DISCUSSING THE STATUTORINESS OF CONTRACT FORMS IN REAL ESTATE BUSINESS

DISCUSSING THE statutoriness of contract forms in real estate business

[1] The Government on 06 January 2022 issued the Decree No.02/2022/NĐ-CP detailing the implementation of a number of articles of the Law on Real Estate Business (“Decree No.02”). It took effect from 01 March 2022 and replaced the Decree No. 76/2015/NĐ-CP (“Decree No.76”). One of the most outstanding amendments lies in Article 6. Accordingly, transactions including sale, transfer, lease, lease-purchase, re-lease and transfer of real estate projects are required to follow contract forms specified in Appendixes of this Decree. It, however, comes to several questions. Are all current real estate transactions boxed within the contents of contract forms in this Decree? Or are there availabilities for freedom of negotiations in those contract forms? This writing reveals some possible answers for the questions.

Previously, the Decree No.76 provided 05 types of contract forms in the real estate area. However, Article 7 of this Decree clearly stated that such contract forms were for the purpose of reference only. Even when the contract forms were chosen, adjustments or supplementations were probably there provided that the following principles were complied with: (i) main contents as prescribed in Article 18, Article 47 and Article 53 of the Law on Real Estate Business No. 66/2014/QH13 (“Law on Real Estate Business”) remained and (ii) contents agreed by parties in their contracts shall not be against legal provisions. Obviously, the Decree No.76 respected the freedom of negotiation in real estate business relationship and gave parties the rights to use/add contents in line with their wills and negotiations in transaction contracts. The right of freedom of negotiations previously given in the Decree No.76 is considerably changed by new provisions in the Decree No.02.

[2] Article 6 of the Decree No.02 prescribes eight types of contract forms and requires transactions in real estate business to be compliant with. An uplift has been given to legal validity of contract forms when they become statutory in all real estate business transactions. However, official guidance or explanation from competent authorities on how to apply the contract forms is still in the mist of nowhere. Hence, various understandings in practical implementation are coming, specifically:

(i) The first understanding: the application of contract forms is absolutely compulsory. Accordingly, negotiations of parties are required to strictly follow contents of the contract forms without any adjustments or supplementations when the contract forms do not clearly allow to do so.

(ii) The second understanding: The contract forms are relatively compulsory. Under this point of view, major contents of the contract forms shall be adopted but not by means of words by words. Depending on the specific case, parties could manipulate other contents to their contracts. Moreover, details of each article in their contracts shall be in accordance with their wills and not against contents of the contract forms, legal principles and ethnic values.

[3] In our opinion, practical applicability of the second understanding could be considered due to the following reasons:

(i) Article 18 of the Law on Real Estate Business prescribes that, in general, at least twelve contents must be included in estate business contracts. However, the freedom of negotiation by parties is not blocked by any restrictions. Only major contents are required while other details are freely floating with agreements and negotiations of parties. Additionally, contents of contract forms seemingly elaborate regulations in Article 18 by presenting major and basic contents that must be available in a real estate business contract.

Thus, the first understanding is probably not consistent with the spirit of the Law on Real Estate Business. When different legal documents govern the same issue, the Law on Real Estate Business with higher value shall prevail[1].

(ii) Relationships in real estate business are basically and essentially a civil one and governed by the Civil Code. One of the basic principles in Article 3.2 of the Civil Code 2015 is “the establishment, performance, termination of civil rights and obligations of parties shall be on the basis of free and voluntary commitments and agreements provided that all commitments and agreements are not against legal provisions, ethnic values and are binding to all contracting parties and respected by other parties”.

[4] We have gone through some in-depth discussions with employees of several enterprises operating in the real estate field. It is noted that their most concern is how to clearly apply contract forms of the Decree No.02 in their business activities. In general, the drafting of real estate contracts (including a leasing contract) is more in favor of the second understanding. As revealed by enterprises, the strict application of contract forms as specified in Article 6 of the Decree No.02 will lead enterprises to a frozen status and the signed contracts will not be a safe instrument for contracting parties when they are not able to adjust and supplement fixed contents in contract forms.

Practically and unofficially, enterprises adopt contents and regulations of contract forms of the Decree No.02 and equip with appendixes for the purpose of explaining and clarifying terms that are not included or elaborated in the main contracts.

Regardless of either way, actual risks are underlying when competent authorities affirm that contents of contract forms in the Decree No.02 are fixed with no supplementation or adjustment to be allowed, except for apparent permit by the contract forms. In the event of violations, enterprises may face administrative penalties from VND100 million to VND120 million and are forced to be in conformity with contract forms[2].

[5] It has been nearly one year since the issuance and effect of the Decree No.02 with countless transactions in the real estate field throughout the country. However, there has still not been any official guiding documents from competent authorities in respect to Article 6 of the Decree No.02 while individuals, organizations and enterprises involved in real estate business are still cooling their heels. When it comes, a worry-free environment for relevant parties in real estate business will be created, helping to eliminate the risks of being fined or sanctioned in real estate activities.

Timely guidance will not only ensure the enforcement of legal provisions in real estate business but also create a legal corridor for relevant parties to actively use their rights of freedom of negotiation in real estate transactions.

LE TUNG ANH

INVESTCONSULT LEGAL SERVICES CO.,LTD

[1] Article 156.2 of the Law on the Law on Promulgation of Legal Documents No.80/2015/QH13

[2] Article 58.1.c of the Decree No. 16/2022/NĐ-CP regulates the fine from 100,000,000 VND to 120,000,000 VND for one of the following violations:

“c. Real estate business contracts not in written forms or real estate business contracts having no sufficiency of main contents as prescribed by laws or contents not to be compliant with laws.”

Article 58.6.b prescribes remedies as “Be forced to follow contract forms with violation at point c clause 1 of this Article”