Protecting homebuyers amid venture upheaval

By Nguyen Thanh Ha - Lawyer, SB Law

The mechanism for warning and protecting homebuyers in cases where the investor fails to fulfil obligations, the project is discontinued, or the investor withdraws from a project can be understood as a combination of legal regulations, methods, and measures to prevent risks and deal with consequences in order to ensure the legal rights and interests of the buyer.

Investor fails to fulfil obligations

The investor’s violation of obligations is common. There are cases where the investor commits to hand over a house within three years, but after 4-5 years, homebuyers still have not received the house. Or there may be a case that the investor has received a deposit from people but does not implement the project.

The assurance that investors will properly perform their responsibilities as well as protect the interests of home buyers can be carried out through self-defence measures and legal measures.

For the former, in order to protect their own interests, the buyer needs to pay attention to the terms of the contract. The issue of how the investor failing to perform or improperly performs the obligation will be fined, and how to compensate for damage, must be specified in the contract. Even the buyer can initiate a civil lawsuit against the investor if necessary.

As for legal measures, Vietnam sets out many regulations to protect homebuyers in transactions with investors. Accordingly, some include regulations on conditions of future real estate to be put into sale and purchase, and bank guarantees.

Not all real estate formed in the future can be put into business but must meet the conditions in Article 55 of the current Law on Real Estate Business. These real estate groups must have papers on land use rights, project documents, and construction drawings approved by competent authorities, as well as documents on acceptance of the completion of technical infrastructure construction.

In addition, the investor before selling future real estate must be guaranteed by a commercial bank that is capable of guaranteeing the investor’s financial obligations to the client when the investor does not hand over the house according to the schedule as committed to the client.

With such conditions, the law has contributed to limiting the risks that may occur to the buyer.

The project is discontinued

According to Article 47 of the Law on Investment, the entity which has the right to terminate a project is the owner, the state management agency in charge of investment, or the Prime Minister. The total downtime of an investment project is no more than 12 months.

However, if it is a project cessation under a court decision, an effective arbitral award, or a decision of a state management agency in charge of investment, the downtime of the project is determined according to a court decision, an arbitral award, or a decision of a state management agency in charge of investment.

The law stipulates that when the project is discontinued, the investor must notify the investment registration agency in writing, but there are no specific regulations on the responsibility to notify the buyers as well as the buyers’ rights being guaranteed when the project is halted.

In the case of an investment project cessation under a court decision, the law does not stipulate a maximum downtime, while, at the time of contract signing, many clients have to deposit an amount equivalent to 30 per cent of the contract value. Stopping the project without knowing when to continue will cause confusion for homebuyers, and the money they have deposited is considered “disabled”; it can neither can be recovered nor used. It can be seen that the current law lacks a mechanism to ensure the interests of the buyer when the investment project is discontinued.

The investor withdraws

At times, an investor has decided to terminate the operation of the project or transfer it to another party for implementation. According to Clause 8, Article 57 of Decree No.31/2021/ND-CP, after terminating the contract the investor must liquidate the project in accordance with the law. This liquidation obligation includes the investor obligation to return the buyers’ money.

However, practice shows that the common reason that investors give to withdraw from the project is that they no longer have financial capacity. Therefore, it is extremely difficult for buyers to receive money.

Transferring the project to another party with the capacity to perform is the more optimal solution in order to ensure the interests of the homebuyer when the investor withdraws from the project.

In fact, there are a number of real estate projects that have been slowed for many years that have been revived with the participation of other investors, giving hope to buyers.

It can be seen that, at present, the mechanism to ensure the legitimate rights and interests of buyers in home purchase transactions still has many legal loopholes. Therefore, people need to protect themselves to minimise risks.

Currently, the law does not stipulate that the investor is responsible for warning these disadvantages or risks, so having a legal advisor to point out the adverse consequences that the investor has may suffer is essential, which helps buyers get access to more information to make a decision to invest in this project or not.

In addition, when the investor violates the contract, the buyer can apply measures such as demanding compensation, fining for violations or requesting administrative sanctions. At this time, having a lawyer to support will help improve efficiency in the process.