PROTECTING THE RIGHTS OF REAL ESTATE BUYERS UNDER THE PROVISIONS OF THE LAW ON AUTHORIZATION CONTRACTS FROM THE PRACTICE IN HỒ CHÍ MINH CITY
Nguyễn Vân Trang
MSc, Faculty of Law, Saigon University
ABSTRACT
Protecting the rights of real estate buyers is an issue that has always received great social attention. Currently, real estate transactions through authorization are becoming increasingly popular, bringing many conveniences to the parties involved but also posing many risks, especially for real estate buyers. Through analyzing and evaluating the provisions of the law on authorization contracts and studying the practical transactions in Hồ Chí Minh City, the author points out several inadequacies and limitations of the law on authorization contracts from the perspective of protecting the rights of real estate buyers, based on which some recommendations are proposed to improve the law.
Keywords: buyer, real estate, authorization
I. INTRODUCTION
In real estate transactions, authorization contracts are quite commonly used as an effective tool to promote transactions and transfers due to their convenience. In general, the provisions of the law on authorization contracts have facilitated the parties to participate in this type of transaction. However, due to the strong development of the socio-economic context, the law on authorization contracts in Vietnam still has limitations and inadequacies that negatively impact social relations, leading to disputes.
In recent years, in Hồ Chí Minh City, the real estate market has been thriving, with transactions through authorized persons accounting for a large number. Disputes related to authorization contracts are also on the rise. Practical experience shows that, from the perspective of protecting the rights of real estate buyers, the provisions of the law on authorization contracts have many issues that need to be carefully reviewed and evaluated.
In order to contribute to improving the legal provisions on authorization contracts and overcoming the difficulties and obstacles in the implementation process, it is very important to study and clarify the legal provisions. The improvement of the law on authorization contracts in Vietnam to better protect the rights of real estate buyers is necessary.
II. LEGAL FRAMEWORK ON AUTHORIZATION CONTRACTS IN VIETNAM
In Vietnam, along with the development of the socio-economic context, authorization contracts have increasingly demonstrated their important role in civil life. Based on the inheritance of the concept of authorization contracts in the 1995 and 2005 Civil Codes (BLDS), Article 562 of the 2015 Civil Code stipulates: “Authorization contracts are agreements between the parties, whereby the authorized party is obliged to perform work in the name of the authorizing party, and the authorizing party only has to pay remuneration if there is an agreement or the law provides.”
- Parties to the Authorization Contract
In an authorization contract, there are two important parties: the authorizing party and the authorized party. When concluding an authorization contract, both the authorizing party and the authorized party must have full civil legal capacity and civil act capacity, and must meet the conditions related to the content and scope of authorization.
For example, a person can only authorize another person to transfer land use rights on their behalf if they have sufficient basis to prove that they are the land user. The authorizing party cannot delegate to another person tasks or acts beyond the scope that they are entitled to perform. For instance, if a house is a common property of a married couple, but one person authorizes the sale of the entire house, it is an act that exceeds their authority over the house.
- Rights and Obligations of the Parties in Authorization Contracts
The basic rights and obligations of the parties in authorization contracts are stipulated in the 2015 Civil Code. Accordingly, the authorizing party is obligated to provide the necessary information, documents, and means for the authorized party to perform the work, bear responsibility for commitments made by the authorized party within the scope of the authorization, pay reasonable expenses incurred by the authorized party for performing the authorized work, and pay remuneration to the authorized party if agreed (Article 567 of the Civil Code).
The authorizing party has the right to request the authorized party to fully inform about the performance of the authorized work, request the authorized party to return the assets and benefits obtained from the performance of the authorized work unless otherwise agreed, and claim compensation for damages if the authorized party breaches their obligations (Article 568 of the Civil Code).
The authorized party is obligated to perform the work according to the authorization and only within the scope of the authorization. The authorized party must carry out the work in the manner assigned by the authorizing party in the contract. If the contract does not specify the manner of performance, the authorized party must perform the work in the best possible way, as if it were their own work. During the performance, the authorized party must inform the authorizing party about the performance of the work, must preserve and maintain the documents and means provided, keep confidential information and secrets, and compensate for damages if they breach their obligations (Article 565 of the Civil Code).
The authorized party has the right to request the authorizing party to provide the necessary information and documents to perform the authorized work, to be reimbursed for reasonable expenses, and to receive remuneration if agreed (Article 566 of the Civil Code).
Depending on the purpose of the authorization, the parties will agree with each other on the specific content of the authorization in the contract.
- Form of Authorization Contracts
The 2015 Civil Code does not have specific provisions on the form of authorization contracts. Therefore, it can be understood that authorization contracts can be established in the form of verbal agreements, written documents, or specific actions. The 2015 Civil Code, the 2013 Law on Land, and the 2014 Law on Notarization do not have any provisions requiring the authorization to be made in notarized written form. Authorization documents related to the exercise of rights over real estate can be notarized at any notary organization, including notary organizations headquartered in provinces or centrally-run cities where the real estate is not located.
- Basis for Termination of Authorization Contracts
Clause 3, Article 140 of the 2015 Civil Code stipulates that authorization contracts terminate in the following cases:
i) By agreement;
ii) Expiration of the authorization period;
iii) Completion of the authorized work;
iv) The represented person or the representative unilaterally terminates the authorization;
v) The represented person or the representative is an individual who dies; the represented person or the representative is a legal entity that ceases to exist;
vi) The representative no longer meets the prescribed conditions;
vii) Other grounds making the representation impossible to perform.
III. LEGAL RISKS ASSOCIATED WITH AUTHORIZATION CONTRACTS THAT REAL ESTATE BUYERS MAY FACE – PRACTICE IN Hồ Chí Minh CITY
The real estate market in Vietnam in general and in Hồ Chí Minh City in particular is increasingly developing, receiving great attention from society. When conducting real estate transactions, for various reasons, parties may need the support of other parties through authorization contracts to effectively conduct transactions. The content of authorization related to real estate transactions is very diverse, such as authorization to buy/sell real estate, authorization to carry out administrative procedures with competent state agencies in requesting new issuance/reissuance of Land Use Rights Certificates, ownership of houses, and other assets attached to land (Nguyễn, 2020).
In general, the use of authorization contracts in real estate transactions brings many benefits to the parties, such as saving time, effort, and costs, especially for those buying real estate for speculative investment or in cases where the seller/buyer, for personal reasons, cannot directly conduct the transaction. However, alongside these advantages, there are still legal risks that the parties, especially the buyer, may face.
- Forgery of Authorization Contracts for Real Estate Transactions
Forgery of authorization contracts for real estate transactions involves contracts made for fraudulent purposes, in which the authorizing party does not meet the conditions to authorize the authorized party to conduct real estate transactions; or the authorized party impersonates the real owner of the property to sign the authorization contract. Based on these forged authorization contracts, the authorized party conducts transactions with a third party, causing damage to the real owner and the third party (real estate buyer).
Currently, the printing of fake degrees, certificates, and documents is carried out very sophisticatedly with the support of technology. In many cases, forged documents are made using real templates, fake signatures, and seals, but the information in the documents completely matches previous transaction information. The phenomenon of document forgery negatively impacts legal safety in civil transactions, administrative procedures, and causes material damage to the public. Many individuals hire people to impersonate the owners of certain valuable assets to conduct transactions to deceive notaries. Using different tricks at notary organizations, many individuals have defrauded and appropriated billions of đồng from organizations and individuals (Nguyễn & Nguyễn, 2024).
Practical experience in Hồ Chí Minh City shows that many real estate transactions have been conducted based on forged authorization contracts, harming the legitimate rights and interests of many parties.
For example, the dispute resolved by Judgment No. 400/2019/DS-ST dated September 19th, 2019, regarding the dispute related to the request to declare the notarized contract invalid by the People’s Court of Tan Binh District, Hồ Chí Minh City.
According to this case, Mrs. N published an advertisement to sell the house at 137/8 T Street, L Ward, P District, Hồ Chí Minh City. After publishing the ad, many customers came to see the house, and Mrs. N showed them the house papers, which were then replaced with counterfeit property ownership certificates.
Later, Mrs. N learned about a forged authorization contract stating that she authorized Mrs. M to manage, oversee, construct, lease, and sell the property based on an authorization contract certified by Notary Office X. Mrs. N reported this to the police and worked with Notary Office X. Sometime later, a man named Q brought a purchase contract for the house at 137/8 T Street, L Ward, P District, Hồ Chí Minh City to meet Mrs. N and requested her to hand over the house because he had bought it from Mrs. M, who had signed the purchase contract. Mrs. N refused because she had never authorized Mrs. M to sell this house.
After being reissued with the property ownership certificate, Mrs. N filed a lawsuit requesting the cancellation of the authorization contract between Mrs. N and Mrs. M, certified by Notary Office X, as it was forged and not made by Mrs. N. The trial panel accepted all of Mrs. N’s lawsuit requests (FDVN, 2023).
In practice, many authorization contracts are forged, making the sales contracts concluded by the impersonated authorized parties invalid. When the contract is invalid, according to the provisions of the Civil Code, the parties must return to each other what they have received. However, the return is not always smoothly carried out because the impersonator of the property owner may abscond without returning the received money. At this point, the buyer not only fails to purchase the house but also faces the risk of losing their money.
- The Authorized Party Exceeds the Scope of Authorization
Exceeding the scope of authorization is the act of the authorized party performing tasks beyond the rights and obligations they were authorized to carry out. An example of such a dispute over an authorization contract was resolved by Judgment No. 1000/2019/DS-PT dated November 6th, 2019, by the People’s Court of Hồ Chí Minh City.
Mr. Nam signed a notarized authorization contract with Mr. Nguyễn Mạnh Tân to act on Mr. Nam’s behalf in tasks such as: contacting Thăng Long Company, the notary office, and other relevant authorities to complete the procedures for transferring apartment CHB.09.02.
Once the apartment was issued the ownership certificate, Mr. Tân was authorized to transfer, sell, and conduct other transactions related to the apartment. However, even though Thăng Long Company had not yet handed over the ownership certificate, Mr. Tân signed the transfer contract for the apartment with Mrs. Nhung and later with Mr. Thành without informing Mr. Nam.
Both the first-instance and appellate trial panels determined that according to the notarized authorization contract content as presented by the plaintiff, it was clear that the apartment had not yet been issued the ownership certificate. However, Mr. Tân had consecutively signed the apartment sale contracts with Mrs. Nhung and later with Mr. Thành without notifying Mr. Nam, which exceeded the scope of authorization and violated his obligations (FDVN, 2023).
Based on the principle of protecting the rights and interests of the authorizing party, actions that exceed the scope of authorization do not create rights and obligations for the authorizing party. However, the absolute application of this principle may not ensure legitimate rights for third parties when they cannot access and foresee actions that exceed the scope of authorization. In practice, the rights of third parties also need to be protected as the rights of other parties.
According to civil law, the legal consequences of actions that exceed the scope of authorization are governed by the legal consequences of civil transactions conducted by a representative exceeding the scope of representation. Specifically, “Civil transactions established and performed by a representative exceeding the scope of representation do not create rights and obligations for the represented person concerning the part of the transaction performed beyond the scope of representation, except in the following cases:
(a) The represented person agrees;
(b) The represented person knows but does not object within a reasonable time;
(c) The represented person is at fault leading to the other party not knowing or being unable to know that the representative exceeded the scope of representation in establishing and performing the civil transaction with them.” (Clause 2, Article 142 of the 2015 Civil Code)
Returning to the aforementioned case, based on testimonies, documents in the case file, and the statements of the involved parties at the appellate hearing, it was shown that Mr. Nam had notified Mr. Tân of the unilateral termination of the authorization contract within a reasonable time. Therefore, Mr. Thành’s (the buyer) appeal at the appellate level regarding the validity of the purchase contract between Mr. Thành and Mr. Tân had no basis for acceptance.
- Using Authorization Contracts to Conceal Sales Transactions
Recent times have shown that authorization transactions are among the high-risk transactions, often confused or abused to conceal another transaction. Currently, in real estate transactions, not all parties agree to conduct transactions through notarized and certified sales contracts.
For various reasons, usually because the buyer does not meet the conditions for owning a house in Vietnam; the house does not meet the conditions for sale according to Article 118 of the 2014 Law on Housing; or to evade financial obligations to the state, the parties agree to establish an authorization contract to conceal the real estate sales transaction.
Accordingly, the parties will simultaneously establish two contracts: a real estate sales contract and an authorization contract. The content of the real estate sales contract will clearly state the characteristics of the property, price, payment method, deposit, and the rights and obligations of the parties.
However, this contract will not be notarized or certified according to Vietnamese law. Instead, to legalize the property transfer, the parties create an additional authorization contract, wherein the seller acts as the authorizing party, authorizing the buyer—acting as the authorized party—with full possession, use, and disposal of the property.
This authorization contract will help the parties transfer “ownership rights” from the seller (authorizing party) to the buyer (authorized party) because, through the authorization contract, the authorized party will enjoy all the rights of a property owner according to Vietnamese law (rights of possession, use, and disposal of property).
To ensure the authenticity of the contract, both parties notarize and certify the authorization contract at the local people’s committee or notary organizations. After completing all procedures for the above authorization contract, the parties are assured of the transaction’s legal validity because the notary or certifying agency has confirmed the authorized party’s enjoyment of all rights of a real estate owner.
However, such actions by the parties conceal the true nature of the transaction, eliminate the voluntariness of the transaction, and make the content of the authorization not accurately reflect the objective truth. Consequently, the authorization document loses its authenticity and legality, becoming prone to disputes and bringing significant risks to the parties, especially the authorized party (the actual buyer) in the contract. Specifically:
First, the transfer of land use rights through an authorization contract will not be legally effective. According to the provisions of Article 188 of the 2013 Law on Land and Article 503 of the 2015 Civil Code, only when the land use rights transfer contract is registered at the land registration office does the transfer become effective. Therefore, to register in the cadastral book, there must be a notarized or certified land use rights transfer contract. Thus, the authorization contract is not a form of transferring land use rights from one person to another and does not give rise to full legal value when one person receives the transfer of land use rights from another.
Second, rights to the land may be limited according to the scope of authorization. According to Article 562 of the 2015 Civil Code, an authorization contract is an agreement between the parties. Accordingly, the law grants the parties the right to mutually agree on the scope of authorization. This can create risks for the authorized party.
Specifically, the authorized party will not be able to fully exercise the rights of the land user if the authorization contract does not stipulate it. In practice, this has happened in many cases where the buyer (authorized party) has paid the landowner (authorizing party), but the name on the Land Use Rights Certificate and related documents still bears the name of the former owner. Thus, the land use rights of the authorized party will be restricted if the parties do not clearly agree on the scope of authorization in the authorization contract.
Third, the authorizing party may unilaterally terminate the authorization contract. Article 569 of the 2015 Civil Code provides relatively liberal provisions regarding the unilateral termination of authorization contracts. Accordingly, the authorizing party has the right to unilaterally terminate the authorization contract. Therefore, if one party feels that the benefits of the land transfer are no longer favorable or for various other reasons, they may terminate the authorization contract at any time, and the remaining party will suffer.
Fourth, the authorization period may expire if the parties do not agree. Article 563 of the 2015 Civil Code stipulates: “The duration of authorization is agreed upon by the parties or prescribed by law. If there is no agreement and the law does not provide, the authorization contract is valid for one year.” Thus, when this period expires, the parties must establish a new authorization contract. If the authorized party requests the signing of a new authorization contract and the authorizing party refuses, the authorized party will lose their rights to the land.
Fifth, the contract naturally terminates if either the authorizing party or the authorized party dies. According to Clause 3, Article 422 of the 2015 Civil Code, when an individual enters into a contract and then dies, the contract will naturally terminate. Therefore, when the authorizing party dies, the land use rights related to the parcel in the contract will become part of the inheritance and will be divided among the heirs of the authorizing party according to inheritance laws. The authorized party will no longer have rights to the land.
Sixth, when performing an authorization contract to conduct the sale or transfer of land use rights, if a dispute arises, the authorization contract is considered a sham and will naturally be invalid. Additionally, individuals and organizations using authorization contracts to conceal the true nature of the transaction—such as the purchase and transfer of real estate (land use rights, houses, etc.)—to evade financial obligations related to land, such as avoiding personal income tax, registration fees, and notary fees, may be subject to criminal prosecution for Tax Evasion as stipulated in Article 200 of the 2015 Penal Code (amended and supplemented in 2017).
IV. SHORTCOMINGS OF THE LAW ON AUTHORIZATION CONTRACTS FROM THE PERSPECTIVE OF PROTECTING THE RIGHTS OF REAL ESTATE BUYERS AND SOME RECOMMENDATIONS
It can be said that the law on authorization contracts has generally created a relatively complete legal framework, contributing to ensuring transparency in authorization transactions related to real estate and protecting the rights of buyers. However, based on the study of current legal regulations and the assessment of legal risks that real estate buyers may face concerning authorization contracts, several shortcomings and limitations of the law on authorization contracts can be identified as follows:
- Form of Authorization Contracts
As mentioned above, the 2015 Civil Code, the 2013 Law on Land, and the 2014 Law on Notarization do not have any provisions requiring the authorization to be made in notarized written form. This leads to difficulties and obstacles in protecting the legitimate rights and interests of the parties in case of disputes related to real estate authorization.
Additionally, for authorization contracts related to exercising rights over real estate, the scope of notarization is not dependent on the locality. In other words, authorization contracts related to land use rights can be notarized by any notary organization nationwide or internationally and have legal value (Article 42 of the Law on Notarization). Therefore, it is very challenging to check, inspect, and detect, prevent, and limit legal risks in cases where clients intentionally forge documents to commit fraud at this time.
Notarization is one of the effective tools of the State to manage and ensure the safety of important transactions (Trần, 2019), such as real estate purchase, sale, and transfer transactions. Therefore, the author recommends that in cases where the authorization involves real estate, regulations should be added requiring the authorization contract to be made in written form and notarized. Additionally, to prevent document forgery for fraudulent purposes, it is necessary to promote the application of information technology in storing, cross-checking, and verifying records and identities. For example, biometric technology could be used to verify identities in conjunction with record cross-checking at notary organizations.
- Regarding the Termination of Authorization Contracts when One of the Parties Dies
The regulation on the termination of authorization contracts when one of the parties dies (Clause 3, Article 140 of the 2015 Civil Code) has not completely resolved the issue and adequately protected the rights and interests of the involved parties. There are many cases where parties cannot know if the other party has died without notification from someone else, or one party knows the other has died but keeps it secret to complete the authorized tasks (especially in real estate authorization). Additionally, current law does not specify how to handle the situation when one of the parties in an authorization contract dies to protect the rights of the remaining involved parties.
Therefore, the author recommends adding further regulations to clarify the responsibilities of the remaining party and related individuals in case one of the parties involved in an authorization contract dies, to best ensure the rights and interests of the parties involved in the authorization relationship.
- Legal Consequences in Case of Invalid Forged Authorization Contracts
According to civil law, when a contract is invalid, the parties must restore the original state and return to each other what they have received. However, this provision does not fully ensure the benefits of the parties involved. For instance, in authorization transactions related to land use rights, if the authorized party (actually the buyer through a forged authorization contract) has built houses or structures on the land, and then the authorization contract is declared invalid, the court will order the authorized party to dismantle the structures on the land to return the land to its original state for the authorizing party.
Although this follows the law, it may not be economically effective and can even cause significant losses and damages to the parties (Chung, 2024).
Furthermore, if it is not possible to return in-kind, determining the monetary value for replacement is challenging. Specifically, should the monetary value of the real estate be determined at the time of contract signing or at the time of dispute? Especially when the actual selling price of real estate primarily depends on the agreement between the parties, often fluctuating with the market and significantly differing from the State’s regulated price framework. Therefore, the law needs specific provisions for cases where in-kind return is not possible and monetary value must be used for compensation. Accordingly, additional regulations are needed on methods for determining equivalent monetary value to ensure accurate and complete payment, protecting the legitimate rights of the involved parties.
V. CONCLUSION
Practical experience in Hồ Chí Minh City shows that protecting the rights of real estate buyers under the law on authorization contracts raises many issues that require careful consideration and review. Although a relatively complete legal framework for authorization contracts exists, cases of impersonation, document forgery, and the creation of sham authorization contracts to conceal other purposes are still prevalent.
This reality demands that, on one hand, there is a need to improve legal regulations in general and the law on authorization contracts in particular to better protect the rights of real estate buyers. On the other hand, it is necessary to coordinate with supplementary solutions such as applying information technology in storing, checking, and verifying records, as well as raising public awareness of law compliance.
REFERENCES
- Chung, L. H. Â. (2024). Sham Civil Contracts – Current Situation and Some Recommendations for Legal Improvement. Democracy and Law Journal Issue 1 (No. 406), June 2024.
- FDVN (2024). Compilation of 20 Judgments Related to Disputes on Authorization Contracts. Retrieved from https://fdvn.vn/tong-hop-20-ban-an-lien-quan-den-tranh-chap-hop-dong-uy-quyen/.
- Nguyễn, K. T. (2020). Authorization Contracts for Transactions Involving Houses, Land Use Rights, and Practical Experience at Notary Organizations in Hanoi. Master’s Thesis, Hanoi Law University, p. 24.
- Nguyễn, T. M. C. & Nguyễn, T. T. T. (2024). Some Issues on Notarizing Authorization Contracts. People’s Court Electronic Journal, retrieved from https://tapchitoaan.vn/mot-so-van-de-ve-cong-chung-hop-dong-uy-quyen10617.html.
- Trần, L. H. (2019). Authorization Contracts for Establishing and Implementing Real Estate Transactions – Some Shortcomings and Improvement Solutions. Social Sciences Human Resources Journal, Issue 09/2019, p. 8.
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