Legal framework for condotel transactions

The condominium hotel (condotel) market, as well as the tourism real estate market in general, has not been regulated under the 2014 Real Estate Business Law. As a result, the ongoing obstacles of this type of real estate are expected to be resolved after the passing of the 2023 Real Estate Business Law. From a legal perspective, what are the positive aspects of the new law that investors need to be aware of in order to protect their rights and interests in transactions?


Protect buyers with a template contract

The 2023 Real Estate Business Law (REBL 2023) will come into effect on January 1, 2025 and has important provisions that will impact business activities and transactions for condotels, resort villas. A new point regarding transactions for resort real estate products is the use of a template contract with detailed terms and conditions prescribed by the government. The use of the template contract will help reduce risks for buyers, investors and limit disputes arising from transactions involving this type of real estate.

The use of the template contract will help reduce risks for buyers of condotels. Illustrative photo: DNCC

Specifically, Article 44 of the REBL 2023 lists types of real estate business contracts, including construction project sale and purchase contracts, construction floor area contracts in tourist-serving construction works, accommodations (FPMB). Accordingly, the government will stipulate the template contract for FPMB. Organizations, individuals establishing FPMB must comply with the legal regulations on real estate business and the Civil Law 2015. Real estate project investors, real estate business enterprises that use the template contract must publicly disclose the FPMB as stipulated before applying it.

According to the law, FPMB must contain key content such as the names, addresses of the parties and information about the real estate, sale price, payment method and period, handover of real estate and accompanying documentation. In addition, it also includes warranty policies, rights and financial obligations regarding land, constructions of the parties. Responsibilities for contract violations, contract violations fines; cases of termination, cancellation of the contract and measures of handling. In addition, it specifies dispute resolution methods and the effective date of the contract…

Due to the nature of real estate often being high-value assets, it is necessary to require parties to enter into contracts in accordance with the template contract to protect the interests of the weaker party in transactions. The specific provisions of the REBL 2023 on key content in the FPMB will limit the discretion in the content of the previous agreements. This ensures better access to information and legal rights of buyers, investors of these products.

Developers are not allowed to authorize the signing of deposit contracts

Clause 4 of Article 17 of the REBL 2023 stipulates that developers are not allowed to authorize organizations, individuals to sign deposit contracts, sale and purchase contracts for tourist-serving construction works, accommodations (existing works). Similarly, Article 23 of the REBL 2023 also stipulates that developers are not authorized to sign deposit contracts for future-formed construction works. These provisions aim to protect legal rights and interests of buyers, investors to the fullest extent possible.

In practice, there have been cases where developers authorize other entities (real estate brokerage service providers or other related companies in the ecosystem) to sign deposit contracts with customers. This entity will be the recipient of the deposit and will transfer it to the developer through a power of attorney or authorization clause in the brokerage contract. This leads to difficulties for customers in recovering the deposit due to avoidance and evasion of responsibility from investors and brokerage units.

Therefore, this regulation is a shield to protect the buyer, investor’s right to receive the deposit from the developer when it is legalized in the REBL. In addition, this provision will also facilitate and minimize some of the risks in the process of providing real estate brokerage services of distribution units.

Payment provisions to minimize damages for buyers

Payment in sale and purchase of construction works, construction floor area in future-formed construction works are made in multiple installments. Specifically, the first payment is not more than 30% of the contract value including the deposit. The subsequent payments must be in compliance with the construction progress but the total amount shall not exceed 70% until the construction work is handed over to the buyer. In cases where the seller is an economic organization with foreign investment capital as specified in Clause 4 of Article 10 of the REBL 2023, the total amount shall not exceed 50% of the contract value.

The use of the template contract will help reduce risks for buyers of condotels. Illustrative photo: DNCC

However, the content of the FPMB may still be further agreed upon in detail with regard to corresponding payment progress. This ensures that the payment progress limit is fair and motivates developers to complete the construction on schedule, whilst safeguarding the legitimate rights of investors.

In addition, if the buyer has not been granted a certificate of land use rights, ownership of assets attached to the land in accordance with the land law provisions, the seller shall not collect more than 95% of the contract value. This provision aims to protect the legitimate rights and interests of customers, investors by retaining a portion of the contract value during the waiting period for the issuance of certificates.

However, there is also the possibility of cases where customers delay the obligation to make the remaining 5% payment, while the developer has fulfilled financial obligations to be able to submit the certificate issuance dossier to customers. Therefore, to protect their legitimate rights and interests, developers should also consider penalties and compensation clauses when customers breach payment obligations and are late in receiving the certificate.

Similarly, buyers should also pay attention to the deadline for the developer to fulfill the obligation to submit the certificate issuance dossier to agree on penalty clauses for violations, compensation for damages when the developer is late in fulfilling the obligation to submit the certificate to the competent authority. In which buyers need to note the obligation to provide information, progress of providing the certificate issuance dossier of the developer.

Dương Thị Chiến – Master of Law, Pros Legal LLC

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