PROTECTION OF THIRD PARTIES IN THE TRANSFER OF REAL ESTATE INVESTMENT PROJECTS ACCORDING TO THE 2023 LAW ON REAL ESTATE BUSINESS

PROTECTION OF THIRD PARTIES IN THE TRANSFER OF REAL ESTATE INVESTMENT PROJECTS ACCORDING TO THE 2023 LAW ON REAL ESTATE BUSINESS

PROTECTION OF THIRD PARTIES IN THE TRANSFER OF REAL ESTATE INVESTMENT PROJECTS ACCORDING TO THE 2023 LAW ON REAL ESTATE BUSINESS

PROTECTION OF THIRD PARTIES IN THE TRANSFER OF REAL ESTATE  PROJECTS ACCORDING TO THE 2023 LAW ON REAL ESTATE BUSINESS

Võ Trung Tín

PhD, Senior Lecturer, Head of the Land and Environment Law Department, Faculty of Commercial Law, Hồ Chí Minh City University of Law

Nguyễn Thị Hồng Thắm

MSc, Truong&Brothers IC

Trương Văn Quyền

PhD Candidate, Lawyer, Truong&Brothers IC

ABSTRACT

The article addresses the following issues: (i) Analysis of the 2023 Law on Real Estate Business regulations on the transfer of real estate investment projects; (ii) Analysis of legal issues of the 2023 Law on Real Estate Business related to the protection of third parties in the transfer of commercial housing real estate projects, thereby pointing out the shortcomings in the application of the law in practice; (iii) Some recommendations to improve the law and protect the rights of third parties in the transfer of commercial housing real estate projects.

Keywords: Law on Real Estate Business, third party, project transfer

I. INTRODUCTION

With the clearance of investment capital sources and the government’s support through resolutions to remove difficulties for the real estate (RE) market, the restructuring of enterprises, especially with the effective implementation of the trio of the 2024 Law on Land, the 2023 Law on Real Estate Business (the 2023 LREB), and the 2023 Law on Housing from August 1st, 2024, the RE market has gradually seen positive and significant changes.

This has created motivations to attract capital into the RE market in the upcoming period, where competent investors will pour capital into RE companies owning delayed projects (PJs) through forms of business purchases or PJ transfers, especially commercial housing PJs – the type of PJ accounting for the largest proportion in the market. Will the 2023 LREB’s regulations on the transfer of commercial housing PJs effectively address or still present barriers in balancing third-party interests in this activity? The regulations on the transfer of RE PJs need further evaluation and improvement to create a complete legal framework.

II. REGULATIONS ON THE TRANSFER OF COMMERCIAL HOUSING REAL ESTATE PROJECTS ACCORDING TO THE 2023 LAW ON REAL ESTATE BUSINESS

According to Article 39 of the 2023 Law on Real Estate Business, real estate project investors have the right to transfer the entire project or a part of the project to other investors to continue investing and doing business, but must comply with legal principles, specifically:

(1) The project is within the implementation period;

(2) Ensuring that the project planning and objectives remain unchanged, ensuring the legitimate rights and interests of the related parties;

(3) The transferee inherits the rights and obligations of the transferring investor and becomes the investor for the project or the part of the project that has been transferred;

(4) Complying with the conditions specified in Article 40 of the 2023 Law on Real Estate Business and adhering to the regulations on forms, purposes, land use duration, and land registration as stipulated by the land laws.

Compared to the 2014 Law on Real Estate Business, the 2023 Law on Real Estate Business expands the principles for transferring the entire project or part of the real estate project.

Regarding the conditions for transferring the entire project or a part of the project, the 2023 Law on Real Estate Business divides these into three corresponding groups of conditions (Article 40 of the 2023 Law on Real Estate Business), specifically:

Firstly, for transferable real estate projects.

Commercial housing projects are allowed to be transferred when they meet the statutory conditions in Clause 1, Article 40 of the 2023 Law on Real Estate Business, including:

(a) The project has been approved by a competent state authority regarding the investment policy and equivalent matters. This means the project must be approved by a competent state authority regarding the project’s objectives, location, scale, progress, and implementation period; the investor or the form of investor selection and special mechanisms and policies (if any) to implement the investment project (Clause 1, Article 3 of the 2020 Law on Investment). Alternatively, the project inherits the regulations on investor recognition from the 2006 Law on Real Estate Business. However, these types of projects have almost reached the end of their implementation period according to the regulations and approvals of the competent authorities.

(b) The project has approved detailed planning according to the regulations of the Construction Law and the Urban Planning Law. Detailed planning involves dividing and determining urban planning land use criteria, managing architecture and landscape requirements for each land plot; arranging technical infrastructure works, and social infrastructure works to concretize the contents of subdivision planning or general planning. The drawing of the detailed planning project is shown at a scale of 1/500 (Clause 2, Article 30 of the 2009 Urban Planning Law). Thus, according to common terminology, it can be said that the condition for the transferable project is to have an approved 1/500 detailed planning drawing.

(c) The project or part of the transferable project has completed compensation, support, and resettlement. In the case of transferring the entire infrastructure construction investment project, the corresponding technical infrastructure works must be completed according to the progress, design, and approved detailed planning regulations. This condition must be met when transferring the project, the determination of completing compensation, support, resettlement, and completion of technical infrastructure works is inspected and carried out by the competent state authority.

(d) The land use rights of the project or part of the transferable project are not in dispute; not seized to ensure judgment enforcement; not prohibited from transactions by law; not in the suspension or temporary suspension period of transactions according to legal regulations. This condition ensures that the land use rights of the project entering into transactions are legal and belong to the transferor. However, this condition does not clarify if the land use rights are mortgaged at a bank, credit institution, or are securing an obligation of the transferor, such as securing the obligation to issue bonds, whether there needs to be any other binding terms.

(e) The project is not suspended, terminated, or subject to a land recovery decision; in case of administrative penalty, the investor must comply with the administrative penalty decision. This condition ensures the enforcement of administrative management measures by the competent state authority, and if the project has a land recovery decision or is suspended, the competent authorities will naturally refuse the project transfer procedure according to legal regulations as it does not meet the transfer conditions.

(f) In the case of a mortgaged project, the mortgage must be released. This condition is stipulated to protect the credit institution providing capital for the transferor to implement the project, mortgaged by the investment project. However, other commitments, securing obligations, or investment cooperation with third parties to mobilize capital are not mentioned.

(g) The project is still within the implementation period. This condition ensures the project transfer must be carried out quickly to ensure the project’s implementation period. However, this condition may become a bottleneck in the project transfer procedure when the project faces certain objective legal investment obstacles. Therefore, there should be a regulation for a reasonable period or a more suitable regulation to bring efficiency to the project transfer activity. Accordingly, it should be regulated that the transferable project is still within the implementation period or has expired but has not been subject to a land recovery or suspension decision; and the transferee will be granted an appropriate extension to continue the project’s implementation.

(h) For real estate projects transferring a part of the project, it must ensure independence from the other parts of the project. This condition ensures the uniformity and consistency of the transferred part within the overall project after being transferred to another investor. However, in practice, the division of project parts related to public areas such as green parks, internal roads, playgrounds, etc., has not been fully realized. Therefore, there needs to be clearer guidance on the conditions and criteria for the “independence” of the transferred part of the project.

Secondly, for the transferring investor.

The transferring investor of commercial housing projects must meet the statutory conditions in Clause 3, Article 40 of the 2023 Law on Real Estate Business regarding having legal land use rights and fulfilling financial obligations related to land. This condition ensures that commercial housing project investors must have real financial capacity and clear legal land origins, avoiding the situation where investors exploit their position to apply for projects and then prematurely sell them to other investors for profit.

However, with the land law’s obstacles in determining land prices and investment law extending the project’s implementation period, and the financial difficulties of investors when they need to transfer to recover capital or repay debts, the condition “having completed financial obligations related to land” almost becomes a financial burden and difficult to fulfill. Therefore, this condition needs to be regulated according to the actual situation and in line with land laws, stating that the transferor has temporarily paid the land use fee or land rent of the transferable project according to the financial obligations temporarily determined based on the State land price table at the time of transfer.

Thirdly, for the transferee investor.

The transferee investor of commercial housing projects must meet the statutory conditions in Clause 2, Article 40 of the 2023 Law on Real Estate Business. Specifically, the transferee investor must meet the conditions for real estate business as stipulated in Article 9 of the 2023 Law on Real Estate Business and commit to continue the investment, construction, and business according to the approved project content.

In case of changes to the project content, they must follow the provisions of Clause 3, Article 39 of the 2023 Law on Real Estate Business. Therefore, the transferee of commercial housing projects must be an enterprise meeting the statutory conditions, ensuring financial capacity, inheriting the rights and obligations of the transferring investor, and becoming the investor for the project or part of the project that has been transferred.

Regarding authority and procedure, the process of transferring a part or the entire real estate project is stipulated in Articles 41 and 42 of the 2023 Law on Real Estate Business. Regarding the contract for transferring real estate investment projects, the 2023 Law on Real Estate Business currently only outlines general provisions on the rights and obligations of the parties under Article 43 of the 2023 Law on Real Estate Business as a bilateral contract.

The contract for transferring the entire or part of a real estate project is also a type of standard contract according to the 2023 Law on Real Estate Business (Points i, k, Clause 1, Article 44) and is detailed by the Government when implemented (Clause 7, Article 44 of the 2023 Law on Real Estate Business). These provisions almost inherit the regulations from the 2014 Law on Real Estate Business and the system of guiding documents (Articles 18, 47, and 53 of the 2014 Law on Real Estate Business; Article 7 of Decree No. 76/2015/NĐ-CP and Point 1, Section II of Official Dispatch No. 1436/BXD-QLN dated June 30th, 2015 of the Ministry of Construction).

Thus, the 2023 Law on Real Estate Business has more specific, clear, and strict regulations related to project transfer activities. However, there are still certain shortcomings in the 2023 Law on Real Estate Business regulations on project transfer activities that may cause bottlenecks.

III. PROTECTION OF THIRD PARTIES IN THE TRANSFER OF COMMERCIAL HOUSING REAL ESTATE PROJECTS ACCORDING TO THE 2023 LAW ON REAL ESTATE BUSINESS

One notable aspect is that the regulations related to project transfer have not specifically addressed the content of protecting the rights of customers and related parties (third parties) in the transferred project. This content is only mentioned in the law as a general principle that needs to be ensured in project transfer activities, without any mechanism to ensure the legitimate rights of these subjects.

Comparing the regulations from the 2014 Law on Real Estate Business to the 2023 Law on Real Estate Business and the actual implementation of commercial housing project transfers, the authors find that ensuring the legitimate rights and interests of customers and related parties in the transferred project is currently only formal. Meanwhile, these subjects are directly affected by the transferred project, and their rights and obligations are directly affected and transferred corresponding to the project’s transfer activities.

  1. Evaluation of Legal Provisions Related to the Protection of Third Parties in the Transfer of Commercial Housing Real Estate Projects

To develop commercial housing projects, investors must mobilize capital from various sources for developing commercial housing projects according to legal regulations. Besides their capital, investors fully exploit mobilized capital sources according to Article 115 of the 2023 Law on Housing. As a result, the subjects involved in this capital mobilization include: partners, investors, customers, credit institutions. Additionally, during project implementation, there are contractors, distributors, and suppliers of materials and other related services, who will be third parties with rights and interests related to the transfer of commercial housing projects, considered as “creditors” of the transferor. The transferor has established many bilateral contractual relationships with third parties based on the principles of contract law.

According to Article 370 of the 2015 Civil Code, the transfer of obligations from the obligor to the substitute obligor is established if the obligee consents (Article 371 of the 2015 Civil Code). Thus, the rights and obligations of third parties in the transfer of the project will be affected and transferred corresponding to the project transfer activity without a mechanism to ensure their legitimate opinions and rights.

As analyzed, ensuring the legitimate rights of related parties in the transferred project according to the provisions of the 2023 Law on Real Estate Business is currently only a principle. According to Clause 2, Article 39 of the 2023 Law on Real Estate Business, one of the principles that real estate project investors must ensure when transferring a project is to guarantee the legitimate rights and interests of related parties.

One of the legal obligations of the transferor is to promptly, fully, and publicly notify and satisfactorily resolve the legitimate rights and interests of related parties to the project or part of the transferred project (Point b, Clause 1, Article 43 of the 2023 Law on Real Estate Business). The transferee must inherit and fulfill the rights and obligations of the transferring investor (Point a, Clause 2, Article 43 of the 2023 Law on Real Estate Business). This is no different from the provisions of the 2014 Law on Real Estate Business and still does not ensure a legal mechanism to protect third parties in the project transfer activity.

According to the regulations and procedures of the 2014 Law on Real Estate Business and the guiding documents, before the handover procedure, the transferring investor must notify all customers (if any) in writing and announce on public media 15 days in advance about the transfer, the rights of customers, and related parties.

If related parties have opinions on their rights related to the project or part of the transferred project, the transferring investor is responsible for resolving them according to legal regulations before signing the transfer contract (Clause 4, Article 12 of Decree No. 76/2015/NĐ-CP). Thus, notifying and resolving the rights of customers and related parties to the project is done after the competent authority’s decision to approve the transfer and is only a formal procedure in the project transfer activity without an inspection or supervision mechanism.

  1. Practical Application of Real Estate Business Law Related to the Protection of Third Parties in the Transfer of Commercial Housing Real Estate Projects and Improvement Directions

In practice, the application of the law on the protection of related parties in the transfer of projects mentioned above has not achieved the expected effectiveness. In the Civil Appeal Judgment No. 818/2019/DS-PT dated September 18th, 2019, on the “Dispute over capital contribution contracts for apartment sales” by the People’s Court of Hồ Chí Minh City between the Plaintiff: Ms. H; Defendant: Company P; Persons with related rights and obligations: Company V and Company B, it stated: “On August 3rd, 2009, Ms. H signed 06 capital contribution contracts for apartment sales with Company B at the Phú L Apartment Project.

It is known that on June 16th, 2010, Company B transferred the project to Company V. On February 19th, 2016, Company V transferred the entire project to Company P according to Decision No. 648/QĐ-UBND of the City People’s Committee. During the implementation of the project by Company P, Ms. H repeatedly worked with and requested Company P to resolve her rights regarding the capital contribution contracts for apartment sales at the Phú L Apartment Project, but until now Company P has not resolved them and continues to sell the apartments.”

In her statement, Ms. H claimed that she was not informed about the entire project handover process between the parties and during the transfer procedure of Phú L Apartment from Company B to Company V.

According to the court’s argument and judgment, the contract between Ms. H and Company B to buy future housing apartments at the Phú L Apartment Project did not meet the legal conditions, as the sales contract was signed before the project’s foundation was completed. The project transfer process ensured the legal procedures, and it was stated: “The inheritance of rights and obligations of the investor only applies to legally valid contracts when transferring the project.

However, as concluded, the 06 contracts were invalid from the time of signing (August 3rd, 2009), so Company P is not responsible for inheriting the rights and obligations related to the 06 contracts when transferring the project” (Refer to Civil Appeal Judgment No. 818/2019/DS-PT dated September 18th, 2019, on “Dispute over capital contribution contracts for apartment sales” by the People’s Court of Hồ Chí Minh City). Consequently, the court dismissed all of Ms. H’s claims to compel Company P to refund the money she paid for the 06 capital contribution contracts.

Through this judgment, it is evident that to obtain capital for project implementation, investors seek to mobilize funds even when the project is not legally eligible for sale through reservation contracts, deposit contracts, bond sale contracts, etc., to mobilize capital for the project. However, if the project cannot continue and is transferred, as long as legal procedures are followed, the project can be transferred, and the obligations can be evaded. Thus, the regulations on protecting related parties become merely formal.

Research on global law shows that protecting the rights of related parties in the transfer of projects is necessary and mandatory for investors to transfer projects. In India, Clause 1, Article 15 of the 2016 Real Estate Law on the obligations of investors when transferring projects states: “Investors are not allowed to transfer their rights and obligations regarding real estate projects to third parties without the written consent of 2/3 of the project homebuyers (excluding the investors) and written approval from the real estate regulatory authority” (Indian Real Estate Law, 2016).

According to the U.S. law in the Code of Federal Regulations – Title 24 – Subtitle B – Chapter IV – Part 401 – Section 401.480 “Sale/Transfer of Projects,” “The project owner must hold meetings with the residents to disseminate information. The buyer must provide notice of the meeting and the meeting results to each household in the project. A representative of the buyer must attend the meetings to present the acquisition plan, project changes, and answer questions about the plan.

At the meeting, residents will vote to decide on the project’s acquisition. The buyer will send documents, including ballots and petitions demonstrating the consent of 51% of the residents, to the U.S. Department of Housing and Urban Development as part of the file. The Department will decide whether to approve or not and notify the buyer.” (U.S. Code of Federal Regulations).

Thus, the laws of some countries around the world recognize and have clear mechanisms to ensure the rights of related parties in project transfer activities.

Comparing the provisions of the Civil Code on the transfer of obligations and the rights of the transferred party with the provisions of the 2023 Law on Real Estate Business on ensuring the rights of related parties in real estate project transfers reveals incompatibility and a lack of assurance, even neglect. Thus, until the 2023 Law on Real Estate Business, the rights of related parties in real estate project transfers remain merely formal. This situation awaits a system of detailed guiding documents to specify and strictly regulate this issue.

With the current digital technology for managing customer information, loans, contractors, and material suppliers, it is entirely feasible to gather opinions and provide information to third parties related to the transfer of commercial housing projects when intending to transfer projects. Investors have no reason to evade these obligations. Therefore, it is necessary to legislate the information and consultation of third parties related to the transfer of commercial housing projects when conducting project transfer activities. Publicizing the capital mobilization status should be a mandatory condition for investors to implement project transfers, establishing a mechanism to protect related parties.

IV. CONCLUSION

The 2023 Law on Real Estate Business related to real estate project transfer activities has more specific, clear, and stringent regulations compared to before, adding additional conditions for project transfers. However, these provisions still require a system of guiding documents and time for verification.

Along with the positive economic and market changes in the future, coupled with the anticipated wave of project transfers among investors, the regulations related to the transfer of commercial housing projects in the 2023 Law on Real Estate Business are expected to be implemented soon and will inevitably reveal certain obstacles. As analyzed above, some provisions that do not closely follow practical realities may easily become bottlenecks during the legal implementation process.

Especially, the issue of protecting the rights of related parties in project transfer activities has not been thoroughly resolved. This is expected to significantly affect the legitimate rights and interests of related parties and lead to frequent disputes over rights between the transferor, related parties, and the transferee, leaving many consequences.

REFERENCES

  1. 2024 Law on Real Estate Business No. 66/2014/QH13, 2023 Law on Real Estate Business No. 29/2023/QH15, 2024 Law on Housing No. 65/2014/QH13.
  2. 2024 Law on Land No. 31/2024/QH15, 2014 Law on Investment No. 67/2014/QH13, 2020 Law on Investment No. 61/2020/QH14.
  3. Law No. 03/2022/QH15 of the National Assembly amending and supplementing several articles of the Law on Public Investment, the Law on Public-Private Partnership Investment, the Law on Investment, the Law on Housing, the Law on Bidding, the Law on Electricity, the Law on Enterprises, the Law on Special Consumption Tax, and the Law on Civil Judgment Execution.
  4. Civil Code No. 91/2015/QH13.
  5. 2009 Law on Urban Planning No. 30/2009/QH12.
  6. 2016 Indian Real Estate Law. Retrieved from http://www.aaptaxlaw.com/real-estate-act-2016/section-15-real-estate-act-2016-obligations-of-promoter-in-case-of-transfer-of-a-real-estate-project-to-a-third-party-section-15-the-real-estate-regulation-and-development-act-2016.html
  7. Decree No. 76/2015/NĐ-CP of the Government dated September 10th, 2015 detailing the implementation of several articles of the Law on Real Estate Business.
  8. Official Dispatch No. 1436/BXD-QLN dated June 30th, 2015 of the Ministry of Construction on the implementation of the 2014 Law on Housing No. 65/2014/QH13 and the 2014 Law on Real Estate Business No. 66/2014/QH13.
  9. U.S. Code of Federal Regulations (n.d), http://www.ecfr.gov/cgi-bin/text-idx?SID&node=pt24.2.401&rgn=div5
  10. People’s Court of Hồ Chí Minh City (2019), Civil Appeal Judgment No. 818/2019/DS-PT dated September 18th, 2019 on “Dispute over capital contribution contracts for apartment sales”.

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