Key Lesson: Implied Lease Renewals Do Not Automatically Include All Original Contract Terms

Allan Mañas, joined by wife Lena Isabelle Y. Mañas, v. Rosalina Roca Nicolasora, Janet Nicolasora Salva, Anthony Nicolasora, and Ma. Therese Roselle Uy-Cua, G.R. No. 208845, February 03, 2020

Imagine you’re a tenant who dreams of owning the property you’ve been renting for years. You’ve been paying rent diligently, and the lease contract you signed included a right of first refusal, giving you the first chance to buy the property if it’s ever up for sale. But what happens when the lease ends, and you continue to stay without a formal renewal? The case of Allan Mañas and his wife Lena Isabelle Y. Mañas versus Rosalina Roca Nicolasora and others sheds light on this very scenario, highlighting the complexities of implied lease renewals in Philippine property law.

In this case, the Mañas couple leased a property in Tacloban City from Rosalina Roca Nicolasora. Their lease contract included a right of first refusal, but when the lease expired without formal renewal, and the property was sold to someone else, the couple found themselves in a legal battle. The central question was whether their right of first refusal was still valid under an implied lease renewal.

Legal Context: Understanding Implied Lease Renewals and Rights of First Refusal

In Philippine property law, a lease contract’s expiration can lead to an implied renewal if the tenant continues to use the property with the landlord’s acquiescence. However, as per Article 1670 of the Civil Code, only terms related to the tenant’s continued use and enjoyment of the property are considered revived in such renewals. This means that special agreements, like a right of first refusal, are not automatically included unless explicitly agreed upon.

A right of first refusal is a contractual right that gives the holder the first opportunity to purchase a property before the owner can offer it to others. It’s a valuable provision for tenants who wish to eventually buy the property they’re renting. However, as the Supreme Court has clarified in cases like Dizon v. Court of Appeals, such rights are not germane to the possession of the property and thus are not revived in implied lease renewals.

Consider a tenant who has been renting a small shop space for years, hoping to buy it one day. If their lease contract included a right of first refusal but expired without formal renewal, they might mistakenly believe they still have the right to buy if the property goes on sale. This case underscores the importance of understanding that only terms directly related to the use of the property are automatically included in implied renewals.

Case Breakdown: The Journey of Allan and Lena Mañas

Allan and Lena Mañas entered into a lease contract with Rosalina Roca Nicolasora on April 18, 2005, for a property in Tacloban City. The contract, which included a right of first refusal, expired in 2006 but was never formally renewed. Despite this, the couple continued to pay rent and use the property without objection from Rosalina and her children.

In 2008, the property was sold to Ma. Therese Roselle Uy-Cua without the Mañas couple being informed or offered the chance to buy it. Upon learning of the sale, they filed a complaint seeking rescission of the sale, cancellation of the new titles, and enforcement of their right of first refusal.

The case moved through the Regional Trial Court, which dismissed their complaint, and the Court of Appeals, which affirmed the dismissal. The Supreme Court ultimately ruled that the implied renewal of the lease did not include the right of first refusal, as it was not germane to the possession of the property.

Key quotes from the Supreme Court’s decision include:

“The other terms of the original contract which are revived in the implied new lease under Article 1670 of the New Civil Code are only those terms which are germane to the lessee’s right of continued enjoyment of the property leased.”

“An implied new lease does not ipso facto carry with it any implied revival of private respondent’s option to purchase (as lessee thereof) the leased premises.”

The procedural steps included:

• Initial filing of the complaint by the Mañas couple in the Regional Trial Court.
• Motion to dismiss filed by Ma. Therese Roselle Uy-Cua, which was granted by the trial court.
• Appeal to the Court of Appeals, which affirmed the trial court’s decision.
• Petition for Review on Certiorari to the Supreme Court, resulting in the final ruling.

Practical Implications: Navigating Implied Lease Renewals and Rights of First Refusal

This ruling has significant implications for tenants and landlords alike. Tenants who rely on implied lease renewals must be aware that not all terms of the original contract will be revived. If they wish to maintain a right of first refusal, it must be explicitly agreed upon in any renewal.

For landlords, this decision reinforces the importance of clarity in lease agreements. If they wish to retain the flexibility to sell their property without offering it to the current tenant, they should ensure that any renewal is explicit and excludes the right of first refusal.

Key Lessons:

• Always formalize lease renewals to ensure all desired terms are included.
• Understand that implied renewals only cover terms related to the use and enjoyment of the property.
• Seek legal advice to draft or review lease agreements to protect your rights.

Frequently Asked Questions

What is an implied lease renewal?

An implied lease renewal occurs when a tenant continues to use the property after the lease expires, and the landlord does not object. Only terms related to the use of the property are automatically included in such renewals.

Does an implied lease renewal include the right of first refusal?

No, as per this Supreme Court ruling, the right of first refusal is not automatically included in an implied lease renewal because it is not germane to the possession of the property.

How can tenants protect their right of first refusal?

Tenants should ensure that any lease renewal, whether implied or formal, explicitly includes the right of first refusal if they wish to maintain it.

What should landlords do to avoid disputes over implied renewals?

Landlords should clearly state in the lease agreement which terms will apply in case of an implied renewal and consider formal renewals to avoid ambiguity.

Can a tenant challenge a sale if they were not offered the property first?

If the tenant’s right of first refusal was not included in the implied lease renewal, they may not have legal grounds to challenge the sale. It’s crucial to have a formal agreement in place.

ASG Law specializes in property law and lease agreements. Contact us or email hello@asglawpartners.com to schedule a consultation and ensure your rights are protected.