TIME OF TRANSFER OF OWNERSHIP IN COMMERCIAL HOUSING SALE CONTRACTS – FROM THE PERSPECTIVE OF PROTECTING THE RIGHTS OF THE BUYER

TIME OF TRANSFER OF OWNERSHIP IN COMMERCIAL HOUSING SALE CONTRACTS – FROM THE PERSPECTIVE OF PROTECTING THE RIGHTS OF THE BUYER

TIME OF TRANSFER OF OWNERSHIP IN COMMERCIAL HOUSING SALE CONTRACTS – FROM THE PERSPECTIVE OF PROTECTING THE RIGHTS OF THE BUYER

TIME OF TRANSFER OF OWNERSHIP IN COMMERCIAL HOUSING SALE CONTRACTS – FROM THE PERSPECTIVE OF PROTECTING THE RIGHTS OF THE BUYER

Nguyễn Nhật Thanh

MSc, Hồ Chí Minh City University of Law

Lê Thanh Hà

MSc, Hồ Chí Minh City University of Law

ABSTRACT

One of the most important concerns for homebuyers when entering into a commercial housing sale contract with the investor is the time when the ownership rights to the house are established. The issue of the time of transfer of ownership is not only governed by legal regulations but also depends on the content of the housing sale contract between the investor and the buyer. Therefore, in this article, the authors will study the time of transfer of ownership in housing sale contracts with the investor from the perspective of protecting the rights of the buyer.

Keywords: time of transfer of ownership, protecting rights, homebuyer, investor

I. INTRODUCTION

In principle, the contract between the investor and the buyer is established on the basis of voluntariness and self-determination. However, currently, the signing of commercial housing sale contracts is mainly based on the unilateral will of the investor through a contract drafted by the investor.

Usually, the investor rarely adjusts the contract content based on the customer’s opinion, and if they do, it is only for unimportant parts. If customers do not thoroughly understand or are not carefully advised by a professional, they are easily disadvantaged when disputes arise (Đỗ Văn Đại, 2021).

Determining the specific time of transfer of ownership is also an important clause that directly affects the rights of the buyer. Therefore, in the content of the following article, the authors will analyze the regulations on the time of transfer of ownership in housing and the impact of these regulations on the buyer’s rights.

II. LAWS GOVERNING THE TIME OF TRANSFER OF OWNERSHIP IN COMMERCIAL HOUSING SALE CONTRACTS

  1. Laws Governing Commercial Housing Sale Contracts

Commercial housing refers to housing invested in and constructed for sale, lease purchase, or lease according to market mechanisms (Clause 4 Article 2 of the 2023 Law on Housing). Investors implement commercial housing projects for the purpose of making a profit by transferring houses within the project to customers through sale contracts. Commercial housing, which is the subject of the sale contract between the investor and the buyer, can be categorized into two types: existing houses (Clause 23 Article 2 of the 2023 Law on Housing) and future housing (Clause 24 Article 2 of the 2023 Law on Housing).

With the introduction of the 2023 Law on Housing and the 2023 Law on Real Estate Business, which replace the 2014 Law on Housing and the 2014 Law on Real Estate Business, regulations related to housing sale contracts and the time of transfer of ownership in housing sale contracts have undergone certain changes.

Previously, both the 2014 Law on Housing and the 2014 Law on Real Estate Business had provisions regarding the time of establishing ownership in cases of housing sales between project investors and buyers, leading to difficulties in determining the governing law. However, the 2023 Law on Housing completely refers to the 2023 Law on Real Estate Business for these cases. Specifically, Clause 4 Article 12 of the 2023 Law on Housing states: “In case of sale or lease purchase of housing between the investor of a housing investment project and the buyer or lessee, the time of establishing housing ownership shall be carried out in accordance with the provisions of the law on real estate business.”

During the transition between the 2014 Law on Housing, the 2014 Law on Real Estate Business, and the 2023 Law on Housing, the 2023 Law on Real Estate Business, it is necessary to thoroughly consider the determination of the governing law for commercial housing sale contracts established before the 2023 laws take effect and continue to be executed after the 2023 laws take effect.

The 2023 Law on Housing does not have transitional provisions for contracts related to housing in general and commercial housing sale contracts in particular. However, in principle, such contracts are uniformly regulated by the 2023 Law on Real Estate Business, so the transitional provisions are only reflected in Clause 9, Article 83 of the 2023 Law on Real Estate Business:

“Real estate business contracts established under Law No. 66/2014/QH13 before the effective date of this Law shall continue to be implemented in accordance with Law No. 66/2014/QH13 and detailed regulations and guidance documents; if the contract is amended or supplemented after the effective date of this Law, the parties must adjust and supplement the relevant contract content in accordance with the provisions of this Law.”

Thus, the 2023 Law on Real Estate Business stipulates that retroactive application does not apply to contracts established before these laws take effect. If the parties wish to adjust the contract to comply with the new law, they must agree on the adjustments and supplements.

  1. Legal Provisions on the Time of Transfer of Ownership in Commercial Housing Sale Contracts

Previously, Clause 3, Article 12 of the 2014 Law on Housing stipulated: “In the case of housing sales between the investor of a housing construction project and the buyer, the time of transfer of housing ownership is from the time the buyer receives the handover of the house or from the time the buyer pays the full amount for the house to the investor…”.

This provision was similarly recorded in Clause 5, Article 19 of the 2014 Law on Real Estate Business. Thus, both the 2014 Law on Housing and the 2014 Law on Real Estate Business stipulated that the time of transfer of ownership is upon meeting one of the two conditions: (i) the seller hands over the house to the buyer; or (ii) the buyer has paid the full amount to the seller.

In the 2023 Law on Housing, there is no longer a provision on the time of establishing ownership in commercial housing sale contracts, but only a reference to the 2023 Law on Real Estate Business as provided in Clause 4, Article 12 of the 2023 Law on Housing. Clause 5, Article 13 of the 2023 Law on Real Estate Business stipulates:

“The time of establishing ownership of housing, construction works, and the floor area in construction works for the buyer or lessee is from the time the buyer or lessee has paid the full purchase or lease purchase amount and has received the handover of the house, construction works, or floor area in the construction works, unless otherwise agreed by the parties.”

Thus, the time of establishing ownership in housing sale contracts according to the 2023 Law on Real Estate Business has changed significantly by changing the condition “or” to the condition “and”. This means that the time of transfer of ownership in commercial housing sale contracts is determined when both conditions are met: (i) the seller hands over the house to the buyer; and (ii) the buyer has paid the full amount to the seller.

The authors believe that this change will bring more difficulties for homebuyers in the context where even if the buyer has received the handover of the house and paid the maximum amount allowed by law, they do not become the owner of the house. This will cause many consequences for the buyer in exploiting and disposing of the property when they are not the owner of this house.

Regarding the time of house handover: This is the time when the investor transfers the possession and use rights of the commercial house through the handover procedure. Typically, the handover of the property will be established through the house handover record between the investor and the buyer as stipulated in the contract. However, the handed-over house must ensure that it meets the conditions according to Clause 4, Article 37 of the 2023 Law on Housing.

In reality, there are many investors who have carried out the handover of houses without meeting the necessary conditions to avoid breaching the contract, which poses many risks for homebuyers when the house has not been quality inspected (Huấn Cao, Thu Thảo, Tuấn Anh, 2019). In this case, when the investor requires the handover of commercial housing without meeting the legal conditions, the buyer has the right to refuse to accept the handover without being considered in breach of the signed contract.

Regarding the condition of full payment to the seller: As mentioned above, one of the major issues with the buyer’s payment condition is that the current law does not allow the investor to collect 100% of the contract value before the buyer is granted the Land Use Rights Certificate, Ownership of House and Other Assets Attached to Land (hereinafter referred to as “LUR Certificate”). In reality, the period from when the investor hands over the house to when the buyer is granted the LUR Certificate is quite long, and for many projects, this period can extend to several years, preventing the buyer from becoming the owner of the house (Ngân Nga, 2022).

Although the law aims to protect the buyer’s rights by binding the investor’s responsibility in issuing the LUR Certificate, this regulation creates significant barriers for the buyer in exercising their rights over the house. For instance, there have been cases where the investor mortgages the house that has been handed over to the customer, and when the investor becomes insolvent, the bank proceeds to handle the mortgaged asset, which is the house the customer is using (Đình Du, 2017). Furthermore, buyers face many difficulties in exploiting and using the house without ownership rights (Ngân Nga, 2022).

III. IMPACT OF DETERMINING THE TIME OF TRANSFER OF OWNERSHIP ON BUYER’S RIGHTS

  1. Relationship Between the Time of Establishing Housing Ownership and the Time of State Recognition of Ownership

Article 7 of the 2023 Law on Housing states: “The State recognizes and protects the legal ownership rights of the homeowner in accordance with this Law.” Accordingly, Article 9 of the 2023 Law on Housing provides that organizations and individuals who meet the conditions and have legal housing are recognized by the competent state authority through the issuance of the LUR Certificate.

Additionally, land law stipulates that the LUR Certificate is issued to those who have land use rights, housing ownership rights, and have fulfilled financial obligations in accordance with the law. Thus, the LUR Certificate serves as the legal document or basis for the State to confirm and protect the legal land use rights and housing ownership rights of the land user and homeowner. Therefore, when the house is under legal ownership (having met the conditions for establishing ownership), the owner is eligible to be granted the LUR Certificate (Point c, Clause 1, Article 10 of the 2023 Law on Housing).

However, according to Clause 5, Article 13 of the 2023 Law on Real Estate Business, “The time of establishing housing ownership… is from the time the buyer or lessee has paid the full purchase or lease purchase amount and has received the handover of the house… unless otherwise agreed by the parties.” Additionally, Point d, Clause 2, Article 20 and Point e, Clause 2, Article 23 also clearly affirm: the buyer has the right to own the house from the time they have fully paid the purchase amount to the seller.

The difference in the regulations on these two times may lead to a discrepancy between the time of establishing housing ownership and the time of state recognition of housing ownership in the following two cases:

– Case 1: The buyer has established housing ownership, specifically has received the handover of the house and fully paid for the house to the investor but has not yet been granted the LUR Certificate. This case can occur even if the seller has not fulfilled their obligations under the sale or lease purchase contract (only handing over the house but not completing the procedures and handing over the LUR Certificate and related documents to the buyer or lessee), the 2023 Law on Real Estate Business still affirms that the buyer or lessee has ownership rights to the house if they have fully paid (Vũ Thị Hồng Yến, 2024).

This situation is very common in commercial housing projects due to many reasons such as: the investor not completing financial obligations regarding land with the state, the investor constructing buildings against the granted permit, using land for the wrong purpose… The lack of the LUR Certificate means that the buyer has not fully realized the ownership rights, especially the right to dispose of the house.

In many cases, the law stipulates conditions for participating in housing transactions such as buying, lease purchasing, gifting, exchanging, mortgaging, contributing capital by housing, as well as for doing housing business that requires the LUR Certificate (Point a, Clause 1, Article 160 of the 2023 Law on Housing; Point a, Clause 1, Article 14 of the 2023 Law on Real Estate Business). It can be seen that some very basic and important rights of the owner cannot be exercised even though the law stipulates that they have established ownership rights over their property (Nguyễn Thị Thơ, 2023).

Although the 2014 Law on Housing, the 2014 Law on Real Estate Business, and the 2023 Law on Housing, the 2023 Law on Real Estate Business have provided solutions to address the owner’s need to dispose of the property before being granted the LUR Certificate, by allowing the buyer to transfer the commercial housing sale contract built in the housing investment project as per Point e, Clause 2, Article 118 of the 2014 Law on Housing, Article 49 of the 2023 Law on Real Estate Business,

or have the right to inherit the house according to Point đ, Clause 2, Article 118 of the 2014 Law on Housing, Point đ, Clause 2, Article 160 of the 2023 Law on Housing. However, from a legal perspective, the buyer’s ownership rights to the house cannot be considered fully transferred when their right to dispose of the property is not yet complete (Bành Quốc Tuấn, Nguyễn Hoàng Anh, 2023).

– Case 2: The investor has completed the procedures for submitting the application for the LUR Certificate for the buyer and the state agency has issued the LUR Certificate to the buyer, but in reality, the buyer has not met the two conditions of having received the handover of the house and fully paid for the house to the investor.

This arises from the provision in Clause 3, Article 25 of the Law on Real Estate Business, which only allows the investor to collect up to 95% until the buyer is issued the LUR Certificate. This implies that the buyer only pays 5% of the contract value for the house after the state agency issues the LUR Certificate. Thus, it is possible for the buyer to be recognized by the State as the owner of the house without having to fully pay for the house (100% of the contract value).

Here, it can be seen that the provision on the time of issuing the LUR Certificate for the State to recognize housing ownership and the time of establishing ownership as “having received the handover of the house and fully paid” is not compatible.

In practice, to limit disputes arising before completing the procedure for issuing the LUR Certificate, the investor usually requires the buyer to provide complete documents including the housing sale contract, house handover record…

Therefore, even though the LUR Certificate has recorded the buyer’s information as the owner, the LUR Certificate has not been handed over to the buyer, and if the buyer does not have the housing sale contract, they cannot exercise the owner’s rights as prescribed by law. However, with the discrepancy in the regulations regarding the time of issuing the LUR Certificate (before) and the time of establishing ownership (after), this is unreasonable and does not ensure the buyer’s rights to fully receive the rights and obligations of the owner.

Thus, to ensure consistency, it is necessary to adjust the regulations towards “full payment by the commercial housing buyer means full payment according to the Commercial Housing Sale Contract up to the time of house handover.”

  1. The Buyer Does Not Have Ownership Rights Even After Receiving House Handover

According to Clause 5, Article 13 of the 2023 Law on Real Estate Business, unless otherwise agreed, the time of establishing housing ownership must satisfy both conditions: (i) full payment for the house and (ii) receiving the house handover. Additionally, in cases of future housing purchases, the buyer only pays the remaining 5% of the contract value to the investor when the competent state agency has issued the LUR Certificate to the buyer. If there is no agreement, the buyer’s ownership of the house is only established when the buyer has received the house handover, has been issued the LUR Certificate, and has fully paid for the house.

This regulation creates many disadvantages and has a serious impact on the buyer’s rights compared to the provisions of the 2014 Law on Housing and the 2014 Law on Real Estate Business. In reality, upon receiving the house handover from the investor, the buyer has acquired two ownership rights: possession and use of the house (Article 158 of the 2015 Civil Code), and has paid up to 95% of the housing sale contract value, yet is not considered the house owner and is not recognized as having ownership rights under Article 10 of the 2023 Law on Housing.

When the house ownership has not been transferred to the buyer, the ownership rights of the house still belong to the investor. There are likely to be many cases where the investor, despite having sold the apartment and collected payment from the buyer, mortgages the sold apartments to borrow money from the bank.

For example, the case related to 213 apartments in Phú Thạnh Condominium (Tân Phú District, Hồ Chí Minh City), where Trung Nam Design and Construction Co., Ltd. mortgaged apartments that had been sold and collected 95% of the apartment value from the buyer, with the remaining 5% of the contract value unpaid due to the LUR Certificate not being issued, at Việt Á Bank (Nguyễn Cảnh, 2024).

Although the Law on Real Estate Business stipulates that to sell future housing, the investor must release the mortgage on part or all of the project or house and land use rights before signing the housing sale contract with the customer (Clause 2, Article 183 of the 2023 Law on Housing), and individuals or organizations purchasing future housing within the investor’s housing investment project have the right to mortgage the house at a credit institution operating in Vietnam to buy the house (Clause 3, Article 183 of the 2023 Law on Housing).

However, for future housing where the ownership has not been transferred to the buyer, the housing ownership still belongs to the housing project investor, and the investor can use their own property to mortgage it according to civil law provisions.

However, considering that the housing ownership still belongs to the investor and the investor exercises ownership rights when the house has been handed over is not appropriate and seriously affects the buyer’s rights.

  1. The Buyer Bears Housing Risks Even Without Ownership

According to Article 162 of the 2015 Civil Code, “The owner must bear the risk of their property unless otherwise agreed or provided by this Code and other relevant laws.” The Law on Real Estate Business does not specify the issue of bearing property risks, so it follows civil law provisions that if there is no agreement, the owner must bear the property risk.

However, when reviewing apartment sale contracts listed in the standard contract directory and general transaction conditions on the website: https://www.bvntd.gov.vn/hop-dong-mau/ of the National Competition Commission of the Ministry of Industry and Trade, it shows that most contracts do not include the clause “time of establishing or transferring housing ownership.” As a result, the time of establishing housing ownership follows the law, specifically the time when the buyer has received the house handover, is issued the LUR Certificate, and has fully paid for the house.

In practice, these standard contracts usually have a clause: “From the date of handing over the Apartment, the Buyer is fully responsible for the purchased Apartment and bears responsibility for purchasing and maintaining necessary insurance contracts for all risks, damages related to the Apartment, and civil liability insurance as per legal regulations” (Vinpearl Joint Stock Company’s Sample Apartment Sale Contract, Contract Code: 2016 HĐM 765). This clause means that from the time of house handover, the buyer must bear all responsibilities and risks associated with the house.

These clauses indicate that investors often draft contracts to benefit themselves while transferring disadvantages and risks to the buyer. Here, even though the buyer has not established ownership rights, they must bear any potential risks associated with the purchased house from the time both parties sign the house handover record, whether or not the buyer has actually used the house.

IV. CONCLUSION

The provisions on the time of establishing ownership according to the 2023 Law on Real Estate Business and the 2023 Law on Housing have changed significantly compared to the 2014 Law on Real Estate Business and the 2014 Law on Housing, requiring both conditions of the buyer having received the handover and fully paid. This regulation aims to prevent the seller from continuing to sell the house to another party after handing over and receiving payment, even though they still hold the LUR Certificate in their name because ownership has been transferred to the buyer.

However, the above analysis has shown that these provisions have limitations that negatively impact the buyer’s rights, which are not thoroughly protected, while seeming to better protect the rights of the real estate project investor. Therefore, to better protect the buyer’s rights, there needs to be consistency between the regulations on the time of establishing housing ownership and other provisions recognizing the housing ownership rights of individuals and organizations purchasing houses in the investor’s commercial housing projects.

REFERENCES

  1. Civil Code 2015.
  2. Law on Real Estate Business 2014. Law on Real Estate Business 2023. Law on Housing 2014.
  3. Law on Housing 2023.
  4. Official Dispatch No. 3292/STN/MT-VP dated April 20, 2023, of the Department of Natural Resources and Environment.
  5. Đỗ Văn Đại (2021). Civil Transactions in Real Estate. Hồng Đức Publishing House – Vietnam Lawyers Association.
  6. Nguyễn Cảnh (2024). People outraged as investors mortgage already sold apartments. Retrieved from https://cand.com.vn/dieu-tra-theo-don-ban-doc/nguoi-dan-buc-xuc-vi-chu-dau-tu-dem-can-ho-da-ban-di-the-chap-i736701/.
  7. Huấn Cao, Thu Thảo, Tuấn Anh (2019). Topaz Home project investor fined for allowing residents to move in before project acceptance. Retrieved from https://lsvn.vn/chu-dau-tu-du-an-topaz-home-bi-phat-vi-chua-nghiem-thu-cong-trinh-da-dua-dan-vao-o.html.
  8. Đình Du (2017). Project mortgaged by the investor, people lose their homes. Retrieved from https://tienphong.vn/du-an-bi-chu-dau-tu-cam-ngan-hang-nguoi-dan-mat-nha-post985906.tpo.
  9. Ngân Nga (2022). Over 2,500 households appeal for help due to nearly 10-year delay in receiving ownership certificates. Retrieved from https://vnexpress.net/hon-2-500-ho-dan-keu-cuu-vi-bi-no-so-hong-gan-10-nam-4482779.html.
  10. Nguyễn Thị Thơ (2023). In-depth commentary on the provisions of the time of establishing housing ownership in the draft amended Law on Housing. Vietnam Lawyers Journal Online. Retrieved from https://lsvn.vn/binh-luan-chuyen-sau-cac-quy-dinh-ve-thoi-diem-xac-lap-quyen-so-huu-nha-o-trong-du-thao-luat-nha-o-sua-doi-1696350116-a135937.html
  11. Bành Quốc Tuấn, Nguyễn Hoàng Anh (2023). Improving legal provisions on the time of transferring housing ownership. Legislative Studies Journal, No. 10 (482). Retrieved from http://www.lapphap.vn/Pages/TinTuc/211644/Hoan-thien-quy-dinh-cua-phap-luat-ve-thoi-diem-chuyen-quyen-so-huu-nha-o.html.
  12. Vũ Thị Hồng Yến (2024). New points of the Law on Real Estate Business regarding civil transactions related to real estate. Workshop material on New Points of the Law on Real Estate Related Transactions. Hồ Chí Minh City University of Law.

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