MEMORANDUM

DATE: 21 November 2019

RE: Latest Guidelines on Government Lease Contracts

The Government Procurement Policy Board (GPPB), in its 27 October 2017 Non-
Policy Opinion,1 stated that leasing out government properties for private use remains to
be governed by Executive Order 301, series of 1987, to wit:

B. DECENTRALIZATION OF LEASE CONTRACTS

Sec. 6. Guidelines for Lease Contracts. Any provisions of law, decree, executive order or
other issuances to the contrary notwithstanding, the Department of Public Works and
Highways (DPWH), with respect to the leasing of privately-owned buildings or spaces
for government use or of government-owned buildings or space for private use, shall
formulate uniform standards or guidelines for determining the reasonableness of the
terms of lease contracts and of the rental rates involved.

Sec. 7. Jurisdiction Over Lease Contracts. The heads of agency intending to rent
privately-owned buildings or spaces for their use, or to lease out government-owned
buildings or spaces for private use, shall have authority to determine the
reasonableness of the terms of the lease and the rental rates thereof, and to enter into
such lease contracts without need of prior approval by higher authorities, subject to
compliance with the uniform standards or guidelines established pursuant to Section
6 hereof by the DPWH and to the audit jurisdiction of COA or its duly authorized
representative in accordance with existing rules and regulations.

Sec. 8. Periodic Reports. The abovementioned heads of agency, with respect to the
buildings or space rented by them or leased by them to private parties, shall be
considered respectively as the administrators of said properties and shall prepare and
submit such periodic reports on the status of the lease and occupancy thereof to, and as
may be required by, the DPWH.

Accordingly, the DPWH issued 3 March 1988 Uniform Standards/Guidelines to

Determine the Reasonableness of the Terms and Rental Rates of Lease Contracts for
Private or Government Building/Spaces, which reads:

"Republic of the Philippines

DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS
OFFICE OF THE SECRETARY
Bonifacio Drive, Port Area, Manila

UNIFORM STANDARDS/GUIDELINES TO DETERMINE THE REASONABLENESS OF

THE TERMS AND RENTAL RATES OF LEASE CONTRACTS FOR PRIVATE OR

1Cf. NPM 014-2017 on Applicability of Republic Act (RA 9184) to Contract of Lease;
https://www.gppb.gov.ph/GPPBTSO_Non-Policy/1562.
GOVERNMENT BUILDINGS/SPACES

Pursuant to Section 6 of Executive Order No. 301, dated 26 July 1987, the following
uniform standards/guidelines are hereby formulated:

1. PARTIES TO THE CONTRACT

1.1 LESSOR. - The lessor is the absolute owner of the building/place to be leased.
The lessor may be a private individual, a corporation, or government agency. If
a private individual, he may personally enter into contract or authorize
somebody, thru a special power of attorney, to represent him. If a corporation,
the representative should be duly authorized by a resolution of the governing
board. If a government agency, it shall be represented by the official having
custody and administration of the building/space, who is duly authorized by
law to enter into this contract, and the lease contract shall be subject to approval
by the official concerned.

1.2 LESSEE. - The lessee is the party who rents the building/space. The lessee
may be a private individual, a corporation or a government agency. If a private
individual, he may personally enter into a contract or authorize somebody, thru
a special power of attorney, to represent him. If a corporation, the
representative should be duly authorized by a resolution of the governing
board. If a government agency, the head of the agency shall be represented by
the official having control of the appropriation against which the contract shall
create a charge, and the contract shall be subject to approval by the head of the
agency concerned.

2. TERMS AND CONDITIONS

The contract of lease shall be embodied in a public instrument and shall integrate all the
covenants, understanding and agreements of the LESSOR and LESSEE. Such terms and
conditions shall include, but not limited to, the following:

2.1 Duration of the Lease

As a general rule, the duration of the lease shall not exceed one (1) year and, as
far as practicable, shall not go beyond the end of any given calendar year.

2.2 Rights and Obligation of Both Parties

The rights and obligations of both parties shall be clearly defined to preclude
ambiguity and shall be fair and equitable to both parties. Such rights and
obligations shall include:

2.2.1 Obligations of the Lessor

a. To undertake major repairs including damages due to fortuitous

events during the effectivity of the lease and to complete such
repairs within a specified time frame.

b. To provide and make available, whenever called for or as may be

agreed upon in the contract, such facilities like air-conditioning
 units and telephone system, and maintain these facilities in
operating condition during the lease period.

c. To maintain the premises of the building/space in good and

tenantable condition during the term of the lease.

2.2.2 Obligation of the Lessee

a. To pay promptly and regularly the rentals agreed upon in a

manner specified in the contract.

b. To pay the monthly billings for facilities like electric, water and
telephone during the period of lease.

c. To surrender the building/space upon expiration of the lease

contract and to shoulder damages which the LESSOR may suffer
for his failure to surrender the same.

d. To faithfully comply with the terms and conditions of the

agreement.

2.2.3 Rights of the Lessor

a. In the event the building/space is deserted by the LESSEE before

the expiration of the lease without justifiable cause, the LESSOR
shall have the right to enter the relet the same and receive the
rentals corresponding to the unexpired period of the lease.

b. To terminate the lease contract and eject the LESSEE for failure or
refusal of the latter to pay the rentals agreed upon during the
period stipulated in the lease contract or for violation of contract
conditions by the LESSEE.

2.2.4 Rights of the Lessee

a. To withhold payment of rentals in the event the LESSOR fails to

make the necessary repairs of damaged facilities or damage to any
portion of the building which is its obligation to repair under the
agreement within a reasonable time and to undertake such repairs
applying the rentals due to cover the cost thereof.

b. To occupy and use exclusively the building/space leased to the

exclusion of the owner or his relatives.

c. To introduce improvements in the building/space, subject to

prior consent of the LESSOR under such terms and conditions as
may be agreed upon.

3. TERMINATION OF THE CONTRACT

Except for causes expressly stipulated in the contract, neither party shall have the authority to
unilaterally terminate the contract. Termination not due to causes provided in the contract
 shall be mutually agreed upon.

4. REASONABLENESS OF RENTAL RATES

4.1 As a general rule, rental rates are considered reasonable when they represent or
approximate the value of what the LESSEE gets in terms of accommodation,
facility and convenience from the leased building/space, and the LESSOR gets
equitable return of his capital or investment in the construction and maintenance
of the building/space.

4.2 Subject to certain modifications as may be necessary from time to time, the
Department of Public Works and Highways hereby adopts the BSRPMO
Guidelines in Determining the Reasonable Rental Rates, copy attached, for
application to both Private and government building/spaces for purposes of
Section 6 of Executive Order No. 301.

Issued this 3rd day of March 1988 at Manila, Philippines.

(SGD.) J. NERY FERRER

Secretary"

All concerned should be guided accordingly.

(SGD.) EUFEMIO C. DOMINGO, Chairman

Significantly, the above Guidelines was also adopted by the Commission on

Audit in its Circular 2019-005 dated 07 August 2019. The COA Circular requires all
government agencies which have an existing contract involving lease of government
building and/or lands with private entities/individuals to submit to the Technical
Services Office and Systems and Technical Services Sector a certified true copy of the
contracts within 15 days from publication/posting of this Circular or upon the execution
of the contract.