03 RISKS IN THE PERFORMANCE OF AN OFF-THE-PLAN REAL ESTATE SALES CONTRACT

The parties of an off-the-plan real estate sales contract must strictly perform their obligations under their commitments regarding the object, term, method, location, and other contents in the Contract. This ensures that the responsibilities of a party correspond to the interests of the other party. However, in reality, it depends on many factors to say whether the parties properly and fully implement the provisions as committed in the Contract or not. Accordingly, in this article, we hereby mention and analyze 03 risks that the buyer may encounter when performing an off-the-plan real estate sales contract.

1. The investor requests the purchaser to pay in excess of the legal limit

Under Article 57.1 of the 2014 Law on Real Estate Trading on Payment for an off-the-plan real estate sale or lease purchase, the payment for an off-the-plan real estate sale is made in many installments as follows:

(i) The initial installment do not exceed 30% of the agreement value;

(ii) The next installments shall be conformable with real estate construction progress provided that the total installment does not exceed 70% of the agreement value if the building has been not transferred to clients. If the seller is a foreign-invested enterprise, the total installment does not exceed 50% of the agreement value.

Therefore, the purchaser can base on the above regulations to apply and make payment of the Contract in many installments. In case the Investor requests the purchaser to pay over the percentage of the contract value under the law or proposes the purchaser to additionally sign an Addendum of the Contract to request the purchaser to make supplementary payment, the purchaser has the right to refuse this proposal of the Investor.

Besides, for the payment issue, under Article 57.1 of the 2014 Law on Real Estate Trading, the seller shall not collect payment exceeding 95% of the agreement value before the purchaser is granted the Certificate of land use rights (referred to as LURC). Therefore, the purchaser notes to agree with the investor that the payment of 100% of the contract value will be completed after the LURC is granted for the purchaser. This provision helps to avoid the situation that the buyer has paid in full but the Investor has made it difficult to support the procedure for granting LURC.

2. The investor is late on handing over the house/real estate

In reality, it has been quite common that Investors are late on handing over the house/real estate. In addition, there are often many investors delaying and prolonging their obligation to hand over the house/real estate to the purchaser without compensation for their delay due to their given reason as “market practice”. This behavior of the investor seriously affects the legitimate rights and interests of the purchaser.

Under Article 23 of the 2014 Law on Real Estate Trading on the rights of the purchaser and Article 16.2 of the 2014 Law on Real Estate Trading on payment in real estate transactions, the penalty and compensation for damage due to the delay in payment or the delay in handing over the real estate shall be agreed upon by the parties and must be clearly stated in the Contract. Therefore, the purchaser has the right to request the Investor to comply with the agreed time limit for handing over under the Contract and to request the Investor to compensate for damage caused by the delayed handover according to the compensation rate specified in the Contract between the parties.

In addition, under Article 57.6.h of Decree No. 139/2017/ND-CP, the Investor shall be forced to reimburse the amount paid by the purchaser for real estate if the purchaser requests the Investor to reimburse and compensate for the damage (if any).

Therefore, if the Investor fails to hand over the house/real estate on time and with the quality as committed in the Contract, the purchaser has the right to:

(i) Request to hand over the house/real estate on time; in case the Investor delays in handing over and the purchaser agrees, the purchaser can accept the delayed handover of the house/real estate and request the damage compensation, the penalty due to the violation of the handover time limit under the rate of compensation and penalty specified in the Contract between the parties; or

(ii) In case the purchaser disagrees with the delayed handover, the purchaser can request the Investor not to continue to perform the contract. At that time, the purchaser has the right to request the Investor to reimburse the amount paid to the Investor by the purchaser as well as to request the Investor to be responsible for damage compensation and penalty (if the Contract stipulates that).

3. The investor does not comply with the commitments of the Contract in the house/real estate handover

In reality, many Investors handed over the house/real estate without ensuring the construction quality, design, structure as introduced and advertised; or not like the previous model; or the enclosed utilities and services did not meet the quality, even though there are many construction defects such as standing water floors, improper design and quantity, unreasonable installation of sockets, the actual area smaller than the area of contractual commitments… And when the purchaser discussed the above construction defects, the Investor promised to replace the products for better or at least equivalent quality. However, when the purchaser requested the list of replacement materials and products as well as the comparison of equivalent quality as promised by the Investor, the Investor refused to provide them.

In this case, the house/real estate handover which is not in accordance with the initial commitment is in violation of Article 12 of the 2014 Law on Real Estate Trading on requirements in terms of real estate projects to be put on the market. Therefore, the purchaser can request the Investor to remedy the violation or negotiate a price reduction. If the Investor has not remedied or is unable to remedy the violation, the purchaser can request the Investor to compensate for damage since the quality is not under the commitment. It notes that in case the parties have not reached the agreement of compensation or the Investor has not completed the remedy for the quality defect as agreed by the parties, the purchaser should not proceed to sign the minutes of the house/real estate handover with the Investor.

To prevent the above risks and ensure the maximal legal protection for the legitimate rights and interests of the purchaser during the performance of an off-the-plan real estate sales contract, the purchaser needs to be thorough and careful in requesting the Investor to provide information on the progress of construction investment, the use of the advance payment, and also proactively inspect in reality at the construction site for the Project.

With the above legal analysis and sharing, we hope this article will help you avoid the risks when participating in off-the-plan real estate transactions.

Best regards.

TNTP & Associates International Law Firm