CIVIL LAW; LEASE; Essentially not personal in character; No novation in sublease; Lessee can sublease as long as it is not expressly prohibited; When Lessor should pay 1/2 value of improvements introduced

Analita P. Inocencio vs. Hospicio De San Jose

G.R. No. 201787, 25 September 2013

In this case, the Supreme Court held the clause "contract is non-transferable unless prior consent of the lessor is obtained in writing" to refer to transfers inter vivos and not transmissions mortis causa.

Since lease contracts are not personal in character, the SC explained that the rights of a lessee may be transferred to an heir via intestate succession and unless prohibited, the heir can exercise the same rights as the lessee-predecessor-in-interest.

A lessee is also not prohibited from sub-leasing the leased property or premises provided no express prohibition exists in the contract of lease. When there is a sub-lease, there is likewise no novation of the contract of lease, since the original juridical relation between the lessor-lessee remains (as opposed to an Assignment of the Lease when the lessee is replaced by the assignee).

Another notable point made in this case is the fact the simultaneous lease of the building likewise includes with it, the lease of the land on which the property is located. Thus, rental payment for the building includes rental for the lot.

With respect to improvements introduced by the lessor in good faith on the property, the SC held that the lessor is entitled to be paid 1/2 value of the improvements introduced at the time the lease is terminated, provided that the following requirements are present: (1) the improvements were introduced in good faith; (2) the improvements are useful; and (3) suitable to the use for which the lease is intended, without altering the form and substances.

Should the lessee refuse to reimburse the lessor, the latter may then cause the demolition of the improvements introduced.