Philippines: Boracay’s Club Panoly land lease problems

Philippines: Boracay’s Club Panoly land lease problems

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After Club Panoly Resorts, Inc.’s legal problems encumbering their 30-year lease contract with the owners of the property on Boracay island went from bad to worse, the company did what was expected: Club Panoly filed a counterclaim and cross-claim to retain control of their luxury tourist facility.

The company went to court to state that the judgment against them should be dismissed because of one uncontestable fact.

The original lease contract had been signed by the owners, not just the heirs of the owners.

The argument that the signatories to the contract did not fully understand what they signed was deemed questionable because a local lawyer from Kalibo had been consulted, and had actually sought the deletion of certain provisions of the draft contract.

Meanwhile, the resort also had a fall back position.

In the event that the court will declare the 30-year lease null and void, Club Panoly could always recoup its investments by virtue of Article 1678 of the Civil Code which defines the rights between the owner of the land and the improvements on the land as paid for by the tenant.

Under the law, Club Panoly would be entitled to half of the cost of improvements on the land. The owners and heirs would be under legal obligation to pay the resort the millions spent to put up a Triple A luxury resort hotel.

By November 2009, or more than two decades after the original lease contract was signed, it was the turn of the survivors of the original owners to file a motion for reconsideration. They sought to have Club Panoly remove the improvements built on their property, saying that the resort knew from the start that they were only leasing their land for a fixed period.

This time, it was Club Panoly that came out ahead, as the court ruled against the motion of the heirs in February 2010.

As a result, the owners of the land where Club Panoly stands, on one hand, and Club Panoly Resorts, Inc. on the other, were at a standoff. The owners and their heirs now regained control of the land, but they had to pay the resort for the cost of improvements, which they were not capable of doing.

The original case was elevated to the Court of Appeals in April 2010. And here, the woes of Club Panoly took a turn for the worse. In January 2011, and despite an urgent motion to stay the execution of the original ruling reverting the resort to the control of the owners and their heirs, the sheriff enforced the original writ of execution.

The owners and employees of Club Panoly were forced out of the resort on Jan. 21, 2011.

By then, the resort had been having other legal problems not related to the ownership issue.

Sometime in the middle of the last decade, in August 2005, employees of the resort had gone to the Department of Labor and Employment complaining of alleged violation of labor standards, underpayment of wages, non-remittance of SSS and PagIBIG premiums, and various other alleged infractions.

The Labor department ruled in favor of the employees, who were awarded the sum of P7,386,237.

The resort hotel filed a motion for reconsideration, and the DOLE lowered its computation to P3,342,662.

Again, the snails pace of justice in the Philippines resulted in appeals and counter appeals which ended with the court still ordering Club Panoly to pay the amount as ruled by the Labor department.

For whatever reason, Club Panoly refused or failed to pay the sum, and in November 2011, Special Sheriff Joseph Areno issued a notice of levy on the 25 commercial buildings located within the resort.

To rub salt on the resort’s wounds, a second notice of levy was issued one month later, covering one more building within the premises.

In January last year, an auction sale of the 26 buildings was held, even as the employees sought to be paid the P3.4 million that had been awarded them. Three groups joined the bidding, with a certain Lina Villaruz winning the property. Her bid? P3.4 million.

If the award is deemed legal and valid, the payment of Villaruz will thereby effectively go to the employees of Club Panoly.

But the bidding itself raises serious questions that foreign investors are sure to take note of.

With the issue of the owners and heirs having to pay Club Panoly half of the investments made to improve the property–easily worth tens of millions of pesos–it must be asked why such a high-value property could be disposed of for the mere sum of P3.4 million.

More importantly, foreign as well as local investors may have to reconsider signing contracts with property owners who can later claim that they did not understand what they had signed.

At present, the Philippines is falling far behind other Southeast Asian countries in bringing in foreign direct investments, with some saying it is the constitutional ban on foreigners owning land in the country as a major reason FDIs are not coming in.

Had Club Panoly been allowed to purchase rather than lease the property in Boracay, the company would not be facing the problems it now has.

To complicate their woes, Lina Villaruz reportedly recently sold Club Panoly for an undetermined sum to Summit Hotel and Resort Specialist, Inc.

Reclaiming the first luxury resort in the paradise island of Boracay has been made even more difficult, if not impossible, for Club Panoly.


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