In Spouses Frilles v. Spouses Yambao, the Supreme Court clarified that the preferential right of tenants to purchase urban land under Presidential Decree No. 1517 (P.D. No. 1517), also known as the Urban Land Reform Law, applies only to those lands specifically proclaimed as Areas for Priority Development and Urban Land Reform Zones. This ruling emphasizes that not all urban land is subject to the right of first refusal; the property must fall within the explicitly designated zones. The decision impacts tenants residing in Metropolitan Manila, as it limits the broad scope initially suggested by previous proclamations, focusing protection on tenants in areas explicitly identified for urban land reform.

Lease Agreements and Land Sales: When Does Urban Land Reform Apply?

The case revolves around a dispute over a 277-square meter lot in Makati City, originally owned by Clara M. Paterno and her brother, Leonardo M. Paterno. Leonardo leased the lot to Spouses Jesus and Teresita Frilles in 1974 under a 15-year renewable lease, with the agreement that the lessees would construct a building on the premises. In 1983, the Paternos sold the lot to P. T. Leelin Realty & Development Corporation (Leelin Realty). This sale prompted the Frilles spouses to file a complaint seeking rescission of the sale, reconveyance of the property, and damages, arguing they were deprived of their preferential right to purchase the property under P.D. No. 1517.

The Frilleses contended that as long-term tenants, they possessed the right of first refusal under Section 6 of P.D. No. 1517, which states:

“Section 6. Land Tenancy in Urban Land Reform Areas. Within the Urban Zones, legitimate tenants who have resided on the land for ten years or more, who have built their homes on the land, and residents who have legally occupied the lands by contract, continuously for the last ten years shall not be dispossessed of the land and shall be allowed the right of first refusal to purchase the same within a reasonable time and at reasonable prices, under terms and conditions to be determined by the Urban Zone Expropriation and Land Management Committee created by Section 8 of this Decree.”

Leelin Realty, however, argued that P.D. No. 1517 did not apply because the lot was not part of a declared Area for Priority Development and Urban Land Reform Zone. The Supreme Court sided with Leelin Realty, emphasizing the restricted applicability of P.D. No. 1517.

The Court emphasized that P.D. No. 1517, enacted in 1978, aims to protect the rights of tenants in urban lands by preventing their eviction and granting them the first option to buy the occupied land. However, the law’s scope is limited to urban lands explicitly designated as urban land reform zones by the President of the Philippines. The right of first refusal is only available to qualified lessees of properties within these declared zones, aligning with Section 6 of the law.

Initially, through Proclamation No. 1893 in 1979, the entire Metropolitan Manila area was declared an Urban Land Reform Zone. This was followed by Proclamation No. 1967 in 1980, which narrowed the scope by identifying only 244 specific sites within Metropolitan Manila as Areas for Priority Development and Urban Land Reform Zones. As the Court noted:

“The provisions of PD Nos. 1517, 1640 and 1642 and of LOI No. 935 shall apply only to the above-mentioned Areas for Priority Development and Urban Land Reform Zones.”

Thus, the Court clarified that while Proclamation No. 1893 initially declared the entire Metropolitan Manila as an Urban Land Reform Zone, Proclamation No. 1967 expressed a clear intent to limit the operation of P. D. No. 1517 to specific areas declared to be both Areas for Priority Development and Urban Land Reform Zones. Later, Proclamation No. 2284 specified an additional site within Metropolitan Manila as part of the Area for Priority Development and Urban Land Reform Zone.

The Court acknowledged that the determination of whether the lot in question is located within an Area for Priority Development and Urban Land Reform Zone typically involves a review of factual evidence, which is not the function of a petition for review before the Supreme Court. However, given conflicting rulings between the trial court and the Court of Appeals, the Supreme Court was constrained to review the evidence and resolve this conflict.

The Court of Appeals correctly determined that the subject lot on Santillan St., Makati City, is not part of the Areas for Priority Development and Urban Land Reform Zones. The listed sites declared as such in Makati City did not include Santillan Street or any part of Barangay Pio del Pilar, where the property in controversy is located. Therefore, the petitioners could not claim a prior right under P.D. No. 1517 to purchase the property.

FAQs

What was the key issue in this case?	The central issue was whether the tenants had a preferential right to purchase the property they were leasing under Presidential Decree No. 1517, the Urban Land Reform Law. This hinged on whether the property was located within a declared Urban Land Reform Zone.
What is Presidential Decree No. 1517?	P.D. No. 1517, also known as the Urban Land Reform Law, aims to protect the rights of tenants in urban lands by preventing their eviction and granting them the first option to buy the land they occupy. However, this protection is not universal and applies only to designated urban land reform zones.
Did Proclamation No. 1893 declare all of Metro Manila as an Urban Land Reform Zone?	Yes, initially Proclamation No. 1893 declared the entire Metropolitan Manila area as an Urban Land Reform Zone. However, this was later amended by Proclamation No. 1967, which limited the coverage of P.D. No. 1517 to specifically identified sites.
How did Proclamation No. 1967 change the scope of P.D. No. 1517?	Proclamation No. 1967 narrowed the scope of P.D. No. 1517 in Metropolitan Manila by specifying that the provisions of the decree would only apply to 244 identified Areas for Priority Development and Urban Land Reform Zones. This effectively limited the broader declaration made by Proclamation No. 1893.
Where in Makati are the Areas for Priority Development and Urban Land Reform Zones located?	The identified areas include locations such as Guadalupe Nuevo, Primo de Rivera-Lapaz Bo. Sta. Cruz, Tejeros Garden and H. Santos, Barangay Pitogo, and several streets and barangays specified in the court decision. These locations are explicitly listed in Annex “L” of the petition.
Was the property in question located in an Urban Land Reform Zone?	No, the Supreme Court determined that the property, located on Santillan Street in Barangay Pio del Pilar, Makati City, was not within any of the areas designated as Areas for Priority Development and Urban Land Reform Zones. Therefore, the tenants could not claim a right of first refusal under P.D. No. 1517.
What is the practical effect of this ruling for tenants?	This ruling clarifies that tenants in Metropolitan Manila only have a right of first refusal if their property is located within a specifically declared Area for Priority Development and Urban Land Reform Zone. It limits the broader interpretation that all of Metro Manila is covered by P.D. No. 1517.
What should a tenant do to determine if they have a right of first refusal?	Tenants should verify whether their property is located within one of the Areas for Priority Development and Urban Land Reform Zones as defined by Proclamation Nos. 1967 and 2284. Consulting with a legal professional can help determine the property’s status and applicable rights.

In conclusion, the Supreme Court’s decision in Spouses Frilles v. Spouses Yambao provides important clarification on the scope of tenant rights under P.D. No. 1517. By limiting the application of the Urban Land Reform Law to specifically declared zones, the Court ensures that the law’s protections are targeted and effective, while also respecting property rights outside of these designated areas. This decision underscores the importance of verifying a property’s location within declared zones to determine applicable rights and obligations.

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: Spouses Jesus and Teresita Frilles, vs. Spouses Roberto and Clara Yambao and P. T. Leelin Realty & Development Corporation, G.R. No. 129889, July 11, 2002