property?	Before making any significant improvements, the lessee should communicate with the lessor to discuss the proposed improvements and reach a mutual agreement. This can prevent future disputes over reimbursement and removal of improvements.

In conclusion, the Supreme Court’s decision in Alida Mores v. Shirley M. Yu-Go reaffirms the principles governing the rights and obligations of lessors and lessees concerning improvements made on leased property. This ruling provides important guidance for property owners and tenants alike, clarifying the conditions under which a lessee is entitled to reimbursement and the lessor’s options in such situations.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Alida Mores, vs. Shirley M. Yu-Go, G.R. No. 172292, July 23, 2010