Mr. Fernando C. Campos

April 20, 1990 Mr. Fernando C. Campos Leonila Realty and Development Corp. 41 Bohol Avenue, Quezon City S i r : This refers to your letter dated February 16, 1990 requesting opinion on the following queries: 1. Is it possible to sell condominium units by transferring the corresponding Certificates of Condominium Titles (CCTS) to all the units of a Complex, say 160 CCTS of 160 units, all to Hongkong businessmen Taiwanese and Japanese buyers? 2. If in the negative, how many percent (%) of the units, is it 40% of the total number of units or 40% of the total floor area? Do we have to limit the sale of the 60% to Filipinos? The pertinent provision of Republic Act No. 4726, otherwise known as the Condominium Law, provides: Section 5. "Any transfer or conveyance of a unit or an apartment, office or store or other space therein, shall include the transfer or conveyance of the undivided interests in the common areas or, in a proper case, the membership or shareholdings in the condominium corporation: PROVIDED, HOWEVER, That where the common areas in the condominium projects are owned by the owners of separate units as co-owners thereof, no condominium unit therein shall be conveyed or transferred to persons other than Filipino citizens, or corporations at least sixty percent of the capital of which belong to Filipino citizens, except in cases of hereditary succession. Where the common areas in a condominium project are held by a corporation , no transfer or conveyance of a unit shall be valid if the concomitant transfer of the appurtenant membership or stockholding in the corporation will cause the alien interest in such corporation to exceed the limits imposed by existing laws." (Emphasis supplied). There are two set-ups contemplated in the aforecited provision. The first is where the common areas in the condominium project are to be owned by the owners of the separate units as co-owners. Under this set-up, no condominium unit shall be conveyed or transferred to persons other than Filipino citizens or corporations at least 60% of the capital stock of which belong to Filipino citizens, except in case of hereditary succession. The second set-up contemplated is where the land and other common areas in a condominium project are to be held by a condominium corporation . In this case a transfer or conveyance of a condominium unit to an alien, whether natural or juridical person, is permitted provided that the concomitant transfer of the appurtenant membership or stockholding in the condominium corporation will not cause the alien interest in such a corporation to exceed the limits imposed by existing laws . ( 40% ). It is to be pointed out that under this set-up aliens merely become stockholders or members of the condominium corporation that will hold title to the land and the other common areas and administer and manage the entire condominium project. (Noblejas and Noblejas, Registration of Land, Titles and Deeds, 1986 Edition, pp. 511-512). In the light of the foregoing, query No. 1 is answered in the negative. Relative to your second query, the 40% alien limitation as can be gleaned from the above provision of the Condominium Law is based on the stockholdings if it is a stock corporation or membership interest in the project in the case of non-stock corporation which interest depends on the provisions of the by-laws and master deed providing for the basis of control of the project. 3. Supposing under a Joint Venture Agreement, the foreign group agrees to accept exclusive use, management and operation of 60% of the total number of units for 25 years, and convertible to lease upon expiration, for another 25 years at say P200,000 per annum, in lieu of transfer of ownership , will this arrangement violate the 40% limit allowed to foreign ownership of the condominiums? We find no reason why the prohibition/limitation on alien ownership in condominiums should not be applied to arrangement giving aliens exclusive use, management and operation of condominium projects. The very purpose of the law is to give and ensure Filipinos the power to control and manage the project, the essential rights incident to ownership. Allowing the exclusive use, operation and management of condominium projects by aliens would place the property absolutely under alien control. In essence therefore, the project is practically owned by foreigners. The arrangement therefore would result in a clear circumvention of the law. 4. Supposing the owners separate the title of the lot from the CCTS, say by assigning all the CCTS upon completion of another corporation (60-40 foreign controlled) but retaining the title of the lot under the old Philippine corporation, is this arrangement feasible? "Condominium" is defined in the law as follows: "SECTION 2. A condominium is an interest in real property consisting of a 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 portion of such real property. Title to the common areas, including the land , or the appurtenant interest 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. llcd The law further provides: "SECTION 5. Any transfer or conveyance of a unit or an apartment, office or store or other space therein shall include the transfer or conveyance of the undivided interests in the common areas or, in a proper case, the membership or shareholdings in the condominium corporation: . . . (Emphasis supplied) From the foregoing provisions, it is clear that transfer or conveyance of title of the condominium unit includes the transfer and conveyance of land included within the project. "It is the essence of condominium that the separate owners are also co-owners of the common areas of the building and of the land on which it is situated; or in the alternative, where title to the land and the common areas of the building is to be held by a condominium corporation, the owners of the individual units shall automatically be members or shareholders in proportion to the appurtenant interest of their respective units in the land and the common areas of the building." (Noblejas and Noblejas, Registration or Land Titles and Deeds, 1986 Edition, p. 510). Accordingly, the answer to your fourth query is in the negative. 5. Is it possible for a foreign corporation registered with the SEC and BOI, with 80% of the capital stock belonging to the parent corporation in Hongkong, to undertake the construction of a $20,000,000 condominium project? If so, what are the registration requirements? The answer to the above query is in the negative considering that domestic construction is considered a partly nationalized business. The pertinent provision of said LOI states thus: "Unless specifically authorized by the President of the Philippines in exceptional cases, bidding award and negotiations of primarily civil works contracts shall be limited to Filipino individuals and to corporations, partnerships or associations seventy-five percent (75% of the capital of which is owned by citizens of the Philippines ." Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman