In recent years, the purchase and sale the Off-the-plan (off the plan house) is always exciting because this is not only a channel for owners and properties of people in need, but also an investment channel for many investors to buy then sell or for rent. Due to a lack of grasp of information or legal regulations, many people had suffered and got losses when buying a house. Therefore, by this article, ADK Lawyers would like to provide some legal information of buying the Off-the plan.
1. Legal basis and practice
1.1 Legal basis for the purchase Off-the-plan
a) Concept of the Off-the-plan
According to Clause 19 Article 3 Law on Housing 2014 stipulates:
“Off-the-plan is the house under investment and construction and has not been accepted for use”.
This regulation provides a unified understanding of the Off-the-plan – an object in civil transaction of housing.
Besides that, Law on Real Estate Business 2014 also introduces the concept related to future housing in Clause 4 Article 3 as follows:
"Off the plan house, structure construction are the house and structure under contruction and have not been accepted for use ".
It can be understood that although being the subject of sale and purchase contract, the Off-the-plan has still not been existed without land use rights Certificate, ownership of house and other land attached assets, which means that it has not established any the ownership has not been established. However, that house has the legal basis to identifying it will be formed in the future under a certain subject’s ownership , such as buying a flat an apartment in a building.
b) Classification of Off-the-plan
According to Clause 2 Article 108 Civil Code 2015 (BLDS 2015):
"2. Off the plan properties include:
a. The property has not been formed;
b. The property has been formed but the subject establishes the ownership of the property after the transaction was established”.
Thus, Purpose of the above regulations and use of different legal terms for an explanation of this case is towards dividing the Off-the-plan into two specific types:
- Firstly, the house which is under construction;
- Second, the house which has been formed without the acceptance for use, so that the ownership has not been fully established.
c) Law on sale and purchase contract of Off-the-plan
The law on sale and purchase contract of the Off-the-plan is a collection of legal regulations governing the relationship of sale and purchase contract of the Off-the-plan.
With nature of a civil transaction in general and a housing transaction in particular, the relationship of sale and purchase contract of the Off-the-plan is governed by norms of many legal documents such as Constitution, Civil Code, Law on Housing, Law on Real Estate Business, Law on Construction, ...
According to Clause 1Article 123 the Law on Housing 2014:
"1. The purchase and sale of house must be made into a contract with the contents stipulated in Article 121 of this Law. The parties can agree on the seller's sale of the house or transfer of the right to use residential land attached to that house within a certain period of time to the buyer in accordance with Government's regulations”.
Legal documents on the purchase and sale contract of the Off-the-plan include:
Legal documents: Civil Code 2015; Civil Procedure Code 2015; Law on Housing 2014; Law on Real Estate Business 2014; Law on Construction 2014…
Sub-Law documents: Decree 99/2015/ND-CP of the Government detailing and guiding the implementation of a number of articles of the Law on Housing 2014; Decree 76/2015/ND-CP of the Government detailing and guiding the implementation of the Law on Real Estate Business 2014; Decree 59/2015/ND-CP of the Government on management of construction investment project; Decree No. 139/2017/ND-CP of the Government on sanctioning of administrative violations in real estate business; Circular No. 07/2015/TT-NHNN dated June 25, 2015 of the State Bank on regulations of bank warranty …
Therefore, the nature of the sale and purchase contract of the Off-the-plan house plays a role of guiding and instructing the subjects to comply with the provisions of law on the contents of the agreement and also, contract performance.
In addition, the provisions of sale and purchase contract of the Off-the-plan are the legal basis for dispute settlement by competent state authorities, especially agencies having the management function, building a legal corridor for a stable order establishment in the business activities of buying and selling the houses under project, ensuring that this activity is legally operated with fluency and safety.
1.2 Practice of buying and selling the Off-the-plan today
Firstly, according to the provisions of Clause 2 Article 69 Law on Housing 2014, the capital used for commercial housing development includes 04 types, including Capital mobilized through capital contribution; Investment cooperation; and Cooperation of business, joint venture, association of organizations, households and individuals. This capital mobilization is expressed through capital contribution contracts. During the time when the project has not met the conditions to sell the Off-the-plan (usually without acceptance record of foundation accomplishment), the investors will sell with the method: They sign the agreement of capital contribution raise, then they will officially sign the sale and purchase contract of the Off-the-plan until the conditions have been met.
Although the Decree 99/2015/ND-CP also stipulates that the investor is not allowed to distribute housing products or to prioritize registration, deposit, enjoying of the right to buy houses or to divide land use rights in the project for the party allowed to mobilize the capital. However, this method actually does not really have detailed and particular regulations, which leads to many "implicit" agreements. The settlement will be dramatically complicated if dispute happens. The parties’ rights and obligations will be based on the evidence and arguments of each party. The writer believes that, if there is a stipulation of sale and purchase contract of the Off-the-plan, it must be thoroughly applied to avoid the investor’s law breaking, which causes risk for the customer; or this stipulation has to be more detailed on capital contribution contracts for individuals and households.
Second point is about the investor’s condition of contracting sale and purchase the Off-the-plan. This issue, as mentioned above, is clearly stipulated at point b, Clause 2 Article 19 of Decree 99/2015/ND-CP guiding the implementation of the housing law, accordingly within 15 days , from the date receiving the investor's application, Department of Construction has to check the application; if the document contains all the papers prescribed at this point, the Department of Construction must send a written notice of the house being eligible for sale, lease-purchase, and send it to the investor; if the papers of document adapt the regulation in this point, the Department of Construction has to notice in written form that the house meets the condition of sale and rent, and send this notice to the investor; if not, the Department still has to send a notice in written form to the investor with particular explanation. . In case the Department of Construction does not send the written notice after the investor’s dispatch of document expired the time limit stipulated at this point, and the eligible house meets the conditions of sale, lease-purchase, the investor can sign the contract of sale, lease-purchase of the Off-the-plan and must be responsible for the sale, lease-purchase of this house; The Department of Construction must be responsible for notification or having no written notice of eligible house for sale or lease-purchase after receiving the investor's demand application.
According to the provisions of Clause 2 Article 55 of the Law on Real Estate Business 2014, stipulating that provincial agency of housing management is responsible for replying in written form to the investor about the eligible house for sale, lease-purchase in 15-day time limit; and sending a clear explanation to the investor in case the house is ineligible.
Thus, it can be seen that the Law on Real Estate Business 2014 stipulates the responsibility of the state management agency to appraise whether the investor can sell the Off-the-plan or not. Aim of this regulation is an emphasis of state’s duty, limiting customers’ risks, partly leading to the customers’ "trust" when buying the Off-the-plan with a lack of checking other essential information. However, the point b, Clause 2 Article 19 of Decree 99/2015/ND-CP stipulates that if the Department of Construction does not have the written notice, the house still can be sold and must be responsible. It can be seen that, when the dispute arises, the investor's "responsibility" is still based on various factors and the big risk is still belonged to the customer.
Thirdly, for the regulation of payment accounts in the sale and purchase contracts of the Off-the-plan.
According to the current regulations, Clause 1 Article 56 Law on Real Estate Business 2014 stipulates that the investor of real estate project, before selling the Off-the-plan, must be guaranteed his or her financial obligation with customer, by a commercial bank with full capacity, when the investor does not hand over the house on the schedule committed to the customer. Also, it should be noted that the actual guarantee is mainly an object guarantee, which means that the investor must have assets to ensure the bank guarantee. In fact, the investors often mortgage the project under construction to get the guarantee from the commercial bank.
For these cases, the commercial bank often requires the investor, when signing the Off-the-plan purchase contract with the customer, has to note into clause of paying agreement that money must be transferred to the guaranteed bank account that the bank can manage the investor’s money use, ensure that the money is used for the right purpose. In addition, customers will feel more "assured " because the bank has managed the investor’s use of the money mobilized from the customers.
In fact, however in many cases, the customers have to pay in cash or transfer to an account at another bank, not the investor’s mortgage bank and use that money for other purposes instead of repaying the bank’s loan. This issue will lead to the risk of affecting the customers’ legitimate rights and interests. Therefore, it is necessary to directly stipulate this issue into the Law to avoid the investor’s non-performance of the agreement with the bank and the customers buying the Off-the-plan.
Based on some inadequacies in the sale and purchase process of the Off-the-plan, currently, the Ministry of Construction has issued Official Letter No. 989/BXD-QLN on March 25, 2021, requiring the People's Committees of provinces and municipalities to inspect, review and strictly implement the provisions of the Law on Housing, the Law on Real Estate Business, Decree No. 99/2015, Decree 76/2015 of the Government on the order, procedures and conditions of transactions of real estates, Off-the-plan in the area.
Following the recommendation of this dispatch, in Ho Chi Minh City, Mr. Le Hoa Binh, Vice Chairman of the People's Committee of Ho Chi Minh City, directed the functional agencies, the People's Committees of the districts to have surprise inspection of the Off-the-plan sale projects to re-control the situation that some investors "bend the law" in sale, purchase and transfer of the Off-the-plan.
Directive dispatch stated that, according to survey of real estate market in Ho Chi Minh City during the time, the contract form of reserve deposit priority deposit of the right to buy usually appeared in the ineligible projects for sale. The customers are often introduced to this approach by consulting brokers, as a trick of "closing the sale", while the project has not officially launched. Many investors also use this approach as a form of "market test", if the product is attractive, they will use the customer's deposit to deploy the project.
Buying the Off-the-plan is always exciting. This is not only a channel for house ownership and property of people in need, but also an investment channel for many investors when buying, reselling or renting. However, there are many cases, due to a lack of grasp of legal regulations, many house buyers had suffered and got losses. Therefore, the house buyers need to grasp the procedures and a few legal notes as follows.
2. Procedures of buying the Off-the-plan
Step 1: Before signing the sale and purchase contract, or paying money to buy a house in an Off-the-plan project, the house buyers need to base on the Law on Real Estate Business 2014, the Law on Housing 2014 and the guiding documents stipulating the conditions that Off the plan house belonging to commercial housing construction projects can be available for sale and requires the investor to provide sufficient information and the legal conditions as follows:
First: Owning papers on land use rights (means that the investor had land allocation and the granted papers on land use rights to implement the project);
Second: Owning a sufficient document of project (means that the investor was granted investment certificate; written approval of the investment policy, etc.);
Third: Owning a construction drawing approved by a competent state agency (means the Approval of the competent authority’s 1/500 detailed planning project);
Fourth: Owning a construction license (Construction license of all project);
Fifth: For apartment buildings/mixed buildings, there must be an acceptance accord of completion of the building foundation. For semi-detached/low-rise houses, there must be the acceptance certificate of the completion of corresponding infrastructure construction under the project schedule.
Sixth: Owning a document from the Department of Construction sent to the investor to confirm that the Off-the-plan is allowed to be sold.
Seventh: The investor must also have a qualified commercial bank which can guarantee the investor's financial obligations with the customer when the investor did not hand over the house under the committed schedule. When signing the sale and purchase contract, the investor must enclose a copy of the guarantee contract to the customer (this is a mandatory requirement).
Eighth: The project is not disputed, distrained or mortgaged.
Ninth: Besides the above provisions, the buyers need to research the information about the project in the state authorities, come to have fieldwork survey of the area under the construction to check the constructing process and progress in reality, to strengthen the basis for consideration before signing the contract.
The investor always must bring these types of documents that can give to the buyer with his or her requirement. From the documents provided by the investor, the buyer can compare with the information gathered from the relevant authorities such as Department of Natural Resources and Environment, Department of Construction, Department of Planning and Architecture about the project being currently sold.
Recently, many real estate investors whisper to each other how to identify the legal basis for the project they intend to buy, that they will get a loan from the bank, even without demand. The reason is that banks are very strict in lending, so by the loan, the buyer can " base on" the bank to appraise the legality of the project they intend to buy.
Besides the legal documents of project, before signing the purchase and sale contract, the buyer also needs to carefully read the clauses of the contract and pay attention that the contract signer must be the legal representative or person authorized by the legal representative of the investor (with a legitimate authorization letter).
Thus, if you do not check or check and then you recognize your transaction insufficiently meets the above conditions, our advice is " do not buy", especially when it does not sufficiently meet 03 conditions on the Fifth, Sixth and Seventh mentioned above. If you bought or signed a contract without sufficient conditions, you should re-deal with the seller/investor about the legal documents of the project mentioned above. Besides that, you have to ask the investor about the ability to implement the project whether the completion and handover of the apartment on schedule or not, in order to adjust the signed contract/document for being suitable to the reality, to prevent not only a risk that the investor illegally appropriates capital, not receive the house on time, but also avoid waste of time and money to sue/denunciate in order to recover the amount paid to the investor.
Step 2: After sufficiently considering all legal factors and conditions, according to the provisions of Article 120 Law on Housing 2014, the parties of housing transaction agree to make a purchase and sale contract of the Off-the-plan with the contents stipulated in Article 121 of the Law on Housing 2014.
Step 3: The parties agree to have one party submit a document to require a competent state agency to issue a Certificate for that house; In case the buyer purchases or leases the project investor’s house, the investor has responsibility to perform the procedures that the state authority can issue the Certificate to the buyer or the lessee, except for the case when the buyer, the lessee voluntarily performs the application procedures of the Certificate.
Step 4: Notarizing and authenticating the contract. The time that the contract is in valid is the time of notarization and certification of the contract.
The notarization of housing contracts shall be performed at notary offices; The authentication of housing contracts shall be performed at the People's Committee of the commune where the house is located.
3. A few legal notes when customers buy the Off-the-plan
3.1 Payment in the purchase and sale of off the plan real estate
According to Article 57 of the Law on Real Estate Business 2014 stipulates that:
The payment in the sale, lease, purchase of the Off-the-plan is performed several times:
- Not more than 30% of the contract value for the first time;
- Subsequent times must be consistent with the progress of real estate construction, but the total amount must not exceed 70% of the contract value before handing over the house or construction to the customer;
Note: in case the seller, the lessor is a foreign-invested enterprise, the total amount must not exceed 50% of the contract value.
When the lessee has not been granted the certificate of land use rights and ownership of houses and other land-attached assets, then:
- The seller must not collect more than 95% of the contract value;
- The residual value of the contract is paid when the competent state agency has granted the certificate of land use rights and ownership of houses and other land attached assets to the buyer.
3.2 Right to transfer house purchase and sale contract
According to Article 58, Article 59 of the Law on Real Estate Business 2014 stipulates that:
Besides some basic rights, the parties also have the following rights and obligations:
- The buyer has the right to require the seller to "provide information on the progress" of the construction investment, the use of the advance payment and the actual inspection at the construction site;
- The seller is obliged to provide information on the progress of construction investment, the use of advance money and to support the buyer to actually inspect at the construction site.
Transfer of contracts for sale, purchase and lease-purchase of the Off-the-plan is the right of the buyer as stipulated in Article 59 Law on Real Estate Business 2014:
- The buyer has the right to transfer the purchase and sale contract of the Off-the-plan when the application document of the Certificate of land use right, ownership of the house and other land attached assets at, transferred to the buyer, has not been submitted to the state authority.
- The transfer of a contract of sale, purchase or lease-purchase of the Off-the-plan must be made in written form and CERTIFIED by the investor in the transfer document.
- The contract transferee is allowed to continually have the rights and obligations of the house buyer to the investor. The investor is responsible to favorably facilitate for the parties to transfer the contract and must not collect any costs related to the contract transfer.
- Lastly, the transferee of the house sale and purchase contract is granted a Certificate of land use rights and ownership of houses and other land-attached assets by the State authority under the Land Law.
Note: The contract transfer does not apply to social housing sale, purchase and lease-purchase contract.
In addition, the house buyers should also meet legal experts to receive detailed consultation of the project's legal documents, the content of the sale and purchase contract, and check it whether there are any ambiguous clauses which can be an adverse for the house buyers’ legitimate rights or not, etc.
