Bureau of Local Government Finance Opinion

November 8, 2002 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION 1st Indorsement Respectfully returned to the City Treasurer, Quezon City, the within letter dated August 5, 2002, requesting confirmation of his opinion as contained in a letter dated February 1, 2002 to the President, Shoppers Paradise Realty and Development Corporation. Under the subject opinion, that Office expressed the view that the lessee of a leased property is liable to pay the real property tax and not the lessor-owner thereof. Likewise, the said opinion contains a directive to the City Assessor's Office thereat to list the individual units of the Novaliches Plaza Mall in the Assessment Rolls of the City in the name of the respective leaseholders and long-term tenants. Representation is being made that the subject lessor-owner (Shoppers Paradise Realty and Development Corporation) owns the Novaliches Plaza Mall, for which Tax Declarations were issued under its corporate name. The said Mall building is allegedly being leased to several leaseholders by virtue of several Contracts of Sale of Leasehold Rights for a period of 2 to 23 years. The Leasehold and Rental Contracts are allegedly silent as to who shall pay the real property tax. IDSaTE The said opinion of that Office was allegedly anchored on the Supreme Court Decision entitled " Province of Nueva Ecija vs. Imperial Mining Co., Inc .", 118 SCRA 632, which ruled that "In real estate taxation, the unpaid tax attaches to the property and is chargeable against the taxable person who had actual or beneficial use and possession of it regardless of whether or not he is the owner." Further, that Office believes that individual leaseholders and long-term tenants (lessees) of the Novaliches Plaza Mall shall be liable to the payment of real property tax in accordance with the provisions of Section 198(b) as read in relation with Section 217 of the Local Government Code of 1991 (R.A. No. 7160), which are both quoted below: "SEC. 198. Fundamental Principles . The appraisal, assessment, levy and collection of real property tax shall be guided by the following principles: "xxx xxx xxx. "(b) Real Property shall be classified for assessment purposes on the basis of its actual use. "xxx xxx xxx." "SEC. 217. Actual Use of Real Property as Basis for Assessment . Real Property shall be classified, valued and assessed on the basis of its actual use regardless of where located, whoever owns it, and whoever uses it." In her reply dated June 3, 2002, addressed to the Legal Officer of Quezon City to the subject opinion of the City Treasurer, the OIC, City Assessor's Office thereat made the following comments, to wit: 1. The property in question is a commercial building, owned and constructed by a private company (Shoppers Paradise Realty and Development Corporation) which is likewise the lessor, divided into several stalls covered by a lease agreement and being leased to individual leaseholders; 2. The private lessor wants that the payment of real property tax be shouldered by the leaseholders/lessees; 3. The Supreme Court Decisions cited by the City Treasurer are not applicable to the herein case because both Decisions pertain to the payment of real property tax by a beneficial user (lessee) on properties owned by the government but leased to a taxable person; 4. That Section 205 of the Local Government Code of 1991 (R.A. No. 7160), provides that real property shall be listed, valued and assessed in the name of the owner or administrator, or anyone having legal interest in the property; 5. In real property taxation, the real owner is an essential and dispensable party to be charged/levied with property taxes, and not the lessee or actual occupants/possessor/beneficial user who are not the real owner. ( Cenido vs. Apacionado 318 SCRA, 688 (1999)); and 6. The owner of real property is liable for taxes, although it is in the possession of another under a parol gift. As a general rule, property under lease for a term of years is taxable to the owner, not to the tenant. (84 C.J.S. 212). In both Supreme Court Decisions cited, what are involved are government owned properties, leased to a private person. In the instant case, the properties involved are private properties (Shopper's Paradise Realty and Development Corporation) leased to another private persons (individual leaseholders, who had Rental Contracts with the Shopper's Paradise Realty and Development Corporation for a period ranging from 2 to 23 years). At this juncture, it is important to note that the "beneficial use" concept provided under Section 234(a) of the Local Government Code of 1991 pertains to the real properties owned by the Republic of the Philippines, its instrumentalities and political subdivisions (province, city, municipality, barangay), the beneficial use of which has been granted for considerations or otherwise, to a taxable person, and does not apply to private properties leased to other private persons. Equally not applicable in this case is the issue on actual use which is defined under Section 199(b) of the same Code as the purpose for which the property is principally or predominantly utilized by the person in possession thereof. Actual use as used in the Code should not be construed as a criteria for the classification and valuation of real property, but as a determining factor in applying the appropriate percentage or assessment level to market value of property computed on the basis of the Schedule of Market Value (SMV) or Schedule of Basic Unit Construction Cost (Real Property Taxation, Title II, Book II, Local Government Code, Republic Act No. 7160, pp. 96, Cipriano P. Cabaluna, Jr., MPA, LLB). EAHcCT In the case entitled " Wilhelmina Jovellanos, et al. vs. The Court of Appeals ," G.R. No. 100728, SCRA 126, vol. 210, 1992, the Supreme Court ruled that "in a lease Agreement, the lessor transfers merely the temporary use and enjoyment of the thing leased." It can therefore be rightfully said that the lessees of the Shopper's Paradise Realty and Development Corporation, had only the right of possession over the property being leased to them, and that the payment of real property tax should be made by the person owning or administering the property. It would be unconscionable for the government to require someone to pay real property tax on leased/rented properties knowing fully well that someone is neither the owner, administrator, nor the beneficial user of the property. Section 205 of the Local Government Code of 1991 specifically provides as follows: "SEC. 205. Listing of Real Property in the Assessment Rolls . (a) in every province and city, including the municipalities within the Metropolitan Manila Area, there shall be prepared and maintained by the provincial, city or municipal assessor an assessment roll wherein shall be listed all real property, whether taxable or exempt, located within the territorial jurisdiction of local government unit concerned. Real property shall be listed, valued and assessed in the name of the owner or administrator, or anyone having legal interest in the property . (Emphasis ours) Relatedly, and in consonance with the aforequoted provision of the Code, the Supreme Court under the case " Cenido vs. Apacionado G.R. No. 1322474, 1999, declared the following: "Tax Declarations; Real property tax shall be assessed in the name of the person `owning or administering' the property on which the tax is levied , and a tax declaration in the name of a person who has no successional or administrative rights to a decedent's estate is null and void. Real Property Tax Code provides that real property tax be assessed in the name of the person `owning or administering' the property on which the tax is levied. Since petitioner Cenido has not proven any successional or administrative rights to Bonifacio's estate, Tax Declaration No. 02-6368 in Cenido's name must be declared null and void." (Emphasis supplied) Viewed in the light of all the foregoing, this Bureau believes and so holds that the Shopper's Paradise Realty and Development Corporation, is liable to pay the real property tax due on its commercial building (shopping mall). This accordingly confirms the contention of the Officer-In-Charge, City Assessor's Office, Quezon City, under her letter dated June 3, 2002. (SGD.) MA. PRESENTACION R. MONTESA Executive Director