What Rights Does a Usufructuary Have Over Commercial Land?

Introduction

A usufruct over commercial land separates ownership from beneficial use. The owner retains title, while the usufructuary generally receives the right to possess, use, and enjoy the property, including its income, subject to the terms of the instrument creating the usufruct and the limits imposed by law.

The principal issue is whether the usufructuary may lease the commercial land and collect rent even though another person remains the registered owner. Under Philippine law, the answer is generally yes. However, the lease must remain within the scope and duration of the usufruct, and the usufructuary must preserve the property and respect contractual restrictions.

What Is a Usufruct?

Usufruct is a real right to enjoy the property of another, with the obligation to preserve its form and substance unless the title creating the usufruct or the law provides otherwise. It gives the usufructuary the right to use the property and receive its fruits, while ownership remains with the naked owner.

The Civil Code recognizes the usufructuary’s entitlement to the natural, industrial, and civil fruits of the property. Rental income from commercial land is ordinarily a civil fruit of the property under Article 566 of the Civil Code of the Philippines.

May the Usufructuary Lease Commercial Land?

Yes. Article 572 of the Civil Code expressly allows the usufructuary to personally enjoy the property, lease it to another, or even alienate the usufructuary’s own right, including by gratuitous title.

This authority is also recognized in Hemedes, et al. v. Court of Appeals, et al., G.R. No. 107132, 1999. The Supreme Court explained that the usufructuary may personally enjoy the property, lease it to another, or alienate the usufructuary’s right, but contracts entered into by the usufructuary generally terminate when the usufruct ends.

The usufructuary’s lease is therefore legally distinct from a sale or transfer of ownership. The usufructuary leases the right to use and enjoy the property, not the title itself.

What Happens When the Usufruct Ends?

As a general rule, a lease executed by the usufructuary cannot extend beyond the life or term of the usufruct. Article 572 provides that contracts entered into by the usufructuary terminate upon expiration of the usufruct, subject to the specific statutory treatment of leases of rural lands during the agricultural year.

For commercial land, the lease should therefore expressly state that it is subject to the continued existence of the usufruct. A lessee who enters into a long-term lease should verify the duration of the usufruct and understand the consequences of its earlier termination.

In National Housing Authority v. Court of Appeals, et al., G.R. No. 148830, 2005, the Supreme Court recognized that a usufructuary may lease the property and that the owner must respect the lease while the usufruct exists, provided that the leased portion is within the area covered by the usufruct and the lease is otherwise valid.

May the Usufructuary Collect Rental Income?

Yes. Rent received from a lease of the commercial land belongs to the usufructuary as a civil fruit, unless the instrument creating the usufruct provides otherwise.

Article 570 of the Civil Code treats payments arising from rights to receive rent or periodic income as the proceeds or fruits of the relevant right. Accordingly, where the usufruct covers the right to receive rent, the usufructuary may collect the rental payments falling due during the usufruct.

The usufructuary may also be entitled to collect rent from a lease that the usufructuary validly executed over the property. The owner generally cannot demand those rentals merely because the owner retains title, although the parties may agree on a different arrangement.

Can the Owner Lease the Land Instead?

The owner retains the power to alienate, encumber, or otherwise dispose of the property, subject to the duty not to prejudice the usufructuary’s rights. This distinction between ownership and enjoyment was emphasized in Hemedes, et al. v. Court of Appeals, et al., G.R. No. 107132, 1999.

The owner may therefore sell or mortgage the commercial land, but the transaction does not automatically extinguish the existing usufruct. A transferee or mortgagee must generally respect the usufructuary’s rights when those rights are validly constituted and properly disclosed or annotated.

The owner may not validly grant a lease that defeats the usufructuary’s existing right of possession and enjoyment. If the owner leases the property despite the usufruct, the enforceability of the owner’s lease against the usufructuary may depend on the terms of the usufruct, the lessee’s knowledge, registration, and the circumstances of the transaction.

What Are the Usufructuary’s Rights Over Commercial Land?

Subject to the constitutive instrument and applicable law, the usufructuary generally has the following rights:

• Possession and use: The usufructuary may occupy or use the commercial land consistently with the purpose and limits of the usufruct.
• Leasing: The usufructuary may lease the property to a commercial tenant under Article 572 of the Civil Code.
• Collection of rent: The usufructuary may collect rent and other civil fruits accruing during the usufruct.
• Management: The usufructuary may administer the property and undertake ordinary measures needed for its preservation.
• Transfer of the usufructuary right: The usufructuary may alienate the usufructuary right, even gratuitously, subject to the legal and contractual limits governing the usufruct.

What Restrictions Apply?

The usufructuary does not become the owner of the land. The usufructuary must preserve the property’s form and substance and may not use it in a manner that substantially impairs the owner’s rights or violates the instrument creating the usufruct.

The deed, agreement, will, court order, or other document creating the usufruct may impose additional restrictions. For example, it may prohibit commercial leasing, limit the property to a particular business use, require the owner’s consent before subleasing, restrict alterations, or reserve certain income to the owner.

In BIR Ruling No. 810-2018, the Bureau of Internal Revenue considered a contract that allowed residential use but prohibited business and commercial use. The ruling illustrates that the parties’ written restrictions can materially limit the usufructuary’s otherwise recognized statutory powers.

May the Usufructuary Build Improvements?

The usufructuary may make improvements and repairs only within the authority granted by law and the instrument creating the usufruct. Ordinary repairs and measures necessary to preserve the property are generally consistent with the usufructuary’s obligations.

Major structural alterations, conversion of the property to a different commercial use, or construction that changes the property’s form or substance may require the owner’s consent. The usufructuary should also secure the permits, clearances, and approvals required by zoning, building, fire-safety, environmental, and local-government regulations.

A commercial lease should identify who will pay for improvements, who owns fixtures and structures upon termination, and whether the tenant may remove its installations. These matters should not be left solely to the general provisions on usufruct.

Who Bears the Expenses and Taxes?

The allocation of expenses depends on the Civil Code, the creating instrument, the lease, and applicable tax and local regulations. The usufructuary should account for ordinary expenses of administration, preservation, and the operation of the commercial property as required by law or agreement.

The parties should separately examine real property taxes, business taxes, withholding taxes, value-added tax or percentage tax, income tax, documentary stamp tax, registration charges, and other liabilities arising from the commercial lease. The tax treatment depends on the parties, the transaction, the property, and current regulations.

BIR Ruling No. 810-2018 treated the particular contract of usufruct before it as not involving a transfer, conveyance, or disposition of ownership. That ruling should not be treated as a blanket exemption for every usufruct agreement or every related transaction; the actual document and applicable tax rules must be reviewed.

What If the Property Is Co-Owned?

A usufructuary of a share in co-owned property may exercise rights pertaining to the owner with respect to administration and the collection of fruits or interest under Article 582 of the Civil Code.

If the co-ownership is later divided, the usufruct over the part allotted to the co-owner generally attaches to the portion received by that co-owner. A lease over a specific area should therefore be supported by a clear description, survey, or allocation agreement when the property is co-owned.

Can the Usufructuary File an Action to Recover Possession?

A usufructuary with the right to exclusive possession may protect that possession against the owner or another occupant. In Fernandez, et al. v. Fernandez, G.R. No. 266145, 2024, the Supreme Court held that co-owners who remained on the property despite a usufructuary’s right to full control and possession occupied by tolerance. Once valid demand to vacate was made, continued possession became unlawful, allowing the usufructuary to pursue unlawful detainer.

The precise remedy depends on the facts, including the nature of the possession, the date of entry, the demand, the terms of the usufruct, and the applicable procedural requirements. A demand letter should clearly identify the usufructuary’s right, the violation, and the relief required.

What Should a Commercial Usufruct Agreement Contain?

A well-prepared usufruct instrument should address at least the following matters:

• The complete technical description and title details of the commercial land;
• The duration and event of termination of the usufruct;
• The authority to lease, collect rent, sublease, assign, or transfer the usufructuary right;
• Permitted commercial uses and prohibited activities;
• Responsibility for repairs, improvements, taxes, insurance, permits, and compliance costs;
• The treatment of existing leases and tenants;
• The effect of sale, mortgage, foreclosure, or transfer by the owner;
• The turnover of possession, records, deposits, and improvements upon termination; and
• The requirement for registration or annotation and the parties’ cooperation in completing it.

Typical Commercial Leasing Scenarios

Example 1: Lease of a commercial building. If the usufructuary has authority to lease the property, the usufructuary may enter into a lease with a tenant and collect rent. The lease should state that it ends, or is otherwise affected, when the usufruct terminates.

Example 2: Sale by the naked owner. The owner may sell the land, but the buyer generally takes the property subject to a valid existing usufruct. The sale does not by itself transfer the usufructuary’s right to the buyer.

Example 3: Contractual prohibition. If the usufruct document permits only residential use or expressly prohibits leasing, the usufructuary cannot rely solely on Article 572 to disregard that restriction.

Example 4: Lease beyond the usufruct. If the usufructuary grants a 20-year lease but the usufruct expires after five years, the lease is exposed to termination upon expiration of the usufruct, unless a legally enforceable arrangement provides otherwise.

Recommended Due Diligence

Before leasing commercial land subject to a usufruct, the owner, usufructuary, and prospective tenant should inspect the title and the instrument creating the usufruct. They should confirm the parties’ identities, the duration of the right, the authority to lease, existing annotations, mortgages, liens, restrictions, and pending disputes.

The parties should also verify the property’s zoning classification, building and occupancy permits, tax declarations, real property tax status, environmental requirements, and local business regulations. A commercial lease should not assume that the usufructuary’s civil-law authority eliminates separate regulatory requirements.

Conclusion

A usufructuary may generally possess, use, lease, and collect rental income from commercial land even though another person holds legal title. The authority arises from the usufruct provisions of the Civil Code, particularly Articles 566, 570, and 572, but it remains subject to the usufruct’s duration, the obligation to preserve the property, and any valid restrictions in the document creating the right.

The safest approach is to define the usufructuary’s leasing authority in precise terms, annotate the right when appropriate, disclose its existence to prospective tenants and transferees, and provide clear rules on rent, improvements, expenses, taxes, termination, and turnover. A commercial lease should be reviewed together with the title and the complete usufruct instrument before execution.

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