Short answer. No, not for free. For useful improvements made in good faith and suited to the purpose of the lease, the lessor must pay half their value at the end of the lease. Refuse, and the tenant may remove them even though the property suffers damage. Ornamental spending is treated differently.
What the law says
the lessor upon the termination of the lease shall pay the lessee one-half of the value of the improvements at that time
Civil Code, Article 1678 — Useful Improvements by the Lessee. Read the full provision →
What the law says
Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby.
Civil Code, Article 1678 — Useful Improvements by the Lessee. Read the full provision →
Four conditions before the half-value rule applies
The rule is generous but conditional. The improvements must be made in good faith; they must be useful rather than merely decorative; they must be suitable to the use for which the lease was intended; and they must not alter the form or substance of the property leased. A tenant who knocks down a wall, converts a residence into something else, or builds what the lease never contemplated falls outside all of this. Where the four conditions are met, the lessor upon the termination of the lease shall pay the lessee one-half of the value of the improvements at that time.
Value at that time, not what you spent
The measure is half the value of the improvements at the termination of the lease, not half of what the tenant paid to install them. A fit-out that cost a fortune eight years ago and is now worn out is worth what it is worth on the day the lease ends, and that is the figure the half applies to. This is the single most common source of disagreement in these disputes, and it is why the condition and value of the work at the end matters as much as the receipts from the beginning.
If the lessor refuses to pay
The choice sits with the lessor, and the tenant's fallback is removal: should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. That is a strong right, and it comes with a limit in the next line, which is that the tenant must not cause more impairment to the property than the removal necessarily requires. Ornamental expenses stand apart. They carry no reimbursement at all, though the tenant may take the ornaments away if that causes no damage, unless the lessor chooses to keep them by paying their value.
What to document while the lease is still running
Ask before you build. Written consent from the lessor describing what is being installed removes the argument about good faith and about whether the work suited the lease's purpose. Keep the plans, the contractor's quotation and the receipts, and photograph the property before and after. Near the end of the lease, photograph the improvements again and get an assessment of what they are then worth, because that is the figure the statute uses. And read the lease for any clause about improvements, since the parties commonly write their own arrangement into it.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Henry L. Sia vs. Court of Appeals, et al, G.R. No. 108222, May 5, 1997 — read the decision on LawPhil →
- Bermon Marketing Communication Corporation vs. Spouses Lilia M. Yaco and Nemesio Yaco, G.R. No. 224552, March 3, 2021 — read the decision on LawPhil →
- Marguerite J. Lhuillier vs. The Hon. Court of Appeals, G.R. No. 128058, December 19, 2000 — read the decision on LawPhil →
- Spouses Crispin Aquino and Teresa V. Aquino, herein represented by their Attorney-in-fact, Amador D. Ledesma vs. Spouses Eusebio Aguilar and Josefina V. Aguilar, G.R. No. 182754, June 29, 2015 — read the decision on LawPhil →
Related provisions
- Civil Code, Article 1654 — Obligations of the Lessor
- Civil Code, Article 546 — Necessary and Useful Expenses