Foreign Ownership of Real Property in the Philippines
At the very least, Article XII of the Philippine Constitution is quite clear as to land. It mandates that “[s]ave in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain.” It did not expressly prohibit ownership, but one thing was expressly prohibited – transfer of private lands shall only be permitted to “individuals, corporations, or associations qualified to acquire or hold lands of the public domain.”
The prohibition for such transfer [to foreigners] is actually found under Section 24 of Act No. 2874, as amended by Act No. 3219, also known as the Public Land Act. It provides:
“Section 23. Any citizen of lawful age of the Philippine Islands or of the United States, and any such citizen not of lawful age who is head of a family, and any corporation or association of which at least sixty-one per centum of the capital stock or of any interest in said capital stock belongs wholly to citizens of the Philippine Islands or of the United States or of any State thereof and authorized to transact business in the Philippine Islands, and corporate bodies organized in the Philippine Islands authorized under their charters to do so, may purchase any tract of public agricultural land disposable under this Act, not to exceed one hundred and forty-four hectares in the case of an individual and one thousand and twenty-four hectares in that of a corporation or association, by proceeding as prescribed in this chapter: PROVIDED, That partnerships shall be entitled to purchase not to exceed the one thousand and twenty-four hectares authorized in this section for associations and corporations: PROVIDED, further, That citizens of countries the laws of which grant to citizens of the Philippine Islands the same right to acquire public land as to their own citizens, may, while such laws are in force, but not thereafter, with the express authorization of the Legislature, purchase any parcel of agricultural land, not in excess of one hundred and forty-four hectares available under this Act, upon complying with the requirements of this chapter.”
Hence, there is no debate here – only citizens of the Philippines, and Philippine corporations in which with 61% (or more) of the capital stock or shares, are Filipino-owned.
Therefore, as to land, there is no debate. Only citizens may own them, except in cases of hereditary succession, wherein a foreigner can be a registered owner of land.
Other Types of Real Property
However, land is not the only type of real property that can be subject of ownership in the Philippines. Real property, which is referred to under the Civil Code of the Philippines as “immovable property”, is defined by enumeration:
“Art. 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
(2) Trees, plants, and growing fruits, while they are attached to the land or form an integral part of an immovable;
(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object;
(4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in buildings or on lands by the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the tenements;
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works;
(6) Animal houses, pigeon-houses, beehives, fish ponds or breeding places of similar nature, in case their owner has placed them or preserves them with the intention to have them permanently attached to the land, and forming a permanent part of it; the animals in these places are included;
(7) Fertilizer actually used on a piece of land;
(8) Mines, quarries, and slag dumps, while the matter thereof forms part of the bed, and waters either running or stagnant;
(9) Docks and structures which, though floating, are intended by their nature and object to remain at a fixed place on a river, lake, or coast;
(10) Contracts for public works, and servitudes and other real rights over immovable property.”
Added to this list are condominiums, defined under Republic Act No. 4726, as “an interest in real property consisting of separate interest in a unit in a residential, industrial or commercial building and an undivided interest in common, directly or indirectly, in the land on which it is located and in other common areas of the building. A condominium may include, in addition, a separate interest in other portions of such real property. Title to the common areas, including the land, or the appurtenant interests in such areas, may be held by a corporation specially formed for the purpose (hereinafter known as the “condominium corporation”) in which the holders of separate interest shall automatically be members or shareholders, to the exclusion of others, in proportion to the appurtenant interest of their respective units in the common areas.” Since what is clearly provided under the Philippine Constitution and the Public Land Act is that only citizens of the Philippines, and corporations of which 61% of the shares of stock therein are owned by citizens of the Philippines, does this mean that every other class of real property can be owned by foreigners?
Foreign Ownership of a House or a Building
The usual concerns relating to this question do not really refer to “trees, plants, and growing fruits”, because we know that these can be harvested by their owner, or to “statues, reliefs, paintings or other objects for use or ornamentation”, or the other classes of immovables listed in the Civil Code of the Philippines. Arguably, these can be extracted from the land by their owners. The usual query really is, can a foreigner own a building, a house or other structures erected on top of land owned by a citizen of the Philippines?
Applying, at face value, the provisions of the Philippine Constitution, it appears that foreigners may own them. But as mentioned, the answer is not as simple. This is because of the rule “accessory follows the principal”.
Article 440 of the Civil Code of the Philippines, which reiterates the rule, provides:
“Article 440. The ownership of property gives the right by accession to everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially.”
Therefore, following this rule, if something is attached to the land, with a character of permanence required by the Civil Code, then the owner of the land is also the owner of what is attached to the land, be it a building, a house, or other structures with the same nature of permanence.
However, since the Philippine Constitution does not expressly prohibit such nature of ownership, then it is submitted, that a foreigner can own other immovables apart from land. However, since such ownership somehow contravenes the Civil Code rule that the “accessory follows the principal”, such ownership will require additional acts on the part of the would-be owner of the house, of the building, or of the structure attached to land owned by a citizen of the Philippines.
There are of course many types of contractual arrangements that can give some semblance of such right. Long term leases, trusts, and other contracts can be prepared to document what rights a foreigner can have, and even dispose, immovables other than land. But all of these contractual arrangements are of a character that is less than ownership. Because, when the owner of the land, a Filipino citizen, decides to make use of his property, he or she can invoke the Civil Code rule that the “accessory follows the principal” and attain ownership over the immovable structure attached to the land, subject only to rules on reimbursement, in case the immovable structure was constructed in good faith. But, to reiterate, these contractual arrangements do not relate to ownership over the immovable because by simple application of Article 440 of the Civil Code, the owner of the land, being the principal is also the owner of what is attached to it (i.e., house, building, or other structure).
Principal of Accessory Follows the Principal
If the 1987 Constitution only expressly prohibits foreign ownership of land, with the singular exception of hereditary succession, does this mean that a foreigner can own a building or a house, even if the land is owned by another (a Filipino obviously)? Yes, but as emphasized, this act of ownership must be manifest. The act of ownership must be clear and manifest, to defeat the rule and presumption applied under Article 440 of the Civil Code of the Philippines.
There are a few cases where the Supreme Court of the Philippines disregarded the principle of “accessory follows the principal”, and ruled that the owner of the land is separate from the owner of the building constructed thereon.
One such case is Caltex (Phil.) Inc. vs. Felias, G.R. No. L-14309, 30 June 1960, where the Supreme Court ruled that the land belonged solely to the wife and was not subject to execution from debts owed by the conjugal partnership, and that it was only the building, that was conjugal property and subject to answer for such debts, to wit:
“For purposes of this appeal, we shall decide the issue on the basis of the fact that the building was construed when the lot belonged not to Felisa but her parents, in which case, as the Court of Appeals itself observed, what was applicable was “the familiar rule of accessory following the principal”. In other words, when the lot was donated to Felisa by her parents, as owners of the land on which the building was constructed, the lot became her paraphernal property. The donation transmitted to her the rights of a landowner over a building constructed on it. Therefore at the time of the levy and sale of the sheriff, Lot No. 107 did not belong to the conjugal partnership, but it was paraphernal property of Felisa. As such, it was not answerable for the obligations of her husband1 which resulted in the judgment against him in favor of Caltex. It may be stated in this connection that as further found by the Court of Appeals, the building constructed on Lot No. 107 was destroyed during the last war, so that “at the time the Sheriff executed the final deed of sale in favor of Caltex (Phil.) Inc. on the 27th day of January, 1947, that house which was included in both deeds was no longer in existence.”
In another case, the Supreme Court denied the claim of the owner of the land that the latter also owns the building constructed thereon, since there was evidence to prove that the building is actually owned by the another:
“To set the record straight, while petitioner may have proven his ownership of the land, as there can be no other piece of evidence more worthy of credence than a Torrens certificate of title, he failed to present any evidence to substantiate his claim of ownership or right to the possession of the building. Like the CA, we cannot accept the Deed of Extrajudicial Settlement of Estate (Residential Building) with Waiver and Quitclaim of Ownership executed by the Garcianos as proof that petitioner acquired ownership of the building. There is no showing that the Garcianos were the owners of the building or that they had any proprietary right over it. Ranged against respondents’ proof of possession of the building since 1977, petitioner’s evidence pales in comparison and leaves us totally unconvinced.” (Carbonilla vs. Abiera, G.R. No. 177637, 26 July 2010.)
Finally, in the more recent case of Villasi vs. Garcia, et al., G.R. No. 190106, 15 January 2014, the Supreme Court recognized that the rule that the accessory follows the principal is not iron clad:
“While it is a hornbook doctrine that the accessory follows the principal, that is, the ownership of the property gives the right by accession to everything which is produced thereby, or which is incorporated or attached thereto, either naturally or artificially, such rule is not without exception. In cases where there is a clear and convincing evidence to prove that the principal and the accessory are not owned by one and the same person or entity, the presumption shall not be applied and the actual ownership shall be upheld. In a number of cases, we recognized the separate ownership of the land from the building and brushed aside the rule that accessory follows the principal. …
… The rule on accession is not an iron-clad dictum. On instances where this Court was confronted with cases requiring judicial determination of the ownership of the building separate from the lot, it never hesitated to disregard such rule. The case at bar is of similar import. When there are factual and evidentiary evidence to prove that the building and the lot on which it stands are owned by different persons, they shall be treated separately. As such, the building or the lot, as the case may be, can be made liable to answer for the obligation of its respective owner. …”
Foreign Ownership under the Rule Accessory Follows the Principal
We draw from these cases the following insights:
- The owner of the land is also the owner of the building, house and other structures constructed over it, following the principle of accessory follows the principal.
- The principle can be rebutted by proof of separate ownership – that the building can be owned separately from the land, and that the owner of the land and of the building can be different persons.
- Additional proof is required to prove separate ownership, such as a separate Tax Declaration or Declaration of Real Property. If there is no such proof, the presumption “accessory follows the principal” under Article 440 of the Civil Code of the Philippines will be applied. In this case, the owner of the land will also be the owner of the building, house, or other immovable structures constructed on the land.
Considering that the prohibition under the 1987 Philippine Constitution and the Public Land Act pertain expressly only to land, foreigners may also own immovable structures such as a building, house or other immovable structure, only if they are able to present separate title or proof of ownership thereon.
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