FACTS: A reading of the lease agreement shows that it is for a term of ten (10) years and that the lease shall be renewable for another term of 10 years upon mutual agreement of the parties. The agreed rental is P5,000.00 per annum with the escalation clause that the rental shall be increased by 10% at the end of each five-year period counted from the effectivity of the lease agreement. After the 10-year term and during the renewal period, the lessee may, at his/their own option and discretion, terminate the lease, after giving the lessors a previous written notice in advance, at least 180 days from the effective date of termination. Upon termination of the lease after the first 10 years, all improvements which are permanent in nature that may have been constructed by the lessee on the leased properties, shall become properties of the lessors, their heirs or assigns, without any further obligation to reimburse the lessees. The lessee has the priority to purchase the property if the lessors decide to sell said property.
Before the expiration of the 10 year term of the lease, private respondents manifested their desire to renew the lease when they sent petitioners’ representative a prepared lease agreement already signed by them but it was never signed nor returned by petitioners. Petitioners would be willing to renew said lease if the rentals are increased to P2,000.00 monthly. Petitioners acquiesced on private respondents’ occupation for more than 15 days after the expiration of the lease agreement. Private respondents now contend that there is an implied renewal of lease agreement for another 10 years.
ISSUE: Is the contention that implied renewal of a lease agreement originally for 10 year term be for another 10 years correct?
HELD: NO, the contention is not correct.
From the foregoing set of facts, it cannot be said that the lease agreement had been effectively renewed for another 10 years. The stipulation of the parties is clear in that such a renewal is subject to the mutual agreement of the parties. While there is no question that private respondents expressed their desire to renew the lease by another 10 years at the rate of the rental stipulated in the lease agreement, apparently petitioners would be willing to renew said lease if the rentals are increased to P2,000.00 monthly. Obviously, there was no meeting of the minds as to the rate of the rental. As there was no agreement reached, then the term of the lease may not be considered to have been renewed for another 10 years.
However, since after the expiration of the lease agreement, the private respondents continued to occupy the premises for more than 15 days with the acquiescence of petitioners, then it is understood that there is an implied new lease, not for the period of the original contract, but from year to year. Article 1670 of the Civil Code so provides for this situation.