Since the Real-Estate Business Law was in effect in July 2015, the Vietnam Government has issued several legal documents to support the implementation of this Law. Notably, Decree 76/2015/ND-CP promulgated the detailed implementation of multiple provisions inside the Law. For example, Decree 76 specified the conditions of real-estate businesses, the real-estate contract templates and the process of partial or complete real-estate project transfer. Yet, as the Law on Investment and the Law on Real-Estate Business were amended last year, continuing the application of Decree 76 will lead to the stark mismatch between the two Laws. Because of this, the Government has issued Decree 02/2022/ND-CP to replace Decree 76 and bridge the legal framework gap between the aforementioned laws. Hence, several newly-stipulated provisions may affect the domestic and foreign enterprises in the Real-Estate market.
Updated conditions for real estate business of individuals and organizations in Decree 02/2022/ND-CP
The amended Real-Estate Business Law has abolished the regulation on minimum charter capital of 20 billion VND for real estate enterprises. Thus following the Law, Decree 02 has also abrogated any related provisions in the old Decree 76. Additionally, the new regulations have clearly defined the equity level of the real estate investor based on the land use scale and the method of determining the equity level.
Suppose a person is chosen as an investor in a real-estate project under the rules of the Land Law. In that case, he or she must own equal to or more than 20% of the total investment capital with a land usage size of fewer than 20 hectares. Yet, with more than 20 hectares of land use, the investors must own 15% of the total investment capital. This updated provision is different from Article 3 of Decree 76, which required the conditions of real-estate businesses. Meanwhile, Decree 02 reiterated the similar new regulations in Article 4.2. In this way, the Land Law and the Law on Real-Estate Business have several convergent points yet cause no impact on the current situation.
In addition, the most notable difference between the regulations is the information update requirement. Specifically, real estate corporations must regularly post and update statutory information on their website and trading platform. The information has to include
- The company’s basic information (name, address, legal representative and phone number);
- Real-estate transaction data;
- Information on the mortgage of houses, construction works, real estate projects in transactions (if any); and
- Information on the amount and type of property in transactions articulates the quantity and type of property that has been sold, transferred/leased, and traded.
In short, Decree 02 has stipulated new disclosure requirements, making the real estate market more transparent while reducing the risk of fraudulent transactions. Existing businesses, except for SMEs, must meet all of the aforementioned regulations within six months of March 1, 2022. Otherwise, they will be obliged to abandon their real-estate venture.
Specified contract forms in Decree 02
Previously, Decree 76 gave real estate business contract templates as a guideline. Therefore, in any real estate transaction, the parties are optional to follow those templates. Yet, Decree 02 has specified eight compulsory contract templates applied to diverse types of real estate transactions.
- Contract of apartment sale/lease-purchase;
- Contract of sale/lease-purchase of tourist apartments (also known as “condotel”) or office apartments with accommodation facilities (also known as “officetel”);
- Contract of housing sale/lease-purchase;
- Contracts for sale/lease-purchase of other construction works that are not covered by items (1), (2) and (3) above;
- Lease contracts for houses and other construction works;
- Land use right transfer contract;
- Land use right lease/sublease contract; and
- Contract to transfer all or part of real estate project.
These contract templates contain certain spaces for “other arrangements”. Thus, the parties can have the flexibility to add terms and conditions that do not violate the legislation and social codes of conduct.
Despite this flexibility, the parties’ freedom to agree can be challenged, as any additional terms and conditions are subject to interpretation by the state. During the drafting phase of Decree 02, the planned licensing agencies had the right to refuse the project transfer application on the grounds that the project transfer contract “does not conform” to the statutory contract form. Though such a right of refusal is not explicitly stated in Decree 02, licensing authorities may seek to challenge new terms and conditions in practice while examining relevant contracts.
Overall, these statutory contract templates will apply to contracts executed on or after March 1, 2022. This requirement may even apply to transfer contracts of pending projects for approval.
Time Frame modification for resolving objections to project transfer in Decree 02
Decree 02 still retains the Transferor’s Obligations of appeal settlement from customers and other related parties. Yet, the Transferor must now settle all such appeals after the project transfer contract is completed and before the transferred project is handed over to the Receivers.
In this way, the new regulation has loosened the obligation for each party as it allows them to conduct project transfer contracts before resolving an appeal (If any). Yet, Decree 02 has not clarified the form and extent of claims and the composition of their resolution. As a result, any appeal can disrupt and delay the handover process. Besides, Decree 02 or the Real-Estate Business Law vaguely regulated the definition and criteria of the completion and handover of transferred projects, causing difficulties for the project implementation.
For newcomers to Vietnam’s real estate market, the legal framework of the real estate business might be quite a challenge. With a lack of information and knowledge on the legislation, foreign investors can encounter undesirable sanctions that can be avoided with the assistance of a leading expert. As prestigious and trusted by well-known MNCs, Fortune Global 500 companies, and international non-governmental organizations (INGOs), Viettonkin is proud to help our dearest clients with in-depth legal and market knowledge in multiple industries. Let us walk side by side with you on the journey of establishing a new business!