Dealing with abandoned lease and disappearing lessee

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Published — July 12, 2017

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

Read Also: Frequently Asked Questions on Land Titles and Dealings with Real Property

Leasing, as a business, poses its own set of challenges despite the convenience of earning passive income by way of rental payments. Among the most common problems encountered by lessors is the need to drive away delinquent lessees out of their property, or evicting those who, despite having no more right to occupy the premises by reason of expiration of the lease agreement, still clings onto the property as if it were a matter of life and death. This deprives the lessor the opportunity to rent his property out to other potential (and hopefully, better) tenants. But what if the situation took a reverse turn: the lease was supposedly going well, but suddenly the lessee had left and disappeared for good. If you thought that things would go easy, then think again.

The sudden disappearance of a lessee who abandons the leased premises gives the lessor a whole new set of problems to deal with. Lessors confronted of such situation may find asking themselves the following questions:

1. Should I consider the lease agreement terminated, and lease out the premises to others?
2. Should I take the lessee’s belongings left inside the premises, and appropriate them to satisfy the unpaid rent?

On the termination of existing contract, and leasing to others.

For sure, no lessor would want to be confronted with a situation where he leases the premises anew to another, only to find the old lessee reappear to resume his rights under the “unfinished” lease contract. Whether the lessor stops honoring the old lease, or pre-terminates the new one, would open the door for him to be liable for damages for breach of contract. Therefore, in this situation, there is a need to determine whether the abandonment of the lessee already freed the property from the lease.

If the abandonment were long enough to get past the stipulated expiration date of the lease agreement, then there would be no problem leasing the premises to others. The contract is deemed terminated in such case, and the lessor would not be obliged to continue the lease with the old lessee. However, if the lease agreement has not yet expired, the lessor need not look further than the lease contract he had with the lessee. If it is already stipulated therein that the lease is terminated without need for prior notice in the event that the lease is abandoned and the premises remain unoccupied for a determined period of time, then the lessor may proceed leasing it to another.

But if the contract does not contain such stipulation, how would the lessor handle the situation? To be safe, before leasing out the premises to others, it would be better if the lease contract would first be terminated on the basis of the lessee’s breach of his obligations, particularly the non-payment of rentals [see Articles 1657 & 1659, Civil Code]. To effect the termination, the lessor would have to give the lessee a written notice of termination of the lease by serving it on both his last known address, and by posting it on the abandoned leased premises. Based on practice, a period of 30 days is usually being given as notice of pre-termination of a contract.

On the items found inside the leased premises

With respect to the items owned by the lessee that are found inside the leased premises, it is submitted that the lessor has no right to appropriate the same just to satisfy the unpaid rent. Doing so will just expose the lessor to possible criminal charges for theft. It would be better to simply safekeep the said items in a particular place, subject also to the giving of notice to the lessee that his belongings are going to be removed from the premises to be transferred elsewhere. Thus, it is advisable for the lessor not to push through with selling the items found inside the leased premises, or appropriating it in any other manner, notwithstanding the fact of non-payment of rentals.

This, however, does not affect the right of the lessor to demand for the payment of rentals due, as this right is provided by law [Article 1657, Civil Code], and the lessor may even resort to civil action for collection of sum of money before our courts. But since the lessee had already disappeared, and his whereabouts unknown, then where should demand for payment of rentals be made? Isn’t it that demand is necessary in order to constitute the debtor in default, and without which, no court case may prosper?

On the lessor’s possible course of action

Despite the uncertainty as to where demand should be served, it is submitted that the institution of a collection case for unpaid rentals against the lessee is appropriate under the circumstances. The lessor may even seek to recover all litigation costs he incurred, which may include storage costs for the abandoned items found in the leased premises that the lessor may have incurred while the case is pending.

A civil action for collection may still prosper, considering that under the circumstances, there is no more need for the lessor to make a demand upon the lessee for payment of rentals. Demand is not anymore necessary when such demand would be useless [Article 1169 par. 3, Civil Code]. When performance has become impossible, demand will be useless and will not be necessary to constitute the debtor in delay, such as when the impossibility is caused by some act or fault of the debtor, like when he is absent or is in hiding [see: Tolentino, Civil Code of the Philippines Vol. IV, 2002 Reprinting, p. 107].

Moreover, the action in court can proceed even in the absence of the lessee. In any civil action where the defendant’s whereabouts are unknown and cannot be ascertained by diligent inquiry, service of summons may be effected upon him by publication in a newspaper of general circulation and in such places and for such time as the court may order [Section 14, Rule 14, Rules of Civil Procedure]. Consequently, judgment may be rendered by the court regardless of whether the lessee actually participated during the course of the proceedings. In the event the lessor secures a favorable judgment, the court may then order that the abandoned items owned by the lessee be attached and sold for purposes of execution. Once the said items are sold in execution sale, that’s the time the proceeds may be applied to satisfy the lessor’s monetary claims.

Given the foregoing, it is clear that the lessor cannot deal with the lessee’s abandonment of the lease without making sure that all the legal implications are taken into account. Any legal misstep by the lessor could prove to be costly. If, however, he finds himself in such situation, it would not hurt to know exactly what to do.

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding lease and other special contracts, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.

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