Reservation Fee

Reservation Fee is a payment concept that secures a specific unit for a buyer for a limited period before signing a Contract to Sell.

Definition

In Philippine real estate, a reservation fee is a typically non-refundable payment paid to the developer or seller to hold a unit while the buyer completes requirements and starts equity or down-payment installments. It is distinct from the equity schedule and must be received only by developers with a valid License to Sell (LTS) under PD 957. Buyer protections under the Maceda Law apply once payments qualify as installments.

Key Components

• Amount: commonly PHP 10,000–50,000 (varies by project and unit type).
• Validity: reservation period (often 30 days) to submit documents and pay initial equity.
• Receipts: official acknowledgment/OR required to validate the reservation.
• Conditions: subject to project LTS, unit availability, and compliance with DHSUD guidelines.
• Refunds/forfeiture: typically non-refundable unless misrepresentation, LTS issues, or agreed contingencies occur.

How It Works

1. Buyer signs a reservation agreement and pays the reservation fee to secure the unit.
2. Buyer submits documents (e.g., Buyer Information Sheet, IDs) within the reservation period.
3. Buyer transitions to the Contract to Sell and starts the Payment Schedule for equity or down payment.
4. Developer issues official receipts and updates ledgers; buyer keeps proofs for financing and turnover.
5. If contingencies fail (e.g., LTS invalidity or defined loan-denial clauses), refund rules follow the reservation agreement and applicable law.

Pros & Cons

• Pros: Locks unit and price; buys time to process documents and financing; signals serious intent to seller/developer.
• Cons: Generally non-refundable; forfeiture risk if timelines or documentation lapse; contingent on developer’s LTS compliance.

Real-World Application (Philippine Real Estate)

• Brokers should verify the project’s License to Sell before accepting reservation fees.
• Use Payment Tracking and Payment Schedule to monitor deadlines and avoid forfeiture.
• Align equity start dates with financing plans to minimize default risk and ensure compliance with Maceda Law protections.
• Keep all ORs and reservation agreements in a Document Management System for due diligence and loan submissions.

Related Terms

• Contract to Sell
• Maceda Law
• License to Sell (LTS)
• Payment Schedule
• Buyer Information Sheet

References

• Presidential Decree No. 957 – Subdivision and Condominium Buyers’ Protective Decree (LawPhil)
• Republic Act No. 6552 – Realty Installment Buyer Act (Maceda Law) – Supreme Court E-Library
• DHSUD – Department of Human Settlements and Urban Development