The Supreme Court held that foreign nationals can own Philippine real estate through the purchase of condominium units, as governed by the Condominium Act (Republic Act No. 4726). This ruling clarified that a contract to sell a condominium unit to a foreign national does not violate the constitutional prohibition against foreign ownership of land, because the land is owned by a Condominium Corporation, and the unit owner is simply a member of the corporation. This ensures property rights are protected, while complying with constitutional limitations.

Aliens, Condos, and Contracts: Can Foreigners Truly Own Property in the Philippines?

This case revolves around a Contract to Sell between Jacobus Bernhard Hulst (petitioner), a foreign national, and PR Builders, Inc. (respondent), a real estate developer, involving a condominium unit. The central legal question is whether this contract violates the constitutional proscription against foreign ownership of land. This issue arose after a dispute led to an auction sale, and the petitioner was ordered to return a certain amount to the respondent, an order he contested on the grounds that the contract was valid under the Condominium Act.

The petitioner argued that the Contract to Sell did not violate the Constitution, as it pertained to a condominium unit, not ownership of the land itself. The contract specified that upon full payment, the petitioner would receive a Condominium Certificate of Title, evidencing ownership of the unit and associated common areas. The land on which the condominium stands is owned by the condominium corporation. Furthermore, Section 3 of the Contract to Sell explicitly mentioned the application of Republic Act No. 4726 (The Condominium Act). The Supreme Court’s examination hinged on whether the contract circumvented the constitutional ban on alien land ownership, thereby invalidating the agreement.

The Supreme Court scrutinized the provisions of the Condominium Act. Section 5 of R.A. No. 4726 explicitly addresses foreign ownership in condominium projects stating:

“Any transfer or conveyance of a unit or an apartment, office or store or other space therein, shall include the transfer or conveyance of the undivided interest in the common areas or, in a proper case, the membership or shareholdings in the condominium corporation; Provided, however, That where the common areas in the condominium project are held by the owners of separate units as co-owners thereof, no condominium unit therein shall be conveyed or transferred to persons other than Filipino citizens or corporations at least 60% of the capital stock of which belong to Filipino citizens, except in cases of hereditary succession. Where the common areas in a condominium project are held by a corporation, no transfer or conveyance of a unit shall be valid if the concomitant transfer of the appurtenant membership or stockholding in the corporation will cause the alien interest in such corporation to exceed the limits imposed by existing laws.“

Building on this principle, the court underscored that the law separates land ownership from unit ownership within a condominium setup. The Condominium Act allows foreigners to acquire condominium units and shares in condominium corporations, provided that their ownership does not exceed 40% of the corporation’s total and outstanding capital stock. The Supreme Court then determined that since the petitioner’s rights and liabilities were governed by the Condominium Act, and because the land remained under the ownership of the Condominium Corporation (PR Builders, Inc.), the constitutional prohibition did not apply. Consequently, there was no legal basis to invalidate the Contract to Sell.

This approach contrasts with direct land ownership by aliens, which is generally prohibited under the Philippine Constitution. The constitutional restriction aims to preserve national patrimony and ensure that land remains primarily in the hands of Filipino citizens. However, the Condominium Act provides a legal framework that allows foreigners to invest in Philippine real estate without directly violating this constitutional principle. The Condominium Corporation structure maintains Filipino control over the land while enabling foreign investment in specific units.

The Supreme Court emphasized the distinction between owning a condominium unit and owning the land on which it stands. This distinction is crucial for understanding the legality of contracts involving foreign nationals and condominium properties in the Philippines. By recognizing the validity of the Contract to Sell, the court affirmed the rights of foreign nationals to own condominium units, as long as the provisions of the Condominium Act are strictly followed. As a result, the Supreme Court modified its earlier decision by deleting the order for the petitioner to return the excess amount from the auction sale, thus upholding the legality of the contract.

FAQs

What was the key issue in this case?	The central issue was whether a Contract to Sell a condominium unit to a foreign national violates the constitutional prohibition against foreign ownership of land in the Philippines.
What is the Condominium Act?	The Condominium Act (Republic Act No. 4726) is a law that governs the creation, ownership, and management of condominium units in the Philippines. It allows foreign nationals to own condominium units under certain conditions.
Can foreign nationals own land in the Philippines?	Generally, foreign nationals cannot directly own land in the Philippines. However, the Condominium Act provides an exception by allowing them to own condominium units as long as the land is owned by a Condominium Corporation.
What is a Condominium Corporation?	A Condominium Corporation is a corporate entity that owns the land and common areas of a condominium project. Unit owners are members or shareholders of this corporation.
What percentage of a Condominium Corporation can be owned by foreigners?	Foreign ownership in a Condominium Corporation is limited to a maximum of 40% of the total and outstanding capital stock. The remaining 60% must be owned by Filipino citizens or corporations.
What does a Condominium Certificate of Title signify?	A Condominium Certificate of Title is a document that serves as evidence of ownership of a specific condominium unit. It conveys rights, interests, and title to the unit and its appurtenant common areas.
How does the Condominium Act address the issue of land ownership by foreigners?	The Condominium Act separates the ownership of the condominium unit from the ownership of the land. The land is owned by the Condominium Corporation, which can have foreign shareholders up to the 40% limit.
What was the Supreme Court’s ruling in this case?	The Supreme Court ruled that the Contract to Sell a condominium unit to a foreign national was valid under the Condominium Act. Therefore, the court deleted the order for the petitioner to return the excess amount from the auction sale.

In conclusion, the Supreme Court’s resolution reinforces the legal framework that allows foreign nationals to invest in Philippine real estate through condominium ownership. This decision underscores the importance of adhering to the provisions of the Condominium Act, which provides a legal pathway for foreign investment without violating constitutional restrictions on land ownership.

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: JACOBUS BERNHARD HULST v. PR BUILDERS, INC., G.R. No. 156364, September 25, 2008