IMPROVING THE LEGAL FRAMEWORK ON STANDARD CONTRACTS TO PROTECT THE RIGHTS OF FUTURE HOUSING BUYERS

IMPROVING THE LEGAL FRAMEWORK ON STANDARD CONTRACTS TO PROTECT THE RIGHTS OF FUTURE HOUSING BUYERS

IMPROVING THE LEGAL FRAMEWORK ON STANDARD CONTRACTS TO PROTECT THE RIGHTS OF FUTURE HOUSING BUYERS

Đặng Thị Thu Huyền  

MSc, Lawyer, Faculty of Law, Nguyễn Tất Thành University  

Trần Minh Chương  

MSc, Faculty of Law, Nguyễn Tất Thành University

ABSTRACT

The 2023 Law on Real Estate Business, effective from August 1st 2024, introduces numerous new regulations regarding real estate business contracts. In particular, for housing purchase transactions, parties must enter into standard contracts as mandated by law. This article focuses on analyzing and clarifying current legal provisions related to standard contracts in future housing transactions as a legal tool to protect the rights of future housing buyers. The aim is to harmonize the interests of the parties involved in the transactions, and to propose solutions to promote a healthy real estate market.

Keywords: standard contract, housing purchase, commercial housing

I. INTRODUCTION

Real estate business (REB) is considered an activity with a broad impact on the socio-economic landscape. Fundamentally, this activity is mainly conducted in the form of civil contracts. Moreover, future housing purchase contracts (FHPC) serve as the legal basis to establish the rights and obligations of the parties involved in the transaction, and as a foundation for adjudicative bodies to resolve disputes.

However, due to its nature, REB activities often involve large transactions with many legal risks, especially for the buyers. Currently, most FHPCs are standard contracts drafted by the sellers. These contracts are often designed to favor the sellers and disadvantage the buyers, particularly in dispute scenarios (Hiền, 2021). Hence, legal regulation of standard FHPCs is necessary to protect the future housing buyers – who are generally the weaker party in the contractual relationship, thereby balancing the interests of the parties and preventing disputes.

The regulation of standard contracts in FHPC transactions to protect future housing buyers’ rights was formally recognized in the 2014 Law on Real Estate Business, and more recently in the 2023 Law on Real Estate Business. Notably, the current law provides quite detailed and clear regulations on standard contracts in REB compared to previous stages. For example, the 2023 Law on Real Estate Business dedicates Chapter VI (from Article 44 to Article 52) to regulating REB contracts, with novel provisions on the concept and usage of REB contracts.

In summary, the legal framework regulating standard contracts in FHPC transactions to protect future housing buyers’ rights has been progressively refined, aiming to harmonize and balance the interests of the parties while reducing legal risks for buyers.

In the current context, where the real estate market is increasingly stagnant and bleak, the introduction of regulations on standard contracts in FHPC transactions stands out significantly, offering substantial value. These regulations not only better protect the buyers’ rights but also reinforce customer confidence in REB companies and the real estate market. Therefore, this article focuses on analyzing the new points in the 2023 Law on Real Estate Business regarding the legal framework regulating standard contracts in FHPC transactions and evaluating some limitations in current legal regulations to propose improvements.

I. LEGAL FRAMEWORK REGULATING STANDARD CONTRACTS IN FUTURE HOUSING PURCHASE TRANSACTIONS

  1. Concept of Standard Contracts in Future Housing Purchase Transactions

For the first time, the law officially defines the concept of real estate business contracts. According to Clauses 8 and 9 of the 2023 Law on Real Estate Business, real estate business contracts are understood as “a written agreement between organizations or individuals engaged in real estate business, who meet the conditions stipulated by this Law, and other organizations or individuals to: purchase, lease, lease-purchase housing or constructions; transfer, lease, sublease land use rights with completed technical infrastructure in real estate projects; transfer all or part of real estate projects.”

Fundamentally, future housing purchase contracts (FHPC) are a type of real estate business contract, distinguishing them from real estate service business contracts. However, it was only with the 2023 Law on Real Estate Business that the concept of real estate business contracts was clarified in detail. Corresponding to each form of business, the Law on Real Estate Business clearly differentiates between the business of real estate goods and the business of real estate services. This provision addresses the limitations of previous stages by distinguishing between the business of real estate goods and the business of real estate services.

From the above analysis, the concept of FHPC can be understood as follows: FHPC is a written agreement between a real estate business enterprise (the seller) and a customer (the buyer) regarding the sale of future housing for profit purposes. Accordingly, the seller will hand over the housing along with the land use rights to the buyer upon completion of construction, and the buyer must pay the purchase price to the seller according to the terms agreed upon by both parties in accordance with legal regulations (Hương, 2018).

  1. Use of Standard Contracts in Future Housing Purchase Transactions

Theoretically, the type of contract used depends on the agreement between the parties, aiming to respect and emphasize their mutual consent (Article 389 of the 2015 Civil Code). However, as analyzed, housing buyers are always in a weaker position due to the “inserted” clauses in the standard contracts drafted by the sellers. Therefore, to protect the buyers’ rights, real estate business law includes regulations to safeguard these groups.

It’s important to note that depending on the socio-economic conditions and the perspectives of lawmakers at different stages, the use of standard contracts in future housing purchase transactions may be mandatory or not. For example, according to the 2006 and 2014 Laws on Real Estate Business and their guiding documents (Decree 76/2015/NĐ-CP), the use of standard contracts was only for reference during the contract formation process as long as the contracts contained the main contents as prescribed and were not contrary to legal regulations.

However, Decree 02/2022/NĐ-CP, which amends Decree 76/2015/NĐ-CP, stipulates that the use of standard contracts between the parties is mandatory and no longer just for reference as before. Specifically, “the sale of real estate must be established by standard contracts as stipulated below: Purchase, lease-purchase contracts for apartment buildings as per Form No. 01 Appendix issued with this Decree.”

Inheriting this content, the 2023 Law on Real Estate Business officially codified the provision in Article 6 of Decree 02/2022/NĐ-CP. Accordingly, “real estate project investors and real estate business enterprises must use standard contracts stipulated in Article 44 of the 2014 Law on Real Estate Business…” Hence, the mandatory use of standard contracts is essential to minimize risks that disadvantage buyers, enhance equality between the parties in housing purchase contracts, and reduce actual disputes.

  1. Form of Standard Contracts in Future Housing Purchase Transactions

Unlike previous regulations, the 2023 Law on Real Estate Business does not specifically state whether real estate business contracts must be in written form. This issue should have been inherited but was unfortunately overlooked by the 2023 Law on Real Estate Business. However, Clause 6 of Article 44 in the 2023 Law on Real Estate Business indirectly addresses the form of future housing purchase contracts (FHPC) as follows:

“The time at which the contract takes effect is the time when the last party signs the contract or by another form of acceptance as shown in the contract, unless otherwise agreed by the parties. If the contract is notarized or authenticated, the effective time of the contract is when the notarization or authentication document takes effect according to the law on notarization and authentication.”

The provision regarding the effective time of contracts in the 2023 Law on Real Estate Business indicates that FHPC must be in written form. Additionally, Clause 2 of Article 45 in the 2023 Law on Real Estate Business stipulates that real estate project investors and real estate business enterprises must use standard contracts as specified in Article 44 of the 2023 Law on Real Estate Business and publicize these contracts before applying them according to Point d Clause 2 of Article 6 in the 2023 Law on Real Estate Business regarding the disclosure of standard contract information.

From the above analysis, it can be concluded that the contracts between the parties in future housing purchase transactions must be in written form, except in exceptional cases as per Article 129 of the 2015 Civil Code. The 2023 Law on Real Estate Business requires future housing purchase transactions to be in written form because this format better protects the rights and obligations of the parties in the transaction, especially the buyers, and prevents disputes. Moreover, establishing contracts in written form provides convenient evidence for dispute resolution (if any).

On the other hand, it should be noted that the 2023 Law on Real Estate Business does not require the parties to notarize or authenticate FHPC at a notary public organization; it only mandates that the parties execute standard contracts in written form.

  1. Nội dung của hợp đồng mẫu trong giao dịch mua bán nhà ở hình thành trong tương lai

Based on Article 46 of the 2023 Law on Real Estate Business, standard contracts in future housing purchase transactions must include key provisions as required by law, such as the names and addresses of the parties; information about the real estate; the selling price; payment methods and deadlines; bank payment guarantees for the investors selling future housing; deadlines for handing over the real estate and accompanying documents; warranty; rights and obligations of the parties; liabilities for breach of contract; penalties for violations; cases of contract termination and cancellation and their handling; dispute resolution methods; and the effective date of the contract.

Comparing the contents of the 2023 Law on Real Estate Business with the 2014 Law on Real Estate Business, several aspects of future housing purchase contracts have seen significant changes, such as information about real estate, payment, handover of real estate, and documentation. These changes reflect the appropriate adjustments in the law concerning future housing purchase transactions.

However, the element of free agreement in future housing purchase contracts is not absolute and is constrained by the state’s will through specific regulations as follows:

Firstly, the clause on the subject matter of the contract is more stringently regulated in the 2023 Law on Real Estate Business compared to the 2014 Law on Real Estate Business. For instance, when entering into future housing purchase transactions, the seller must meet the following conditions:

(i) The housing or construction works must have been commenced in accordance with construction laws;

(ii) Have one of the land use rights certificates;

(iii) Have construction-related documents;

(iv) Have a financial obligation guarantee from a commercial bank;

(v) Have a foundation completion inspection report;

(vi) Have a document from the Department of Construction confirming that the housing is eligible for sale;

(vii) The housing must have its information publicly disclosed in accordance with regulations.

These conditions aim to prevent sellers from entering into contracts without meeting business conditions in the form of pre-sales, which could harm the buyers.

Secondly, the payment terms in future housing purchase contracts (FHPC) are one of the groundbreaking new points in the 2023 Law on Real Estate Business.

One, regarding payment progress, the new law has added provisions on deposits, which have encountered many violations in the past. Accordingly, real estate project investors are only allowed to collect a maximum deposit of 5% of the selling price.

Additionally, the 2023 Law on Real Estate Business has changed the payment ratio for the first payment, which is not to exceed 30% of the contract value (including the deposit), and subsequent payments must align with construction progress but not exceed 70% of the contract value before handing over the housing, and not exceed 95% before the buyer is granted the certificate. These regulations essentially inherit the spirit of the 2014 Law on Real Estate Business but have been supplemented and adjusted to cap the deposit rate and payment rate of investors, preventing capital misappropriation or fraud by investors, thereby protecting the buyers’ rights.

Notably, the 2023 Law on Real Estate Business introduces specific payment methods. When receiving payments from customers, investors must process them through accounts opened at legally operating credit institutions in Vietnam. The purpose of requiring payments through bank accounts is to limit cash use and particularly to mitigate money laundering risks in real estate transactions in recent times. This regulation also controls the progress of capital mobilization by investors, provides evidence for dispute resolution, and addresses the limitations of the previous law.

However, according to the authors’ perspective, the 2023 Law on Real Estate Business only mandates that the parties make payments through a bank without specifying whether it should be the bank guaranteeing the investor’s financial obligations or any legally operating bank in Vietnam. Thus, controlling the mobilized funds may be challenging if the bank receiving the payments is not the guaranteeing bank.

Two, the clause on the handover of future housing. Accordingly, the handover of housing must be documented in writing, accompanied by legal documents related to the house purchase (Article 25 of Decree 95/2004 Housing Law 2023).

The regulation on the handover of future housing by the seller is one of the progressive new points in the 2023 Law on Real Estate Business, aimed at enhancing the seller’s responsibility and protecting the buyer’s rights against violations by the seller. In practice, this clause is often violated when the seller fails to hand over the housing or delays the handover. In many future housing purchase contracts (FHPC), sellers use terms like “expected handover time” to escape their obligation to hand over the housing if they violate this obligation.

Three, the clause on bank guarantees and the issuance of the Certificate of Ownership for future housing. These regulations are similar to the 2014 Law on Real Estate Business, aiming to protect the buyer’s rights. Without bank payment guarantees, sellers might violate their obligation to hand over the housing. Additionally, even when buyers receive the handover and reside there for a long time, they may still not be issued the Certificate of Ownership for the house, preventing them from exercising their ownership rights.

  1. Legal Effectiveness of Standard Contracts in Future Housing Purchase Transactions

The effectiveness of standard contracts in future housing purchase transactions is one of the most important aspects of contracts. Ultimately, the parties establish contracts to bind each other’s rights and obligations (Hùng, 2015), meaning that the concluded contract must have legal effect. Currently, the 2023 Law on Real Estate Business does not have provisions regarding the legal effectiveness of standard contracts in general real estate business or future housing purchase transactions. Therefore, determining the legal effectiveness of standard contracts in future housing purchase transactions will be based on the provisions of the 2015 Civil Code.

Comparing the 2015 Civil Code and the 2023 Law on Real Estate Business, some key issues can be highlighted as follows:

Firstly, the conditions for the legal effectiveness of future housing purchase contracts (FHPC). According to Article 117 of the 2015 Civil Code, the conditions for the legal effectiveness of FHPC include:

(i) The seller and buyer of future housing must have the legal capacity to enter into FHPC;

(ii) The conclusion of the standard contract must be based on voluntariness and goodwill;

(iii) The content of the standard contract must not violate prohibitions of the law or contradict social ethics;

(iv) The form of the standard contract must comply with legal provisions.

Additionally, before entering into the standard contract, the seller must publicize this information for the buyer’s awareness as stipulated in Article 45 of the 2023 Law on Real Estate Business regarding the procedure for registering and using standard contracts before their application. This is considered a new point and one of the conditions for the legal effectiveness of FHPC, serving to protect future housing buyers.

Secondly, the timing of entering into standard contracts in future housing purchase transactions (FHPC). Real estate business contracts are signed when the real estate has met all conditions for business as stipulated by the Law on Real Estate Business. This provision was first recognized in the 2023 Law on Real Estate Business to protect the buyer’s rights. In practice, during dispute resolution regarding FHPC, sellers, driven by profit, may sign house sale contracts to mobilize funds illegally before meeting these conditions. This poses a significant risk to customers, especially when future housing has not yet been formed at the time of contract signing, unlike available housing.

  1. Sanctions for Violations Related to Standard Contracts in Future Housing Purchase Transactions

In practice, violations of regulations related to future housing purchase contracts (FHPC) are mainly manifested in the following forms: failure to enter into written real estate business contracts, or the contract content does not fully include the main contents as prescribed by law, or entering into standard contracts without complying with the regulations on standard contracts and general transaction conditions.

Currently, sanctions for these violations are stipulated in Decree 16/2022/NĐ-CP on administrative penalties in the field of construction. Although the law provides clear administrative sanctions for each type of violation, these sanctions have not been truly effective and are not deterrent enough to prevent violations by investors due to the low penalty amounts. The highest penalty for violations related to standard contracts in FHPC transactions is a maximum fine of 600 million VND. This may lead to sellers being willing to violate the regulations, thereby nullifying the provisions on the use of standard contracts and causing damage to buyers.

III. RECOMMENDATIONS AND PROPOSALS TO IMPROVE THE LAW ON STANDARD CONTRACTS IN FUTURE HOUSING PURCHASE TRANSACTIONS

Firstly, amend the provisions in Article 44 of the 2023 Law on Real Estate Business, similar to the 2014 Law on Real Estate Business (Article 17), to directly affirm that contracts in general real estate goods transactions and contracts in future housing purchase transactions must be in written form. This provision aims to affirm and enhance the legal effectiveness of using standard contracts in real estate transactions. Consequently, it establishes a solid legal foundation for protecting the rights of future housing buyers.

Secondly, strengthen state administrative measures for managing real estate business enterprises concerning the conditions of transactions and real estate goods introduced into transactions (Nhung, 2022). For instance, according to the 2023 Law on Real Estate Business, controlling real estate business enterprises by publicizing standard contracts before the parties enter into future housing purchase transactions is one of the conditions for the legal effectiveness of real estate business contracts.

However, in practice, this provision is easily violated by the seller if the law lacks strict control mechanisms. Therefore, the authors suggest that in addition to the seller’s obligation to publicize these standard contracts, there should be an agreement between the parties confirming that the seller has fulfilled the obligation to disclose information to the customer. If this provision is strictly implemented, the buyers’ rights will be fully ensured, helping them to grasp all information and consider and decide on entering into the contract.

Thirdly, amend the provisions of the 2023 Law on Real Estate Business to require that payments in housing purchase transactions between the parties must be made through the bank guaranteeing the investor’s financial obligations. This ensures that the bank receiving the payments is also the guaranteeing bank, thus effectively controlling the mobilized funds.

Fourthly, increase administrative penalties for violations of standard contract regulations by multiple times (5-10 times) if the seller violates these regulations. The administrative penalty should be based on the consequences caused by the violation. Furthermore, sanctions for violations need to be strict and deterrent, effectively preventing and limiting violations by the seller.

Fifthly, promptly issue case law to guide the resolution of disputes in future housing purchase contracts (FHPC). In reality, disputes arising in FHPC transactions are becoming more common and complex, affecting social order. However, the number of case laws resolving disputes in FHPC transactions is still quite modest. It is suggested that the Supreme People’s Court should promptly issue case law as a basis for resolving disputes and ensuring consistency in judgments, thereby better protecting the rights of the parties in FHPC transactions.

IV. CONCLUSION

With the introduction of the 2023 Law on Real Estate Business, standard contracts in future housing purchase transactions have become an effective legal tool in protecting the rights of future housing buyers. Future housing purchase contracts (FHPC) have established a basic and necessary legal framework to protect future housing buyers by setting minimum standards that the sellers must comply with. These standards help limit and prevent violations by the sellers, reducing conflicts of interest between the parties. However, this legal framework still has many limitations and is not yet comprehensive. Therefore, continuing to improve the legal regulations on FHPC in the real estate business has become one of the most urgent issues today.

REFERENCES

  1. Hiền, N.T and Hoàng, N.G (2021). “Discussion on the Form and Content of Apartment Purchase Contracts,” Democracy and Law Journal, retrieved from [https://lsvn.vn/ban-ve-hinh-thuc-va-noi-dung-cua-hop-dong-mua-ban-can-ho-chung-cu1614569297.html](https://lsvn.vn/ban-ve-hinh-thuc-va-noi-dung-cua-hop-dong-mua-ban-can-ho-chung-cu1614569297.html).
  2. Hợi, V.H (2018). Real Estate Business Law, monograph, Judicial Publishing House.
  3. Hùng, L.M (2015). Effectiveness of Contracts, Hồng Đức Publishing House.
  4. Nhung, N.T.H (2022). Some Legal Issues on Future Housing Purchase, Vietnam Lawyer Online Journal, retrieved from [https://lsvn.vn/mot-so-van-de-phap-ly-ve-mua-ban-nha-o-hinh-thanh-trong-tuong-lai1657031860.html](https://lsvn.vn/mot-so-van-de-phap-ly-ve-mua-ban-nha-o-hinh-thanh-trong-tuong-lai1657031860.html).
  5. Phong, N.Đ and Hương, N.T (2018). Some Inadequacies in Future Housing Purchase Contracts, People’s Court Electronic Journal, retrieved from [https://tapchitoaan.vn/mot-so-bat-cap-ve-hop-dong-mua-ban-nha-o-hinh-thanh-trong-tuong-lai](https://tapchitoaan.vn/mot-so-bat-cap-ve-hop-dong-mua-ban-nha-o-hinh-thanh-trong-tuong-lai).

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