PROTECTING THE RIGHTS OF REAL ESTATE PURCHASERS ACCORDING TO THE LAW ON GUARANTEES IN REAL ESTATE PURCHASE AND SALE CONTRACTS FROM PRACTICE IN HỒ CHÍ MINH CITY

PROTECTING THE RIGHTS OF REAL ESTATE PURCHASERS ACCORDING TO THE LAW ON GUARANTEES IN REAL ESTATE PURCHASE AND SALE CONTRACTS FROM PRACTICE IN HỒ CHÍ MINH CITY

PROTECTING THE RIGHTS OF REAL ESTATE PURCHASERS ACCORDING TO THE LAW ON GUARANTEES IN REAL ESTATE PURCHASE AND SALE CONTRACTS FROM PRACTICE IN HỒ CHÍ MINH CITY

PROTECTING THE RIGHTS OF REAL ESTATE PURCHASERS ACCORDING TO THE LAW ON GUARANTEES IN REAL ESTATE PURCHASE AND SALE CONTRACTS FROM PRACTICE IN HỒ CHÍ MINH CITY

Nguyễn Tấn Hoàng Hải

MSc, Lecturer, Department of Civil Law, University of Law of Hồ Chí Minh City

Trần Bảo Khanh

Bachelor, University of Law of Hồ Chí Minh City

ABSTRACT

The article presents the current regulations on guarantees in the sale and purchase of future housing. On this basis, it proposes to expand the scope of guarantees to other types of real estate such as condotels, officetels, shophouses, etc. Additionally, it suggests improvements in the regulations concerning guarantor entities, the timing of guarantee contract signing, and the legal consequences when guarantee contracts are not signed in real estate transactions.

Keywords: guarantees, real estate purchase and sale, protecting real estate buyers, Hồ Chí Minh City

I. OVERVIEW OF THE NECESSITY OF GUARANTEE REGULATIONS IN REAL ESTATE PURCHASE AND SALE CONTRACTS

The real estate market plays a crucial role in the development of the investment and economic environment on regional, sectoral, and national scales. Real estate business investment is a method of capital circulation in society and a form of long-term investment. The ability to contract, mobilize, and use capital in the real estate market is significant and plays a practical role in the economic growth of Vietnam at present and in the future (Doãn, 2010).

Therefore, to ensure stable relations between parties in the real estate market, it is necessary to have a rigorous legal framework and effective legal measures. Guarantees in real estate business activities are established as a measure to secure the performance of civil obligations under civil law. The obligation guaranteed in this case is the obligation to return “advance payments and other amounts to customers” according to the purchase, hire-purchase contracts signed between the two parties (Lê T. H., 2021).

This is a contract between two parties: one party is the guarantor, typically a bank, and the other party is the beneficiary. The guarantor commits to compensate an amount to the beneficiary in case the guaranteed party breaches their obligations as stipulated in the guarantee (Lê N., 1997).

At the time of the 2023 Draft Law on Real Estate Business (the 2023 Law on Real Estate Business) during the process of feedback and revision, there was a viewpoint suggesting the removal of regulations on guarantees in the sale of future housing. The reasoning was that the regulation of guarantees in the sale and hire-purchase of future housing increases costs, leading to higher house prices that homebuyers have to bear. Furthermore, the “bank guarantee fee” is paid upfront by the developer to the bank but is included in the cost, ultimately leading to higher house prices, and the homebuyer has to bear this “bank guarantee fee,” which is about 2% of the house sale price (Phan N., 2023).

Nonetheless, the regulation on guarantees in the sale and hire-purchase of future housing was still maintained in the 2023 Law on Real Estate Business. The necessity of having guarantees stems from the basic characteristic of future housing purchase and sale relationships: at the time of signing the purchase contract, the house has not yet been formed, and the buyer, therefore, has not received the handover of the house.

The risk for homebuyers is that the possibility of getting back the advance payment from the developer is nearly impossible, as developers tend to fall into insolvency. Even if they remain solvent, resolving disputes does not yield high effectiveness due to the lengthy litigation and judgment enforcement process. Thus, the law must have measures to protect the rights of homebuyers (Phan V. C., 2020).

Moreover, countries worldwide enforce bank guarantee regulations in the sale of future housing in accordance with practical realities (Castro, n.d.).

The reality in Hồ Chí Minh City in recent years shows that it is quite common for developers of commercial housing projects to delay the handover of apartments to customers. This significantly affects the rights of real estate purchasers. For instance, residents who bought homes in the Aurora Apartment Project (District 8, Hồ Chí Minh City) reported that the developer repeatedly suspended construction, causing delays in house delivery, leading to difficulties and affecting their daily employment. Customers stated that they purchased apartments in this project, signed purchase contracts with the developer, and completed payments up to 70% of the apartment value (Anh Hào, 2024).

Similarly, in The Water Bay project in District 2, Hồ Chí Minh City, developed by 21st Century International Development Co., Ltd., the project has been suspended for many years. Thousands of homebuyers there, despite having paid over 30% of the apartment product’s value, still do not know when they will receive their homes (Gia, 2023).

Moreover, in practice, the resolution of disputes at courts in Hồ Chí Minh City often involves cases of delays in handing over apartments in general (Future housing purchase contract disputes, 2020) (Apartment purchase contract disputes, 2020) (Apartment purchase contract disputes, 2021).

Given these circumstances, the regulation on guarantees in real estate business activities is entirely necessary. Additionally, building and perfecting these regulations must be rigorous and closely associated with protecting customers’ rights to maximize the effectiveness of these regulations in practice.

II. CURRENT SITUATION OF THE LAW ON GUARANTEES IN REAL ESTATE PURCHASE AND SALE CONTRACTS AND PROPOSALS TO PROTECT THE RIGHTS OF REAL ESTATE PURCHASERS

  1. Entities and Scope in the Real Estate Purchase and Sale Guarantee Relationship

1.1. Guarantor in Real Estate Purchase and Sale Guarantee Contracts

In the real estate purchase and sale guarantee relationship in general and the commercial housing purchase and sale in investment projects, there are three parties: (i) Guarantor; (ii) Beneficiary; (iii) Guaranteed party. According to Article 56 of the 2014 Law on Real Estate Business, the guarantor is defined as only including commercial banks. In the 2023 Law on Real Estate Business, Article 26 stipulates that the guarantor includes domestic commercial banks and foreign bank branches operating legally in Vietnam.

Comparing these two regulations shows the progress of the 2023 Law on Real Estate Business by adding foreign bank branches as eligible guarantors in real estate business activities. Expanding the entities eligible to guarantee future housing to include foreign bank branches is suitable for the operations of these branches and contributes to increasing resources for fulfilling guarantee obligations, benefiting the sustainable development of the real estate market (Thanh, 2015).

However, unlike the 2014 Law on Real Estate Business, where the State Bank of Vietnam announced the list of commercial banks with the capacity to guarantee future housing real estate business activities, the 2023 Law on Real Estate Business no longer maintains the provision on conditions for domestic commercial banks and foreign bank branches to guarantee future housing. Under this regulation, as long as they have legal status as domestic commercial banks and foreign bank branches with bank guarantee business operations, they can act as guarantors for investors in future housing real estate transactions.

It can be observed that the 2023 Law on Real Estate Business has essentially addressed the limitation of reducing access to guarantee sources, which previously caused difficulties in the purchase and sale of future housing in general, by expanding the entities with the function of guaranteeing these activities. However, it has not entirely resolved the issue, as insurance business organizations are still not stipulated as participants in guarantees in real estate business activities.

Therefore, to effectively achieve the goal of the guarantee regulation in future housing sales, which is to protect customers’ rights in a “potential risk” field, it is necessary to have regulatory guidance that allows insurance business organizations to exercise the right to guarantee in real estate transactions in general, and future housing transactions in particular.

1.2. Scope of Guarantees in Real Estate Purchase and Sale Contracts

Maintaining the previous regulation, the 2023 Law on Real Estate Business only mandates financial obligation guarantees of developers towards customers in the sale of future housing but does not apply financial obligation guarantees of developers towards customers in the sale of condotels, officetels, shophouses, or similar types of future real estate. Many viewpoints suggest that such regulations are not entirely reasonable because these types of real estate differ from housing only in their usage purposes. Fundamentally, they are still future property sale relationships, and purchasers are evidently the weaker party and need to be protected by law with financial obligation guarantees of developers, similar to the sale of future housing.

Currently, aside from future housing business activities, developers also engage in other types of future real estate business such as condotels, officetels, etc. (Phan V. C., 2020). Sharing this viewpoint, some opinions suggest that customers purchasing or hire-purchasing these new types of real estate are also the weaker party but are not guaranteed refunds, which is not comprehensive. It cannot be explained by stating that purchasers of these real estate types do so for commercial purposes rather than residential purposes and thus do not need their rights protected (Lê T. H., 2020).

We believe this is one of the limitations in current legal regulations. However, at present, legal regimes related to these types of real estate are not yet clearly “defined,” so maintaining the 2014 Law on Real Estate Business in the 2023 amendments is reasonable. Nevertheless, from the perspective of protecting the rights of purchasers of various types of real estate, we cannot overlook this regulation.

In practice, in Hồ Chí Minh City, since the first officetel project began construction over 10 years ago, there have been more than 50 projects with tens of thousands of officetels offered to the market. In Hồ Chí Minh City, the supply of officetels is enormous, with projects such as Ascent Lakeside, Florita, Sky Center, Sunrise Cityview, Southgate Tower, Golden King, Kingston Residence, Garden Gate, The Manor, Sunrise Riverside, The Sun Avenue, Centana Thủ Thiêm, or Sunshine City Sài Gòn.

However, according to the Land Registration Office of Hồ Chí Minh City, there are currently 10,019 officetels, shophouses, etc., that do not meet the conditions for the issuance of land use rights certificates, ownership of residential houses, and other assets attached to land (pink books) (Tiểu, 2023). Therefore, it is necessary to have sub-law documents or regulatory guidance allowing guarantees for purchasers of condotels, officetels, shophouses, etc.

  1. Timing of Establishing Real Estate Purchase and Sale Guarantees

According to Clause 1, Article 26 of the 2023 Law on Real Estate Business, real estate project developers must obtain approval for guarantees from domestic commercial banks or legally operating foreign bank branches in Vietnam before selling or hire-purchasing future housing. Similarly, Clause 1, Article 56 of the 2014 Law on Real Estate Business stipulated that the guarantee takes place “before signing the purchase and hire-purchase contract of future housing.”

Additionally, Clause 4, Article 13 of Circular 11/2022/TT-NHNN prescribes the procedure for implementing guarantees as follows:

“a) Based on the proposal of the developer or the counter-guaranteed party, the commercial bank reviews, appraises, and decides to provide the guarantee for the developer;

b) The commercial bank and the developer sign a future housing guarantee contract in accordance with Article 56 of the Law on Real Estate Business and Clause 13, Article 3, and Article 15 of this Circular;

c) After signing the purchase and hire-purchase contract for future housing, which specifies the developer’s financial obligations, the developer sends the purchase and hire-purchase contract to the commercial bank to request the issuance of a guarantee letter to the purchaser. …”

With this regulation, Circular 11/2022/TT-NHNN is moving towards determining the timing of signing the guarantee contract before signing the future housing purchase contract. Previously, Circular 07/2015/TT-NHNN specified that the guarantee signing occurred after signing the future housing purchase contract (Point b, Clause 1, Article 12). Although Circular 07/2015/TT-NHNN’s stipulation was not consistent with the Law on Real Estate Business, causing overlap in legal application and contradictions in dispute resolution approaches, the circular’s direction was somewhat feasible.

In other words, the State Bank’s regulation makes sense as the guarantee obligation must be a specific obligation (in this case, the obligation in the purchase contract between the developer and the specific customer) (Lưu, 2023). Since the subject of the guarantee contract is the advance payments and other amounts (if any) agreed upon in the contract, if the developer fails to hand over the housing as committed, they must refund, and this subject is specifically determined in the future housing purchase contract.

Therefore, without drafting or signing the future housing purchase contract, the guarantee subject is not determined, making it difficult to establish the guarantee contract. However, if the timing of signing the guarantee contract in future housing purchase and hire-purchase is directed as “the time of signing the guarantee contract after the future housing purchase contract between the seller, who is the developer, and the purchaser, except when the seller uses a standard contract” (Châu, 2018).

This approach is somewhat reasonable but does not thoroughly protect the customers’ rights, as in many cases, the developer does not continue to establish the commitment or the guarantee contract after signing the future housing purchase contract. For example, the Luxcity project (District 7, Hồ Chí Minh City) developed by Dat Xanh Real Estate Company has nearly sold all apartments, but when asked about guarantees, Luxcity’s consultants only provided a notice from Vietinbank – Thủ Thiêm Branch about the principle approval of the guarantee for Luxcity (Hảo, 2015);

or the case of Tân Bình Real Estate Investment Company Ltd. – the developer of Tân Bình Apartment – Tân Bình Social Housing Complex project being fined by the People’s Committee of Hồ Chí Minh City for multiple violations, including the lack of a bank guarantee contract for the developer’s financial obligations to customers when the developer failed to hand over housing as committed to customers, contrary to the Law on Real Estate Business (Nguyễn, 2019).

Therefore, to ensure consistency in legal regulations and protect the rights of real estate purchasers, we propose reverting to the regulation at the time of Circular 07/2015/TT-NHNN: determining the timing of establishing the guarantee commitment after the parties have established the future housing purchase contract. Additionally, the law on real estate business should recognize the timing of advance payment to the developer after the bank guarantee commitment, unless otherwise agreed upon by the parties. This limits the possibility of developers not establishing the guarantee commitment after signing the purchase contract.

  1. Legal Consequences of Real Estate Purchase Contracts in the Absence of Developer Guarantees for Customers

The determination of consequences in cases where the developer does not establish a commitment or guarantee contract with the bank to ensure obligations towards customers remains an unsettled issue.

In practice, some opinions suggest that if there is no financial obligation guarantee of the developer towards customers in the sale and hire-purchase of future housing, the future housing purchase contract becomes invalid for violating the principles of future housing purchase (Bùi, 2016). Conversely, some argue that the future housing purchase contract is not invalid if the developer’s financial obligations towards the future housing purchaser are not guaranteed, as it does not violate legal prohibitions or contract form requirements. This viewpoint is evidenced in judicial practice (Apartment purchase disputes, 2023).

Accordingly, the appellate court stated that the financial obligation guarantee of the developer towards customers when the developer fails to deliver the housing as committed aims to protect customers’ rights. The business not completing the procedures for the bank guarantee is the fault of the private enterprise S1…

In the apartment purchase contracts, it is agreed that if party A delays handing over the apartment to party B, party A must bear a 1%/month interest or compensate for damages caused by the delay in handing over the apartment as committed. Therefore, the first-instance court’s decision to require the private enterprise S to bear the responsibility for the delay in fulfilling the obligation to hand over the apartment to the purchaser on time is justified.

In this case, since the parties did not sign a guarantee contract, the court based its decision on the apartment purchase contract to resolve customers’ rights without declaring the contract invalid. Additionally, a neutral viewpoint suggests that legal consequences when there is no financial obligation guarantee of the developer towards customers in the sale and hire-purchase of future housing are not clearly stipulated by lawmakers. Consequently, there is no solid legal basis to support the first or the second opinion (Châu, 2018).

The ambiguity in legal regulations has led to varying opinions in legal practice.

We support the second viewpoint, that the future housing purchase contract should not be invalidated when there is no guarantee contract. In reality, the establishment of guarantee relationships can increase house prices by 1-2%, which is undesirable for buyers. Therefore, in many cases, buyers still choose to sign future housing purchase contracts despite knowing that there is no bank guarantee as per regulations. The primary reason is that customers, with their business acumen, clearly recognize the potential of the apartment, such as price appreciation, feng shui, advantageous direction, or potential geographical location.

Furthermore, point h, Clause 6, Article 58 of Decree No. 16/2022/ND-CP has stipulated remedial measures for this act as “Forcing the establishment of a financial obligation guarantee contract of the developer as per regulations for the specified act.” Additionally, based on the principle of respecting freedom and agreement in civil relations, to ensure the lawful rights and interests of the people, ensure business activities within a safe legal framework, and ensure consistent legal application, we propose the following:

In cases where the parties agree not to sign a guarantee contract when purchasing future housing, if a dispute arises, the court should resolve it based on the future housing purchase contract without invalidating it. If the developer unilaterally does not sign the guarantee contract without an agreement with the buyer, and fails to hand over the housing on time, the contract should be invalid.

III. CONCLUSION

Guarantees in real estate business are one of the effective legal measures to protect the legitimate rights and interests of real estate purchasers, emphasizing the developer’s responsibility to hand over the property to the buyer on time as committed. If the developer fails to meet the commitment, the bank is responsible for refunding the homebuyer. This also limits the possibility of developers being unable to refund and compensate customers. Therefore, researching and perfecting this issue is essential in the current context.

REFERENCES

  1. Anh, H & Pham, S. (2024). Ho Chi Minh City: Developer of Aurora High-rise Apartment Project repeatedly delays handover to customers. Retrieved from https://moitruongxaydungvn.vn/tp-hcm-chu-dau-tu-du-an-chung-cu-cao-tang-aurora-nhieu-lan-tre-hen-voi-khach-hang
  2. Bùi, Đ. G. (2016). The Law on Guarantees in the Sale and Hire-purchase of Future Housing. Journal of State and Law, No. 2, p. 5.
  3. Castro, M. L. (n.d.). Off-plan property bank guarantees and insurance policies. Retrieved from https://costaluzlawyers.es/blog/off-plan-property-bank-guarantees-and-insurance-policies/
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  6. Gia, H. (2023, February 9). Listing 30 suspended commercial housing projects in Ho Chi Minh City. Retrieved from https://cafef.vn/diem-mat-30-du-an-nha-o-thuong-mai-dung-thi-cong-tai-tphcm-20230209065031754.chn
  7. Hảo, C. (2015, June 11). Housing Purchase Guarantees: Buyers misled? Retrieved from https://cafeland.vn/tin-tuc/bao-lanh-mua-nha-nguoi-mua-bi-qua-mat-56287.html
  8. Lê, N. (1997). Bank Guarantees and Standby Credits. Hanoi: Statistics Publishing House, p. 17.
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  10. Lê, T. H. (2021). Guarantees in the Sale and Hire-purchase of Future Housing. Journal of State and Law, No. 4, p. 11.
  11. Lưu, Q. T. (2023). Safety Measures for Customers in Future Housing Transactions. Legislative Research Journal, No. 12 (484), p. 21.
  12. Nguyễn, Đ. (2019). Future Housing Purchase: Legal shortcomings and numerous risks for buyers. Retrieved from https://phaply.net.vn/mua-nha-o-hinh-thanh-trong-tuong-lai-phap-ly-chua-chat-che-nguoi-mua-gap-vo-van-rui-ro-a208634.html
  13. Phan, N. (2023). From April 1st, new regulations on future housing guarantees apply. Retrieved from https://tienphong.vn/tu-ngay-14-ap-quy-dinh-moi-ve-bao-lanh-nha-o-hinh-thanh-trong-tuong-lai-post1521304.tpo
  14. Phan, V. C. (2020). Law on Financial Obligation Guarantees of Developers Towards Customers in Commercial Housing Sales. Master’s thesis, University of Law of Ho Chi Minh City, p. 32.
  15. Thanh, S. (2015, July 29). Proposal for Foreign Bank Branches to Guarantee Sales and Leasing of Houses. Retrieved from https://tapchitaichinh.vn/kien-nghi-chi-nhanh-ngan-hang-nuoc-ngoai-duoc-bao-lanh-ban-cho-thue-nha.html
  16. Tiểu, T. (2023, March 26). Ho Chi Minh City: More than 10,000 officetels, shophouses… yet to be issued pink books. Retrieved from https://tieudung.kinhtedothi.vn/bat-dong-san/tp-ho-chi-minh:-hon-10000-can-officetel-shophouse%E2%80%A6-chua-duoc-cap-so-hong-71293.html
  17. People’s Court of Ho Chi Minh City. (2020). Judgment No. 459/2020/DS-PT dated June 4th, 2020, on apartment purchase contract dispute.
  18. People’s Court of Ho Chi Minh City. (2021). Judgment No. 174/2021/DS-PT dated February 32, 2021, on apartment purchase contract dispute.
  19. People’s Court of Ho Chi Minh City. (2020). Judgment No. 239/2020/DS-PT dated May 6th, 2020, on future housing purchase contract dispute.
  20. People’s Court of Ho Chi Minh City. (2023). Judgment No. 131/2023/DS-PT dated September 8th20, 23, on apartment purchase dispute.

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