Understand the Power of Restrictive Covenants in Philippine Property Law

TLDR: Restrictive covenants in property contracts, like those limiting building expansions, are legally binding in the Philippines if they are reasonable, serve a legitimate purpose (like community aesthetics or preventing overcrowding), and are properly documented. Homeowners must comply, and developers can enforce these covenants, especially with homeowners’ association support. Ignoring them can lead to court-ordered demolition.

[G.R. No. 134692, August 01, 2000] ELISEO FAJARDO, JR., AND MARISSA FAJARDO, PETITIONERS, VS. FREEDOM TO BUILD, INC., RESPONDENT.

INTRODUCTION

Imagine purchasing your dream home, only to face legal action because of a seemingly minor renovation. This is the reality many property owners face when restrictive covenants come into play. In the Philippines, these covenants, often found in property deeds and contracts, dictate what homeowners can and cannot do with their land. The case of Fajardo vs. Freedom to Build, Inc. highlights the critical importance of understanding and adhering to these restrictions. When the Fajardo spouses expanded their home in a low-cost housing development beyond the stipulated limits, they ignited a legal battle that reached the Supreme Court, ultimately underscoring the enforceability of restrictive covenants designed to maintain community standards and property values.

LEGAL BASIS OF RESTRICTIVE COVENANTS IN THE PHILIPPINES

Philippine law recognizes the right of property owners to impose certain limitations on the use of their land through agreements known as restrictive covenants. These covenants are essentially private agreements that run with the land, binding not only the original parties but also subsequent owners. While not explicitly defined in a single statute, their legal basis stems from the general principles of contract law under the Civil Code of the Philippines, specifically Article 1306, which allows contracting parties to establish stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

Restrictive covenants are closely related to, but distinct from, easements and servitudes. The Supreme Court in Fajardo vs. Freedom to Build, Inc. clarified this distinction, stating: “Restrictive covenants are not, strictly speaking, synonymous with easements… it can also be contended that such covenants, being limitations on the manner in which one may use his own property… do not result in true easements, but a case of servitudes (burden), sometimes characterized to be negative easements or reciprocal negative easements.” A negative easement, the Court explained, prevents a landowner from performing an act they would otherwise be legally entitled to do.

For a restrictive covenant to be valid and enforceable in the Philippines, it must meet certain criteria. Crucially, the restrictions must be reasonable and lawful. They cannot be against public policy, morals, or the law. Furthermore, they should not be in restraint of trade. When these conditions are met, Philippine courts generally uphold and enforce restrictive covenants, recognizing them as valid contractual obligations. As the Supreme Court pointed out, courts will enforce these restrictions “to the same extent that will lend judicial sanction to any other valid contractual relationship.”

CASE BREAKDOWN: FAJARDO VS. FREEDOM TO BUILD, INC.

Eliseo and Marissa Fajardo purchased a house and lot in De la Costa Homes, a low-cost housing project developed by Freedom to Build, Inc. Their Contract to Sell, and subsequently their Transfer Certificate of Title, included a Restrictive Covenant. This covenant stipulated rules about property use, including easements and building expansions. Specifically, it mandated a two-meter front easement, prohibited structures on this easement, and set limitations on second-story expansions, requiring them to be at the back and not extending beyond the original building’s apex.

Despite these clear restrictions and warnings from Freedom to Build, the Fajardo spouses proceeded with renovations that violated the covenant. They extended their roof to the property line and expanded their second floor directly above the original front wall. Freedom to Build, Inc., as the developer, filed a lawsuit demanding the demolition of these unauthorized structures.

The case proceeded through the Philippine court system:

1. Regional Trial Court (RTC): The RTC ruled in favor of Freedom to Build. It ordered the Fajardos to demolish the illegal extensions, stating that if they failed to do so, the Sheriff would carry out the demolition at their expense.
2. Court of Appeals (CA): The Fajardos appealed to the Court of Appeals, but the CA affirmed the RTC’s decision, upholding the enforceability of the restrictive covenant.
3. Supreme Court: Undeterred, the Fajardos elevated the case to the Supreme Court. They argued several points:
   • Their neighbors had no objections and even wanted to do similar expansions.
   • Their growing family necessitated the expansion.
   • Freedom to Build lacked the standing to sue since they had already sold the property and ownership should now rest with the homeowners’ association.
   • The Restrictive Covenant didn’t explicitly prescribe demolition as a penalty.

The Supreme Court, however, was not swayed by the Fajardos’ arguments. The Court emphasized the purpose of restrictive covenants, stating they are “for the protection and benefit of the De La Costa Low Income Housing Project, and of all the persons who may now, or hereafter become owners of any part of the project… in order that; the intents and purposes for which the project was designed shall be upheld.” The Court underscored that these covenants aimed to maintain community standards, prevent overcrowding, and ensure privacy – objectives that served the entire subdivision, not just individual neighbors.

Regarding Freedom to Build’s standing to sue, the Supreme Court noted that while typically only those for whose benefit a covenant is intended can enforce it, in this case, the homeowners’ association had authorized Freedom to Build to enforce the covenant. Finally, addressing the lack of an explicit demolition penalty, the Court cited Article 1168 of the Civil Code, which mandates that “when the obligation consists in not doing and the obligor does what has been forbidden him, it shall be undone at his expense.”

In its decision, the Supreme Court firmly ruled:

“In sum, the Court holds that –
(1) The provisions of the Restrictive Covenant are valid;
(2) Petitioners must be held to be bound thereby; and
(3) Since the extension constructed exceeds the floor area limits of the Restrictive Covenant, petitioner-spouses can be required to demolish the structure to the extent that it exceeds the prescribed floor area limits.”

The Supreme Court affirmed the Court of Appeals’ decision, compelling the Fajardo spouses to demolish the illegal expansions.

PRACTICAL IMPLICATIONS OF THE FAJARDO RULING

Fajardo vs. Freedom to Build, Inc. serves as a crucial precedent in Philippine property law, reinforcing the enforceability and importance of restrictive covenants. This ruling has significant implications for developers, homeowners, and future property transactions.

For property developers, this case validates the use of restrictive covenants as a tool to maintain the integrity and standards of their projects. It assures them that these covenants, when reasonably drafted and properly implemented, will be upheld by Philippine courts. Developers can rely on restrictive covenants to ensure uniformity, preserve property values, and foster a harmonious community environment within their developments.

For homeowners and property buyers, the case is a stern reminder to thoroughly review and understand all covenants and restrictions attached to their property. Before undertaking any renovations or expansions, homeowners must check their property titles, contracts, and homeowners’ association guidelines for any applicable restrictions. Ignoring these covenants can lead to costly legal battles and court-ordered demolitions, as demonstrated in the Fajardo case. The argument that neighbors do not object, or that the expansion is for personal necessity, will not override a valid restrictive covenant.

Moving forward, this case emphasizes the need for:

• Clear and unambiguous drafting of restrictive covenants in contracts and titles.
• Proper annotation of covenants on property titles to ensure notice to all subsequent buyers.
• Effective communication of these restrictions by developers and real estate agents to potential buyers.
• Active homeowners’ associations that understand and can participate in the enforcement of community covenants, or delegate enforcement rights as needed.

KEY LESSONS FROM FAJARDO VS. FREEDOM TO BUILD, INC.

• Restrictive Covenants are Binding: Validly constituted restrictive covenants are legally enforceable in the Philippines.
• Purpose Matters: Covenants designed to promote community welfare, aesthetics, and prevent overcrowding are more likely to be upheld.
• Developer’s Standing: Developers can enforce covenants, especially with the homeowners’ association’s consent.
• Demolition as Remedy: Philippine courts can order demolition of structures violating restrictive covenants, at the homeowner’s expense.
• Due Diligence is Key: Property buyers must diligently review and understand all restrictions before purchasing and renovating.

FREQUENTLY ASKED QUESTIONS ABOUT RESTRICTIVE COVENANTS

Q1: What exactly is a restrictive covenant in real estate?

A: A restrictive covenant is a clause in a deed or contract that limits what a property owner can do with their land. It essentially sets rules about land use, building types, or architectural styles to maintain property values and community standards.

Q2: Are restrictive covenants legally enforceable in the Philippines?

A: Yes, restrictive covenants are legally enforceable in the Philippines if they are reasonable, lawful, and serve a legitimate purpose. The Fajardo vs. Freedom to Build, Inc. case affirms this enforceability.

Q3: Who can enforce a restrictive covenant?

A: Typically, those for whose benefit the covenant was created can enforce it. This often includes the property developer, homeowners’ associations, and sometimes neighboring property owners within the same development. In Fajardo, the developer was allowed to enforce it with the HOA’s authorization.

Q4: What if my neighbors don’t object to my violation of a covenant? Does it still matter?

A: Yes, it still matters. Restrictive covenants are often designed to benefit the entire community or development, not just immediate neighbors. Lack of objection from neighbors doesn’t negate the enforceability of the covenant, as seen in the Fajardo case where neighbor consent was irrelevant.

Q5: What are the penalties for violating a restrictive covenant?

A: Penalties can range from court orders to stop the violation to monetary damages. In severe cases, like Fajardo, courts can order the demolition of unauthorized structures at the homeowner’s expense.

Q6: Can restrictive covenants be changed or removed?

A: Yes, restrictive covenants can be amended or removed, but it usually requires agreement from all or a majority of the beneficiaries, often through the homeowners’ association. The process can be complex and may require legal assistance.

Q7: Where can I find restrictive covenants for my property?

A: Restrictive covenants are typically found in your property’s Transfer Certificate of Title (TCT), the Contract to Sell, or in the Master Deed of Restrictions for the subdivision. Check these documents carefully.

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