G.R. No. L-39146 March 25, 1975
TRINIDAD DE LEON VDA. DE ROXAS, petitioner, vs. THE HON. COURT OF APPEALS and CARLOS FAUSTINO, respondents.

FACTS

Petitioner Trinidad de Leon Vda. de Roxas and private respondent Carlos Faustino entered into a written contract of lease for a parcel of land with a building for a term of three years from March 1963. The contract stipulated a monthly rental of P1,000.00 and contained a provision that it was “renewable for another three (3) years at the option of the LESSOR.” Upon the expiration of the fixed three-year term in May 1966, petitioner exercised her option not to renew the lease for another three years. However, she allowed respondent to continue occupying the premises on a month-to-month basis upon his agreement to pay an increased rental of P3,000.00 per month, which he paid from June 1966 to March 1968.
In March 1968, petitioner demanded a further increase in the monthly rental to P5,000.00 beginning April 1968. Respondent refused to pay the increased amount or to vacate. Petitioner then filed an ejectment suit. The Court of First Instance of Rizal ruled in favor of petitioner, ordering respondent to vacate and pay the P5,000.00 monthly rental. The Court of Appeals modified this decision, reducing the reasonable rental to P2,000.00 per month and ordering petitioner to refund excess payments.

ISSUE

Whether the Court of Appeals erred in reducing the monthly rental from P5,000.00 to P2,000.00 and in ordering a refund, after having correctly ruled that the original lease was not renewed and that respondent occupied the premises on a month-to-month basis.

RULING

Yes. The Supreme Court set aside the decision of the Court of Appeals and reinstated the judgment of the Court of First Instance. The Court held that the lease contract explicitly granted the sole option to renew for another three years to the lessor, petitioner. Having chosen not to renew, the fixed-term lease expired in May 1966. Thereafter, respondent’s occupancy was on a month-to-month basis. Absent any rent control law, it is the prerogative of the owner-lessor, upon the expiration of a lease, to demand a new rental rate. The lessee’s recourse is to accept the new rate or vacate. Respondent voluntarily paid the P3,000.00 monthly rental for nearly two years without protest, thereby agreeing to the new terms.
Regarding the increase to P5,000.00, the Court found the appellate court’s reduction to P2,000.00 untenable and arbitrary. The burden of proving that a demanded rental is exorbitant rests on the lessee. Respondent presented no evidence to substantiate his claim of unreasonableness. An objective analysis justified the P5,000.00 rate. During the original three-year lease, respondent paid a low P1,000.00 monthly rent but spent P150,000.00 on improvements that would belong to the lessor without reimbursement at the lease’s end. This effectively amounted to a total monthly cost of about P5,166.00 for respondent during the initial term. The P5,000.00 demand in 1968 merely reverted to this equivalent level and was therefore not exorbitant. The trial court’s assessment was correct.