There's an Expiry Date

Once upon a time, a newly licensed broker began marketing a property owned by his Tito.

Excited to embark on his real estate journey, he spent several months advertising and showing the property to potential buyers. Eventually, he received an offer from a direct buyer that his Tito found acceptable.

Excited about his first deal, the broker used templates from his Real Estate Management classmates, revised them, and sent them to both parties for review.

Upon reviewing the documents, the buyer discovered that the property was apparently company-owned. So, the buyer requested copies of the company's SEC Registration and Articles of Incorporation.

The broker's Tito provided mobile phone pictures of the documents from his files, and the signing proceeded smoothly. The seller received the payment in his name, the buyer obtained the property title, and the broker celebrated with his first commission check. Everyone was delighted with the successful transaction.

To handle the title transfer, the broker hired a title transfer company, wanting to focus on selling rather than getting caught up in administrative tasks.

Title Transfer Co: "Sir, the corporate life of the company that owns the property has expired."

End of Story.

Before, it was common for property owners to transfer assets to family-holding companies for estate planning. Typically, these companies held a single asset, such as the family home, and did not generate any revenue. As a result, these companies were often forgotten by their incorporators, and no annual filings were made with regulatory bodies. In 2016, the SEC reported that the registrations of over 300,000 companies had been revoked, canceled, or expired.

So, what happens to the sale in the post?

Since the selling company's corporate life has expired, the BIR and Registry of Deeds will likely refuse to accept the transfer until the company is revived. In 2019, the SEC issued guidelines on reviving "expired" corporations.

I'm not sure how long the revival process takes or how the buyer will react upon discovering this.

How will the BIR/RD know the company has expired?

They can determine this through the company's Articles of Incorporation (AOI), which state its corporate life, and the General Information Sheet (GIS). The GIS, filed annually with the SEC, provides a summary of who owns and runs the company, showing the current shareholders and directors. If this document is not filed, it could indicate that something is amiss.

Aren't companies now perpetual with the "Revised Corporation Code"?

Yes, all companies are now perpetual. This law applies to companies registered before the revised code was enacted. However, we don't know if the company expired before this law took effect and if the SEC canceled its registration due to expiry. The seller would need to verify this.

Lessons:

Before closing a transaction, it's good practice to obtain and review all pertinent corporate documents (AOI, BIR 2303, GIS). In the story, it seems no one reviewed the corporate documents. The absence of a recently filed GIS should have been a red flag for the buyer.

Most real estate transaction issues occur during the title transfer process. I wouldn't recommend that new brokers outsource this part early in their careers. At the very least, the broker should have asked a more experienced broker to review the documents (with him) before closing.