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Understanding the nature of sublease

“Any blockhead can arrange a sublet. All I ever wanted was to support myself on art,” said frustrated visual artist Walter Keane, who claimed to have painted the images of wide-eyed children actually painted by his then-wife, Margaret Keane.

Despite (or because of) this oversimplified view of a sublet or sublease agreement, it can be the source of conflict between the contracting parties, as shown in the cases decided by the Supreme Court below. Understanding the nature and legalities concerning this agreement is thus key.

In Mallarte v. Court of Appeals, for instance, Spouses Nicolas and Ramona Gopiao leased to Vicente Mallarte a certain apartment on a monthly basis. In this regard, the parties stipulated in their corresponding agreement that Mallarate was prohibited from subleasing or otherwise transferring to another the leased premises, or any portion thereof, without Spouses Gopiao’s prior written consent. Failure to comply with this provision shall be ground for Mallarte’s ejectment therefrom.

During one of their routine inspections, Spouses Gopiao discovered that Mallarte had converted certain areas of the apartment into bed spaces for eight boarders. Thinking that Mallarte had violated the pertinent provision of their agreement, Spouses Gopiao demanded him to vacate the leased premises. He refused to do so, constraining Spouses Gopiao to file an ejectment suit against him before the then City Court.

Meanwhile, Mallarte argued that the boarders were his nephew, nieces, grandchildren and other relatives who had been studying at a nearby university. Moreover, he accused Spouses Gopiao of filing the instant suit because he had refused to pay the increased rent.

This case was eventually appealed to the Supreme Court, which ruled in favor of Mallarte. It held that accepting boarders was not tantamount to a sublease agreement, which necessitated the lessee to surrender his control and possession of the leased premises or any part thereof.

Meanwhile, the sublessee rents from the lessee the same premises for a term less than that stated in the lease agreement.

While a lessee may be expressly restricted from subleasing the premises in the lease agreement, the Supreme Court held that it effectively restrains alienation and is, thus, looked with disfavor by the courts.

In this case, Mallarte remained the actual occupant and possessor of the leased apartment. He merely accepted his relatives as boarders therein and assigned them their rooms or bed spaces, while agreeing to provide them with meals and/or lodging for a price.

Meanwhile, Blas v. Court of Appeals concerned the Premier Theater Building, whose owner, Alfonso Bichara, leased to Emilia Blas. In their lease agreement, Bichara authorized Blas to sublease the premises for a five-year period. Thus, Blas orally agreed to sublease to Arthur Yao a portion of the leased premises for a monthly sublease rental fee.

Afterwards, however, Bichara demanded Yao to pay to him the sublease rental fee since his lease agreement with Blas had already expired. Yao complied with Bichara’s demand, upon which the latter filed against Blas an ejectment suit before the Metropolitan Trial Court (MeTC).

The MeTC and upon appeal, the Regional Trial Court ruled to extend Blas and Bichara’s lease contract for another five years. This development compelled Blas to demand Yao to pay the accrued sublease rentals. Nevertheless, Yao continued to remit his payments to Bichara and refused to vacate the subleased premise when Blas demanded to do so.

This time, Blas filed against Yao an ejectment suit before the MeTC. The MeTC ruled in favor of Blas and directed Yao to vacate the subleased premises. Upon appeal, however, the RTC and Court of Appeals effectively reversed the MeTC’s findings.

In this regard, the Court of Appeals particularly held that Blas was not entitled to eject Yao since the period of the sublease agreement had not yet expired and was effectively renewed upon the renewal of the lease contract. Moreover, Yao had not defaulted on his payment of the sublease rentals since he had done so with Bichara, who in turn was crediting the same to Blas.

In Blas v. Court of Appeals, the Court of Appeals found, among others, that based on the stipulation in Emilia Blas’ lease contract with Alfonso Bichara that the term of the sublease agreement shall be coterminous with the terms of the latter, the sublease agreement was effectively renewed upon the renewal of the lease contract.

Thus, Blas’ sublessee, Arthur Yao, was entitled to stay in the subleased premises.

The Supreme Court reversed and set aside the Court of Appeals’ decision, stating that the disputed stipulation in the lease contract did not prohibit the lessee or sublessor from subletting the premises involved for a period shorter than the duration stated in the lease contract. This is consistent with earlier jurisprudence that the sublessee’s right to remain in the premises depends on the lessee’s right to remain himself.

In this case, Blas was entitled to sublease to Yao the subleased premises on a monthly basis in accordance with the sublease agreement, instead of renewing the sublease for the full period of five years stated in the lease contract.

Moreover, the Supreme Court found that Yao default on his payment of the sublease rental in favor of Blas, despite having paid the same to Bichara. To be sure, a sublease agreement involves two distinct leases—that is, the principal lease and the sublease. The lessee’s personality as the sublessee does not disappear, such that his rights and obligations to the lessor are not acquired by the sublessee.

In this case, Yao’s payment of the sublease rental to Bichara was not payment to Blas.

Meanwhile, Inocencio v. Hospicio de San Jose concerns a parcel of land owned by Hospicio de San Jose (HDSJ), which was leased to German Inocencio. The lease contract stated, among others, that it is non-transferable unless HDSJ’s prior written consent to the transfer is obtained.

German constructed two buildings on the property, which he thereafter subleased, and designated his son, Ramon, to administer them.

German passed away, after which Ramon started collecting the sublease rental. He did not notify HDSJ of German’s death, but was paying the rent to the latter and taxes on the property.

In a subsequent letter to Ramon, HDSJ stated that it recognized that an implied lease contract existed between them, considering that it had been accepting Ramon’s rental payments. Nevertheless, considering that Ramon had been paying the rent on a monthly basis, despite the parties failing to agree on the lease period, HDSJ decided to terminate the lease contract by the end of a particular month.

Ramon sought to renegotiate the terms of the lease contract for the sublessees’ welfare, to which HDSJ refused since neither was it notified nor did it give its consent to Ramon subleasing the premises to 20 families on top of a commercial establishment. HDSJ also refused to accept Ramon’s rental payments.

HDSJ then filed a complaint for unlawful detainer against Ramon and the sublessees before the Metropolitan Trial Court (MeTC). Ramon countered, among others, that HDSJ was estopped from challenging the non-transferability of its lease contract with German since after his death, it admitted that it had an existing lease contract with the former.

MeTC ruled in favor of HDSJ, affirming the non-transferability provision in HDSJ and German’s lease contract. Since it could not be transferred to Ramon as German’s heir, he could not sublease the disputed premises. The Regional Trial Court and Court of Appeals affirmed the MeTC’s findings.

The Supreme Court partly granted Ramon’s appeal. It upheld the non-transferability provision in the lease contract, which merely reiterated the Civil Code provision that the lessee cannot assign the lease without the lessor’s consent, unless there is a contrary stipulation. Nevertheless, in acknowledging its month-to-month lease with Ramon, HDSJ is deemed to have continued its lease with Ramon in his capacity as a lessee, and not as German’s heir.

As such lessee, Ramon was entitled to sublease the premises. To be sure, the assignment or transfer of lease under the Civil Code, and which has been prohibited from the lease contract, is different from a sublease agreement, where the lessee becomes a lessor to the sublessee. The sublessee then becomes liable to pay rent to the original lessee. But, the juridical relation between the lessor and lessee is not dissolved.

Source: Inquirer

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