PROTECTING THE RIGHTS OF REAL ESTATE BUYERS ACCORDING TO THE LAW ON DEPOSIT GUARANTEES FOR THE CONCLUSION/PERFORMANCE OF SALE CONTRACTS: PRACTICES IN HỒ CHÍ MINH CITY
PROTECTING THE RIGHTS OF REAL ESTATE BUYERS ACCORDING TO THE LAW ON DEPOSIT GUARANTEES FOR THE CONCLUSION/PERFORMANCE OF SALE CONTRACTS: PRACTICES IN HỒ CHÍ MINH CITY
Phạm Thị Hồng Mỵ
Master of Law, Faculty of Law, Saigon University
ABSTRACT
Disputes over deposit guarantees for the conclusion/performance of sale contracts involving real estate occur frequently in practice, notably in Ho Chi Minh City. The rights and obligations of the parties are specifically stipulated in legal documents. However, there are numerous cases where real estate buyers face disadvantages due to the lack of specific legal provisions or consistent guidance in resolving deposit-related disputes.
Therefore, this article will focus on analyzing: (1) an overview of the deposit guarantee measures according to Vietnamese law; (2) the practical application of legal provisions in resolving deposit contract disputes involving real estate in Ho Chi Minh City; (3) proposals for improving regulations on deposit guarantees for the conclusion/performance of sale contracts to better protect the rights of buyers.
Keywords: deposit, guarantee measure, buyer, real estate
I. INTRODUCTION
When participating in the conclusion/performance of sale contracts, the parties often use deposit guarantees to ensure the conclusion or performance, or both, of the contract. This may involve a deposit to secure a house purchase contract or a land use rights transfer contract. The deposit has been specifically stipulated in the Civil Code and various specialized legal documents such as the Law on Real Estate Business. However, in practice, not all parties are fully aware of the legal issues related to deposits.
Furthermore, this measure still has many shortcomings and limitations, such as unclear regulations and the lack of specific guidance documents, for example, regarding penalties for breaching deposit agreements. Therefore, it is essential to study and analyze the legal provisions on deposit guarantees for the conclusion/performance of sale contracts to protect the rights of real estate buyers, drawing from the practical experience in Ho Chi Minh City.
II. OVERVIEW OF DEPOSIT GUARANTEE MEASURES ACCORDING TO VIETNAMESE LAW
Deposit guarantee measures are stipulated in key legal documents such as the 2015 Civil Code, Decree No. 21/2021/NĐ-CP dated March 19th 2021 by the Government on the implementation of the Civil Code regarding the assurance of obligation performance, the 2023 Law on Real Estate Business, and the 2023 Law on Housing. The provisions include:
– Purpose of the deposit:
To ensure the performance of obligations such as the obligation to conclude contracts, the obligation to perform contracts, or both.
– Deposit period:
The deposit is conducted within a specified timeframe to ensure the conclusion or performance of the contract.
– Form of the deposit:
The 2015 Civil Code does not specify the form of the deposit. Hence, the deposit can be made in writing, verbally, or through conduct. The 2023 Law on Real Estate Business emphasizes that “The deposit agreement must clearly state the sale price, lease-purchase price of houses, construction works, and the construction area in construction works,” meaning that the form is to be in writing.
– Value/Proportion of Deposit in Relation to Contract Value:
The 2015 Civil Code does not stipulate the value or proportion of the deposit. The lack of regulation inevitably leads to mutual agreement between the parties. However, in real estate business activities, the deposit amount has specific regulations. Clause 5, Article 23 of the 2023 Law on Real Estate Business states: “Real estate project investors can only collect a deposit not exceeding 5% of the sale price, lease-purchase price of houses, construction works, and the construction area in construction works from the depositor for purchase or lease-purchase when the houses, construction works have met the conditions to be put into business according to the provisions of this Law.”
This new regulation ensures the conclusion of contracts (the 2023 Law on Real Estate Business regulates both real estate transactions occurring before the signing of the official contract) and protects the rights of the buyer.
Regarding the deposit amount, according to the report on reception and amendment by the Standing Committee of the National Assembly, the regulation of a 5% deposit aims to accurately reflect the nature of the deposit while limiting risks for the buyer, the lease-purchaser, who are often the weaker party in real estate business activities.
By clearly stipulating: real estate project investors “can only” collect deposits from customers when the future housing meets the conditions for sale, it will help reduce or eliminate the situation of investors illegally mobilizing capital by collecting deposits from home buyers when the houses have not met the conditions for business through contracts labeled as escrow agreements or reservation agreements (Vũ Thị Hồng Yến, 2024).
Compared to the deposit levels in the Draft Law on Real Estate Business, which were 2% and then 10%, the author agrees with the 5% deposit level as stipulated in the current document because it is neither too low nor too high, being at an average level, and has a sufficient value to maintain the trust of the parties.
Moreover, the 5% level is also the standard deposit level according to the practices of some countries such as the UK, the USA, and Japan. The 2023 Law on Housing does not stipulate the proportion of deposits in the sale of houses, sale, lease-purchase of social housing but only fixes the proportion of deposits in the lease of social housing. Specifically, “…only a deposit contract can be signed, and a deposit for renting social housing can be collected up to a maximum of 12 months of temporary rent.”
– Penalty for Breach of Deposit:
The 2015 Civil Code stipulates that if the party receiving the deposit refuses to conclude or perform the contract, in addition to returning the deposited property to the depositor, they must also pay “an amount equivalent to the value of the deposited property,” known as the deposit penalty. The penalty for breach of deposit is specified to be equivalent to the value of the deposited property.
However, the 2015 Civil Code includes a provision “unless otherwise agreed.” Thus, in practice, parties may understand that they are allowed to agree on the penalty for breach of deposit, which may be equivalent to the value of the deposited property, but they can also agree on a higher or lower penalty compared to the value of the deposited property.
Additionally, these documents also regulate the handling of deposited property when the contract is concluded/performed; the relationship between the deposit and the contract with the obligation to deposit; cases where it is not clearly defined whether it is a deposit or an advance payment; and the rights and obligations of the parties in the deposit agreement.
III. PRACTICAL APPLICATION OF LEGAL PROVISIONS IN RESOLVING DEPOSIT CONTRACT DISPUTES INVOLVING REAL ESTATE IN HO CHI MINH CITY
– Case 01:
The content of the deposit contract was unclear about the return of the deposit and compensation. The appellate court found it necessary to interpret the contract in the following manner: If the seller breaches the obligation, the seller must return the deposit to the buyer and pay a deposit penalty (compensation) equal to the deposit amount (Judgment No. 1091/2023/DS-PT dated November 27th 2023 by the People’s Court of Ho Chi Minh City regarding the dispute over the house sale deposit contract).
In case 01, the author’s opinion is that the appellate court’s decision is reasonable. When the deposit contract of the parties does not clearly stipulate the return of the deposit and compensation, it should follow the provisions of Article 328 of the 2015 Civil Code, which means that the recipient of the deposit must return the deposit and an amount equivalent to the deposit.
However, when there is no clear agreement on the return of the deposit and compensation, there should be guiding documents on this matter to avoid inconsistency in resolutions among courts, as evidenced by this case where the two courts issued different rulings.
– Case 02:
The effective date of the deposit contract. The appellate court determined that Mr. N.H.M could not provide documents or evidence proving that he had paid the full deposit amount of 1,100,000,000 VND to Mr. N.V.H and Mrs. N.N.T.U. Therefore, the appellate court found that, to resolve a civil case objectively, accurately, fairly, and lawfully, evidence must be provided (Judgment No. 30/2023/DS-ST dated April 11th 2023 by the People’s Court of District 4, Ho Chi Minh City, regarding the dispute over the deposit contract).
In case 02, the effective date of the deposit contract is an important issue to consider when handling the consequences and responsibilities of a breach. It requires the actual transfer of the deposited property. Vietnamese civil law, as presented, only stipulates in the concept of a deposit as “transfer.” Decree No. 21/2021/NĐ-CP presents the effectiveness of the assurance contract in a general manner, not specifically for deposits, as the deposit is one of the assurance measures.
When resolving this case, the court also emphasized that evidence proving the actual transfer of the deposit is necessary. Referencing the civil law of the People’s Republic of China, it is specifically and clearly stipulated that “The deposit contract takes effect when the money is actually transferred.” Therefore, according to the author, we should learn from this experience by specifically stipulating the effective date of the deposit contract.
– Case 03:
No damage compensation request resolved when not agreed upon in the deposit contract. In case 03, when the deposit contract does not include an agreement on damage compensation, the council concluded that: since the parties did not have any other agreement, and there was no agreement on damage compensation, Mr. T, who did not follow through with the sale agreement, is responsible for returning to the depositor an amount equivalent to the deposit, in accordance with the agreement and legal provisions. Therefore, there is no basis to accept the damage compensation request (Judgment No. 209/2022/DS-ST dated September 30th 2022 by the People’s Court of District 6, Ho Chi Minh City, regarding the dispute over the deposit contract).
This is an important conclusion, addressing the issue that when the parties do not have any other agreement, especially no agreement on damage compensation, one party must fulfill their responsibility for the deposit breach, and thus, the damage compensation request is not accepted. This raises the question from the author:
if the court resolves the responsibility for the deposit obligation breach, and the parties have an agreement on damage compensation, will the court, in addition to handling the deposit obligation breach under Article 328 of the 2015 Civil Code, accept the damage compensation request under Article 419 – Damage compensation due to contract breach? The law has not clearly defined this answer, but judicial practice indirectly indicates that it can be accepted if there is an agreement on damage compensation.
Comparing this with foreign law, which is different from Vietnamese civil law, there are clear regulations, as evidenced by the civil law of the People’s Republic of China: “If the parties agree on both damage compensation and a deposit, when one party breaches the contract, the other party has the right to choose to apply either the damage compensation clause or the deposit clause.
If the deposit amount is insufficient to cover the losses due to a breach, the other party can request compensation for the losses exceeding the deposit amount.” The civil law of the Russian Federation also stipulates: “In addition, the responsible party, if not performing the contract correctly, is obligated to compensate the other party for damages with the deposit amount, unless otherwise agreed in the contract.” According to the author, it is necessary to have specific guiding documents on this issue, and the experience from foreign law is worth learning from.
– Case 04:
A penalty for breach of deposit greater than 2 times the deposit amount. The appellate court determined that Mrs. Lê Ngọc T must return the received deposit of 150,000,000 VND and pay an additional deposit penalty equivalent to 2 times the deposit amount (i.e., 300,000,000 VND) as agreed upon by both parties, which is consistent with Clause 2, Article 328 of the 2015 Civil Code (Judgment No. 25/2020/DS-ST dated April 24th 2020 by the People’s Court of District 6, Ho Chi Minh City, regarding the dispute over the land use rights transfer deposit contract).
As analyzed, Vietnamese civil law uses the term “unless otherwise agreed,” allowing parties to agree on a deposit penalty that is equivalent to, lower than, or higher than the deposit amount. So, is a penalty higher than 2 times or even 10 times the deposit amount acceptable? In this case, since it is only 2 times, the appellate court considered it consistent with legal provisions and accepted the penalty.
In other localities, there have been cases where courts resolved deposit penalties agreed upon to be 10 times the deposit amount. Some courts accepted this, while others did not, citing it as too high and violating Article 328 of the Civil Code. Therefore, in the author’s opinion, the deposit penalty regulations under current Vietnamese civil law also need specific guiding documents.
– Case 05:
Interest on deposit penalty request. The appellate court determined that since the parties did not have an agreement on the violator fulfilling the deposit return obligation in case the land transfer/sale contract could not be signed at the notary office, the violator must pay the accruing interest (Judgment No. 449/2023/DS-PT dated April 17th 2023 by the People’s Court of Ho Chi Minh City regarding the dispute over the deposit contract).
The author’s view aligns with the appellate court’s reasoning of not calculating interest on the deposit penalty when the parties do not have an agreement, whereas if there is an agreement, the parties’ agreement should be applied. Referring back to Article 328 of the Vietnamese Civil Code, it does not address this issue. Therefore, in this case, the author believes that there should be specific guiding documents to create a legal basis for facilitating the resolution of such cases.
IV. PROPOSED SOLUTIONS FOR IMPROVING REGULATIONS ON DEPOSIT GUARANTEES FOR THE CONCLUSION/PERFORMANCE OF SALE CONTRACTS TO PROTECT THE RIGHTS OF BUYERS
Through the analysis of legal provisions on deposit guarantees for the conclusion/performance of sale contracts, the author believes that while emphasizing the principles of respecting agreements and the parties’ freedom to make decisions, there must also be clear and transparent legal regulations to ensure the rights of the parties. In practice, not all parties fully understand the legal issues related to deposits, especially in real estate transactions where the buyer is often the weaker party. Therefore, in the near future, it is essential to issue guiding documents on the application of legal provisions in resolving deposit disputes. Specifically, the author proposes the following solutions:
First, regarding the form of the deposit contract. It is necessary to supplement clear regulations on the form of the deposit contract, which can be in writing, verbally, or through specific conduct. Additionally, regulations should be added to clarify “specific conduct,” such as electronic data forms, to facilitate the court’s resolution of future disputes.
Second, regarding the effective date of the deposit contract. To facilitate the court’s resolution of disputes with a clear legal basis, as in Case 02, and drawing from the civil law experience of the People’s Republic of China, it is necessary to add a provision that the effective date of the deposit contract is when the deposit recipient actually holds the deposited property.
Third, regarding the application of deposit penalties. Referring to the experience of other countries that do not approach it as “unless otherwise agreed” but instead stipulate that the deposit penalty is double the deposit amount (including the deposit and an amount equivalent to the deposit), i.e., specific and clear regulations on the deposit penalty.
Drawing from the practical experience in Vietnam, as in Case 04, a deposit penalty higher than 2 times the deposit amount is considered appropriate. The 2023 Law on Real Estate Business only stipulates the deposit proportion and does not regulate the deposit penalty. Therefore, as a principle, if the specialized law does not regulate, it should refer back to the general law (the Civil Code). Thus, the author proposes that the deposit penalty should be clearly regulated to create a legal basis for practical application by stipulating that the parties can agree, but the deposit penalty should not exceed 2 times the deposit amount.
Fourth, regarding the resolution of damage compensation and interest on deposit penalties. Based on Cases 03 and 05, as commented by the author, it is proposed that this issue should be specifically regulated by adding: No damage compensation requests and no interest calculations on deposit penalties if there is no agreement between the parties.
Fifth, from Case 01, the author proposes to add further explanations for cases where there is no clear agreement on the return of the deposit and compensation, to create consistency in court resolutions.
Sixth, regarding the deposit proportion. The 2023 Law on Real Estate Business stipulates a deposit proportion of not more than 5%, while the 2015 Civil Code, the 2023 Law on Housing, and the 2024 Law on Land do not stipulate a proportion. So, in cases where the deposit falls under the 2023 Law on Housing, what is the deposit proportion? As analyzed, the 2023 Law on Housing only stipulates the deposit proportion in the case of renting social housing. Similarly, in the case of deposit guarantees for land use rights transfer contracts, the 2024 Law on Land does not stipulate a deposit proportion, nor does the 2015 Civil Code.
Hence, what deposit proportion should be applied? Currently, the deposit proportion is based on the agreement between the parties. The author suggests that the deposit proportion should be supplemented by stipulating: referring to the civil law of the People’s Republic of China and Japan, which regulate the deposit value/proportion in relation to the contract value by allowing parties to agree, but not exceeding 20% of the main contract value, with any excess amount not taking effect.
V. CONCLUSION
Social relations need to be regulated by law to ensure social order and contribute to protecting the rights of the parties involved. Therefore, by stipulating legal provisions on deposit guarantees and issuing guiding documents on the application of these provisions in resolving deposit disputes, the rights of both the depositor and the recipient can be protected, preventing exploitation of unclear regulations for personal gain, and ensuring social safety and ethical standards.
REFERENCES
- Judgment No. 1091/2023/DS-PT dated November 27th 2023 by the People’s Court of Ho Chi Minh City regarding the dispute over the house sale deposit contract.
- Judgment No. 30/2023/DS-ST dated April 11th 2023 by the People’s Court of District 4, Ho Chi Minh City, regarding the dispute over the deposit contract.
- Judgment No. 209/2022/DS-ST dated September 30th 2022 by the People’s Court of District 6, Ho Chi Minh City, regarding the dispute over the deposit contract.
- Judgment No. 449/2023/DS-PT dated April 17th 2023 by the People’s Court of Ho Chi Minh City regarding the dispute over the deposit contract.
- Vũ Thị Hồng Yến. (2024). New points of the Law on Real Estate Business regarding civil transactions related to real estate. Proceedings of the Faculty-level seminar on new points of law on civil transactions related to real estate. University of Law, Hồ Chí Minh City.
If you need more consulting, please Contact Us at NT International Law Firm (ntpartnerlawfirm.com)
You can also download the .docx version here.
“The article’s content refers to the regulations that were applicable at the time of its creation and is intended solely for reference purposes. To obtain accurate information, it is advisable to seek the guidance of a consulting lawyer.”
LEGAL CONSULTING SERVICES
090.252.4567NT INTERNATIONAL LAW FIRM
- Email: info@ntpartnerlawfirm.com – luatsu.toannguyen@gmail.com
- Phone: 090 252 4567
- Address: B23 Nam Long Residential Area, Phu Thuan Ward, District 7, Ho Chi Minh City, Vietnam