Lease Termination: Grounds Must Be Stated in the Notice

A lessor who ends a lease before its term expires must stand on the ground it actually put in writing at the time. It cannot terminate the contract for one reason and later defend that decision using violations it never mentioned. The Supreme Court settled this in Belen dela Torre v. Bicol University, G.R. No. 148632 (August 31, 2005), a case that clarifies how pre-termination clauses in lease contracts must be exercised.

The dispute behind the case

In 1990, Belen dela Torre entered into a contract of lease with Bicol University. She was allowed to build and operate an eatery inside the university compound, occupying 49 square meters, at a monthly rental of Php 5.00 per square meter. She built the canteen at a cost of Php 110,000.00 and operated it with the necessary permits.

In 1994, the university assessed her for unpaid rentals and for electricity illegally tapped from its power lines. It also issued memoranda directing the stoppage of temporary stores and ambulant vendors inside the campus. On October 4, 1994, the university terminated the lease effective 90 days later, explaining that the Board of Regents wanted the campus rid of such stores to protect the university community from sickness, ailments, and security risks, in line with the Department of Health.

Dela Torre sued for breach of contract with damages. In its defense, the university raised several violations not mentioned in the termination letter: that she exceeded the leased area, that the building was not made of light materials, that she did not pay rentals on time, and that she failed to put up her own power and water supply.

The rule on termination letters

The Court ruled that when a contract allows pre-termination, the lessor may terminate only on a ground stated in the pre-termination letter. Grounds not mentioned there cannot be considered. This follows the principle of due process: a party must be fully informed of why the contract is being ended so it can determine whether the ground is allowed under the contract and can respond to it.

The Court also addressed what happens to unstated violations. The university could not use them to justify the termination. However, it had not given up its claims for unpaid rentals, deficiency rentals, and payment for unauthorized power and water consumption. Those were pursued through a counterclaim, which the Court treated as having the nature of a complaint. The trial court's award of these amounts, affirmed by the Court of Appeals, was upheld.

Why the stated ground was valid

The termination letter cited the protection of the university population from sickness, ailments, and security risks. The lease contract itself, in paragraph 4(d), allowed the lessor to terminate and order the lessee to vacate if the leased premises posed danger to the security and safety of university property, students, and personnel, or for analogous causes. Paragraph 5 made any violation of the contract a ground for rescission or termination.

The reason given in the letter fell squarely under paragraph 4(d). The Court held that determining what circumstances pose a danger is a matter left to the university's discretion, limited only by the requirement that it be exercised in good faith and not arbitrarily. At the time of termination, cholera was prevalent in the province, and the Department of Health had identified it as an affected area. The order applied to all vendors and stores, with no one singled out.

Dela Torre argued that no illness or incident had actually occurred in her canteen. The Court rejected this. The phrase "poses danger" does not require that injury or disease has already occurred. It is enough that the danger sought to be prevented, the spread of cholera, could be aggravated by continuing the eatery's operation.

Practical takeaways

• If a lease allows pre-termination, the lessor's termination letter defines the case. Only grounds stated in that letter will be considered in judging whether the termination was valid.
• Violations known to the lessor but omitted from the termination letter are deemed waived for purposes of justifying the termination. They cannot be raised later as after-the-fact reasons.
• Omitted violations may still support a separate claim. A lessor can recover unpaid rentals and other amounts through a counterclaim even if those grounds cannot justify the termination.
• A contractual ground such as premises that "pose danger" does not require proof that harm already happened. It is enough that the risk exists, provided the lessor acts in good faith and applies the rule even-handedly.
• Courts respect the contract as the law between the parties. Clear stipulations granting a unilateral right to terminate will be upheld, but the manner of exercising that right must follow the contract and due process.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.