THE ROLE OF NOTARIZATION ACTIVITIES IN PROTECTING THE RIGHTS OF REAL ESTATE BUYERS
THE ROLE OF NOTARIZATION ACTIVITIES IN PROTECTING THE RIGHTS OF REAL ESTATE BUYERS
Lê Thị Ngọc Mai
MSc, Lecturer in Law Faculty, Saigon University
ABSTRACT
Real estate transactions are among the types of civil transactions that are complex in nature and fraught with potential risks. In these transactions, real estate buyers are often the weaker party and need protection of their legitimate interests. This paper clarifies the necessity of protecting the rights of real estate buyers and focuses on analyzing the role of notarization activities in protecting the rights of this group; at the same time, it provides discussions and recommendations related to certain legal provisions on notarizing contracts and real estate transactions.
Keywords: notarization, real estate buyers, real estate
I. THE NECESSITY OF PROTECTING THE RIGHTS OF REAL ESTATE BUYERS
Real estate (RE) transactions involve the transfer of rights related to RE between participating parties. Currently, there are common forms of RE transactions such as: buying RE, renting RE, subleasing RE, renting-to-buy RE, and more. In this type of transaction, RE buyers are often the party whose legitimate rights need to be protected. The necessity to protect the rights of RE buyers can stem from the following reasons:
First, RE transactions are complex and fraught with potential risks.
RE transactions today come in various forms. The transfer of rights related to RE between parties is also very complex, involving multiple areas of law such as housing law, land law, business RE law, and credit law. This is considered a type of transaction with many potential risks, especially risks leaning toward RE buyers.
For example, in RE transactions involving the type of future housing, customers have to pay upfront to buy an asset that is under construction or has not yet been inspected for use, a kind of “buying on paper”, while they may face numerous risks, such as the developer’s delayed handover of the house, delays in performing legal procedures for the buyer to be named as the owner, or more seriously, getting entangled in a “suspended” project. Therefore, protecting the rights of RE buyers from such risks is extremely necessary.
Second, in RE transactions, RE buyers are always the weaker party compared to RE sellers.
Similar to other types of business, all investment and production costs will be passed on to the selling price by enterprises/sellers, and inevitably, buyers will bear all those costs (Phạm, 2023). RE business is no exception to this rule; in the relationship between buyers and sellers, sellers always hold the advantage while buyers are weaker. This is evident in many real-life situations, such as RE projects that, despite lacking sufficient legal documents, can still be initiated by developers; future housing that has been sold and transferred, with buyers having to pay upfront even though they haven’t received the house yet.
Moreover, in RE purchase and transfer contracts, standard contracts are often presented by sellers with pre-drafted terms, where it’s not difficult to spot clauses that favor the seller. Individual buyers often suffer disadvantages and lack fairness in transactions, having to accept terms that clearly do not guarantee their rights or are not equitable, as proposed by the seller.
For instance, in RE transaction contracts, the payment deadlines (installments) for buyers are often very short, with penalties for late payments, and if full payment isn’t made, they won’t receive the house. Conversely, the deadline for handover from sellers usually allows for some delay compared to the expected handover date (a few months), and in practice, if sellers are late in handing over as per the contract, it’s very difficult for buyers to hold sellers accountable for penalties.
Given the disadvantages that RE buyers may face, protecting the rights of this group is entirely necessary and justified.
II. NOTARIZATION AND THE ROLE OF NOTARIZATION IN PROTECTING THE RIGHTS OF REAL ESTATE BUYERS
- Overview of Notarization Activities
Clause 1, Article 2 of the 2014 Law on Notarization stipulates: “Notarization is the act of a notary of a notarial practice organization certifying the authenticity and legality of a contract or other civil transaction in writing…”. Based on this provision, certain characteristics of notarization can be emphasized as follows:
First, notarization activities are performed by notaries who are knowledgeable in law, have experience in legal work, and are appointed by the Minister of Justice after being trained/interned in notarial practice and meeting other standards as prescribed by law. Due to the importance of notarization activities, notaries are not allowed to practice independently but must work in a certain notarial practice organization and must work exclusively, not being allowed to concurrently hold other regular jobs. This regulation ensures that notaries remain dedicated and maintain the quality of their work.
Second, notarization activities in Vietnam are conducted following the Latin notarization model (substantive notarization), wherein the content of notarization focuses on certifying both the authenticity and legality of contracts and transactions. This means that notarization does not stop at reviewing and certifying the formal elements of a transaction, such as the capacity of the parties involved, their intentions, the time and place of signing the contract or transaction. Notaries also have the responsibility to review and certify the legality and accuracy of the content of the contract or transaction.
Third, notarization can be performed based on legal provisions or at the request of organizations or individuals. This means that notarization is not mandatory for all contracts or transactions. The 2014 Law on Notarization does not have any articles stipulating mandatory notarization cases. Whether specific contracts or transactions must be notarized will be governed by specialized laws.
For transactions related to RE, the law stipulates that the following contracts and transactions must be notarized:
Contracts for the transfer, gifting, mortgage, and capital contribution by land use rights, land use rights, and assets attached to land; documents on inheritance of land use rights, land use rights, and assets attached to land (Clause 3, Article 27 of the 2024 Law on Land, Article 459 of the 2015 Civil Code).
Contracts for the sale, rental-purchase, gifting, exchange, capital contribution, and mortgage of housing; except for cases where organizations gift houses of gratitude, houses of compassion, and solidarity houses; purchase, rental-purchase of houses belonging to public assets; purchase, rental-purchase of houses where one party is an organization, including social housing, housing for the people’s armed forces, and housing for resettlement purposes; capital contribution with housing where one party is an organization; lease, loan, stay, and authorization to manage housing does not require notarization or certification of the contract (Clause 1, 2, Article 164 of the 2023 Law on Housing, Article 459 of the 2015 Civil Code).
Contracts for the sale, rental-purchase of houses, construction works, and the area of the construction floor in construction works where the parties involved in the transaction are individuals (Clause 5, Article 44 of the 2023 Law on Real Estate Business).
For RE business contracts where at least one party involved in the transaction is an RE business enterprise, notarization is not mandatory, and the parties can choose notarization or certification at their request (Clause 4, Article 44 of the 2023 Law on Real Estate Business).
Thus, it can be seen that for complex contracts and transactions with potential risks and high dispute risks, the law will require notarization. Besides, for contracts and transactions where the law does not mandate notarization, to ensure legal safety, the parties involved in the transaction or contract can still agree and proceed with notarization as needed.
- The Role of Notarization Activities in Protecting the Rights of Real Estate Buyers
As a professional activity conducted by those knowledgeable in law, notarization provides legal assurance in protecting the rights of RE buyers:
First, notarization helps prevent legal violations and disputes in RE transactions.
Notarization is an effective measure to prevent fraud, deception, and breaches of contract in relationships and transactions.
Initially, preventing fraud, deception, and disputes in establishing and executing RE contracts and transactions is ensured through the notary’s review and certification of the authenticity of the contract or transaction.
To certify the authenticity of the contract or transaction, the notary will control issues related to: the parties’ capacity, the intent of the parties when signing the contract or transaction, the time and place of signing the contract or transaction.
Regarding the certification of the parties’ capacity involved in the transaction, the notary is responsible for checking and verifying the legal capacity and behavioral capacity of the parties to ensure that the transaction is conducted by individuals or organizations with full capacity. This is crucial in ensuring the rights of the parties in general and RE buyers in particular.
In practice, there are many cases where RE sellers are individuals or organizations that do not own the RE but impersonate the owners to carry out transactions. They may only be authorized to manage the RE or even be “ghost” individuals or companies forging documents to fraudulently sell the property. All these cases, if they occur in reality, directly harm the rights of RE buyers. Notarization activities help RE buyers eliminate these risks through the notary’s examination. If there is any doubt about the seller/transferor’s capacity, the notary will request clarification from the seller/transferor or, at the buyer’s request, the notary will proceed with verification and require an inspection.
Regarding the certification of the intent of parties involved in RE transactions, the notary, with their understanding and experience, will evaluate whether the parties ensure voluntary intent when entering into the contract or transaction. If the notary finds signs of threats or coercion in the contract or transaction, they will request clarification from the parties or proceed with verification and inspection at the parties’ request.
In practice, many RE contracts and transactions that do not ensure the seller’s voluntary intent lead to unnecessary disputes, directly affecting the legitimate rights of the buyer. For example, in many cases, RE owners are elderly parents who are no longer lucid and participate in RE transactions according to the will of their children, not ensuring the condition of voluntary intent. Through notarization activities, these issues will be checked and certified by the notary, creating reassurance for RE buyers.
Additionally, preventing legal violations and disputes in RE transactions is ensured through the notary’s review and certification of the legality of the contract or transaction. Vietnam’s notarization model is the Latin notarization model (substantive notarization); thus, the content of notarization does not stop at certifying the authenticity of the contract or transaction but also certifies the legality of the contract or transaction. This aims to maximize legal issues and protect the rights of parties involved in the contract or transaction, especially the buyer, the weaker party.
First, the notary will control the completeness, validity, and legality of notarized documents. In RE transactions, the most worrying and difficult point for buyers is determining the existence and legality of the RE that is the subject of the transaction. Many RE buyers, especially individuals, face many difficulties in accessing information and verifying the accuracy of information related to RE.
Currently, fraud in RE transactions is increasingly common with sophisticated forms such as: forging land use rights certificates, property ownership certificates, selling one property to multiple people, and selling properties under sequestration. In this situation, protecting the rights of RE buyers is extremely necessary.
For transactions that are notarized, notaries, with their experience and professional capacity, along with support from the interlinked database system, can easily check the legality of documents related to RE. In case of suspicion, the notary has the right to request an inspection or ask the agency that provided the documents to check and verify their authenticity and legality.
At the same time, notarization activities also help review the legality of the content of RE contracts and transactions. It can be said that the higher risk leading to legal violations or disputes in RE transactions lies in the content of the contract. Not all parties signing the contract have a deep understanding of the law, especially individual RE buyers. Therefore, it is necessary for a subject with legal knowledge and capacity, such as a notary, to support, advise, and certify the legality of the contract’s content.
For pre-drafted contracts and transactions, the notary will review the draft contract’s content; if the draft contract contains provisions that violate the law, the notary will specify the necessary corrections or suggest and guide the modifications. For non-pre-drafted contracts and transactions, the parties will express their intent to the notary, and the notary will draft the contract or transaction according to the parties’ intent. In either case, the notary must ensure the legality of the contract or transaction. This plays a crucial role in protecting the rights of the parties in general, especially the buyer’s rights, who are often the weaker party in RE transactions.
Second, notarization creates and provides evidence for dispute resolution.
In practice, disputes in RE transactions are increasing, with many complex and prolonged cases. Resolving these disputes requires legal documents and evidence with solid legal value for competent authorities to base their decisions on. For notarized cases, the law stipulates that notarized contracts and transactions have evidentiary value; the facts and events in notarized contracts and transactions do not need to be proven, except when declared void by a court (Clause 3, Article 5 of the 2014 Law on Notarization).
Thus, during the contract performance, if the seller breaches the contract, such as delaying the handover of RE or failing to ensure the RE’s quality as agreed, the buyer has the right to request competent authorities to protect their legitimate rights. At this point, the notarized contract will be reliable and credible evidence to protect their rights. In practice, adjudicating disputes with handwritten documents and non-notarized contracts is much more challenging. Recognizing the role of notarization, many individuals, enterprises, and investors choose to notarize contracts and transactions even when the law does not mandate notarization, to ensure legal safety and protect their legitimate rights. This is considered a very prudent trend.
III. DISCUSSIONS AND RECOMMENDATIONS ON SOME LEGAL PROVISIONS ON NOTARIZING REAL ESTATE CONTRACTS AND TRANSACTIONS
First, on expanding the scope of RE contracts and transactions that must be notarized.
According to current legal provisions, many contracts and transactions related to RE are not required to be notarized. For instance, the 2023 Law on Real Estate Business stipulates that RE contracts and transactions between individuals must be notarized, whereas RE business contracts where at least one party is an RE business enterprise are not required to be notarized (Clause 4, Article 44 of the 2023 Law on Real Estate Business). This regulation may stem from the lawmakers’ belief that these transactions are conducted through RE exchanges, so they are already legally controlled.
However, in reality, these transactions still pose many risks, especially for RE buyers. The RE products of these enterprises involve many legal documents, legal procedures, business conditions, and the investor’s capacity, which are very complex and not always easily verified by buyers.
Moreover, recent experience shows that RE exchanges were primarily established to sell the RE of the enterprises that set them up. “The relationship between the project investor and the RE exchange is carried out by the investor establishing the RE exchange to sell their goods, or by contracting RE services with the RE exchange, or by authorizing RE brokers of the RE exchange to execute transactions” (Ninh, 2022).
This does not ensure objectivity in protecting the legitimate rights of buyers. Additionally, the above regulation also shows inequality among subjects when participating in transactions, “creating inconsistency in the validity conditions of transactions, while training a notary and registering to establish a notarial office is much more difficult and stringent than establishing an RE exchange” (Phùng, 2023).
Therefore, given the complexity and unpredictability of risks that may arise in RE transactions, to protect the rights of RE buyers, the law should mandate notarization for all RE business contracts, regardless of whether the transaction is between individuals or involves an RE business enterprise. Compared to the subjects of RE exchanges, notaries as formally trained individuals who meet strict standards will contribute to better legal safety for transactions and ensure objectivity in protecting the rights of RE buyers.
Second, on transferring the certification of RE contracts and transactions to notarization.
Currently, the 2024 Law on Land, the 2023 Law on Real Estate Business, and the 2023 Law on Housing stipulate that for RE contracts and transactions, the parties can choose to notarize or certify the contracts.
The fundamental difference between notarizing and certifying contracts and transactions lies in the scope of review: for certification activities, the authority will only review and certify the formal elements of the transaction, such as the time, place of signing the contract or transaction, the parties’ capacity, the parties’ voluntary intent, and the parties’ signatures or fingerprints. Certification does not attest to the legality of the contract’s content. In contrast, notarization will certify the authenticity and legality of both the formal elements and the content of the contract or transaction. Therefore, in terms of ensuring legal safety for transactions, notarization is clearly more advantageous.
Moreover, the current practice of simultaneously notarizing and certifying RE contracts and transactions leads to a significant issue: many RE properties are transacted multiple times at the same time without being detected, due to the lack of interconnection and linkage between the notarization and certification databases. This seriously affects the rights of RE buyers. For these reasons, the law should abolish the certification requirement for RE contracts and transactions and standardize the implementation of notarization for these contracts.
Third, adding regulations on notary assistants.
The 2014 Law on Notarization does not have provisions on notary assistants. However, in practice, many tasks under the responsibility of notaries are performed by employees of notarial practice organizations (hereinafter referred to as notary assistants), such as: receiving and checking notarization documents, drafting contracts and transactions, witnessing the signing and fingerprinting of parties. This situation is firstly not in compliance with legal regulations, and secondly, it can affect the quality of notarized documents, not ensuring legal safety for transactions and the parties’ rights.
However, objectively, some tasks in the notarization process are purely technical and do not directly affect the legality of the transaction, so assigning them to notary assistants can be considered to reduce the workload for notaries. For instance, guiding customers to fill out notarization request forms, receiving notarization documents, checking the completeness and validity of notarization documents. If the law supplements regulations on notary assistants, it should clearly define the standards, qualifications, and scope of work to avoid exceeding the scope of their duties and authority.
IV. CONCLUSION
Protecting the rights of RE buyers is extremely necessary to create a healthy business environment in the real estate sector. Although the law has relatively comprehensive provisions to regulate legal relationships in real estate business and transactions, fraud, deception, and contract violations remain prevalent. Alongside improving legal provisions regulating this field, it is crucial to enhance the role of notarization activities to better protect the rights of RE buyers.
REFERENCES
- Hoàng, T. T. P., & Nguyễn, N. H. (2023). Some issues and shortcomings of the law on real estate business contracts. Journal of Democracy and Law, retrieved from https://danchuphapluat.vn/mot-so-vuong-mac-bat-cap-cua-phap-luat-ve-hop-dong-kinh-doanh-bat-dong-san
- Ninh, T. H. (2022). Real estate transactions must go through exchanges: Should they be replaced by notarization? Hồ Chí Minh City Law Newspaper, February 20, 2022, retrieved from https://plo.vn/giao-dich-bat-dong-san-phai-qua-san-nen-thay-bang-cong-chung-post720567.html.
- Phạm, D. N. (2023). Legal risks in real estate business: A perspective from systemic thinking. Journal of Legislative Studies, retrieved from http://lapphap.vn/Pages/tintuc/tinchitiet.aspx?tintucid=211672.
- Phùng, V. H. (2023). The role of notarization activities in real estate transactions through practical adjudication at the court. Journal of Legislative Studies, June 21, 2023, retrieved from http://www.lapphap.vn/Pages/TinTuc/211679/Vai-tro-cua-hoat-dong-cong-chung-doi-voi-giao-dich-bat-dong-san-qua-thuc-tien-xet-xu-tai-toa-an.html
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