Legal Alert No.01 – January 2022

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New Legal Framework for Real Estate Business Under Decree 02/2022/ND-CP

On 06 January 2022, the Government issued Decree 02/2022/ND-CP (“Decree 02/2022”) detailing the implementation of a number of articles of the Law on Real Estate Business. Decree 02/2022 will take effect from 01 March 2022, replacing Decree 76/2015/ND-CP.

1. The legal capital of at least VND 20 billion is no longer a requirement for real estate enterprises

According to Article 4.1 of Decree 02/2022, organizations and individuals trading in real estate (except for organizations, households and individuals that sell, transfer, lease, lease-purchase real estate irregularly on a small scale) must meet the following 3 groups of conditions:

• Must establish an enterprise in accordance with the law on enterprises or establish a cooperative in accordance with the law on cooperatives, with a business line related to real estate;
• Must publicize the enterprise’s information (including name, head office address, contact phone number, name of the legal representative) on its website, at the headquarter of the Project Management Board (real estate investment projects), at the real estate trading floor (in case of doing business through a real estate trading floor), and also information about the properties that are put into business as prescribed in Article 6.2 of the Law on Real Estate Business, information on mortgage of houses, construction works, real estate projects (if any), information on quantity and type of real estate products being traded, quantity and type of real estate products sold, transferred, leased and purchased and the remaining quantity and types of products being sold. If the information that has been made public is subsequently changed, it must be promptly updated immediately after the change; and
• Only trading in the real estate that meets the conditions specified in Article 9 (real estate put into business) and Article 55 (real estate formed in the future and put into business) of the Law on Real Estate Business.

Thus, compared to Decree 76/2015/ND-CP, Decree 02/2022 has removed the condition that real estate enterprises must have a legal capital of not less than VND20 billion and added the condition of information disclosure.

2. Equity of the investor who is selected as the investor of a real estate project

Article 4.2 of Decree 02/2022 stipulates that if an investor is selected as the investor of a real estate project in accordance with law, that investor must have an equity of at least 20% of the total investment capital for projects with a land use area of less than 20 hectares, at least 15% of the total investment capital for projects with a land use area of 20 hectares or more.

In which, the equity is determined based on the most recent audited financial statements or the independent audit report made in the year of engaging in real estate business or the year preceding the year of engaging in real estate business. In particular, in the case of a newly established enterprise, the equity shall be determined according to the actual contributed charter capital instead of the committed amount of charter capital.

3. Real estate business contract

According to Decree 76/2015/ND-CP, the contract forms in real estate business issued under the Decree are only for reference by the parties during the contract negotiation process, but now according to Decree 02/2022, the parties must use the contract forms specified in this Decree. These contract forms include:

• Contract for sale, or lease-purchase of condominium units;
• Contract for sale, or lease-purchase of condotel units, accommodation-combined office apartments;
• Contracts for sale, or lease-purchase of individual houses;
• Contracts for sale, or lease-purchase of houses and other construction works;
• Contracts for leasing houses and construction works;
• Contract for transfer of land use rights;
• Contract for transfer of the whole (or part) of the real estate project.

4. Conditions and procedures for transferring contracts for sale, or lease-purchase of houses formed in the future and lease-purchase contracts for existing houses and construction works

According to Article 7 of Decree 02/2022, the transfer of contracts for sale, or lease-purchase of houses formed in the future and lease-purchase contracts for existing houses and construction works (except for contracts for sale, or lease-purchase of social housing) must meet the following 4 conditions:

• Having a sale or lease-purchase contract made in accordance with regulations; in case the parties have signed the contract before 01/03/2022, the signed contract must be included;
• Falling into the category in which applications have not been submitted to a competent state agency for a certificate of land use rights and ownership of houses and other land-attached assets;
• Contracts for sale or lease-purchase of houses or construction works that must be free from disputes or legal actions; and
• Houses or construction works under the sale or lease-purchase contracts are not subject to distraint or mortgage to secure the performance of obligations as prescribed by law, unless otherwise agreed by the mortgagee.

Note that the transfer of contracts for sale or lease-purchase of houses and construction works is done for the entire contract. In case of sale or lease-purchase of many houses or construction works under the same contract and the parties wish to transfer each house or construction work separately, the transferor must negotiate with the investor to amend the contract for sale, or lease-purchase of houses or construction works or sign an appendix to the contract before transferring the contract.

Regarding procedures, the parties should note the following new points:

• The transfer document must be made in 06 copies, instead of 04 as prescribed in Decree 76/2015, including 02 copies kept by the investor, 01 submitted to the tax authority, 01 submitted to the agency to apply for the Certificate, 01 copy kept by the transferor of the contract, and 01 copy kept by the transferee of the contract. In case notarization is required, one additional copy must be provided for the notarial practice organization.
• One of the documents in the application file for certification of the transfer contract by the notarial practice organization is: the original contract or the contract appendix showing the transferred house or construction work signed with the investor in case of transfer of one or several houses or construction works out of the total number of houses and construction works that have been lease-purchased under the contract; papers proving the amount of money the transferor has paid to the investor; the original or a certified true copy of the minutes of handing over the house or construction work (if any)
• For a real estate enterprise that accepts transfer of a contract, within a maximum of 5 days from the date of completion of the transfer, it must send a written notice of contract transfer to the central housing management agency for supervision and records.

5. Principles for transferring the whole or part of a real estate project

According to Article 9 of Decree 02/2022, the transfer of all or part of a real estate project must follow the following principles:

• The transfer of the whole or part of a real estate project shall be effected when it meets all the applicable conditions specified in Article 49 of the Law on Real Estate Business in case the project is being implemented according to the approved project schedule and contents.
• For real estate projects in which investors are approved and real estate projects which are granted with investment registration certificates in accordance with the Law on Investment 2020, the transfer shall be carried out in accordance with the law on investment.
• For real estate projects not specified in item (2) above, the transfer shall be carried out in accordance with the Law on Real Estate Business and Decree 02/2022.

In particular, Decree 02/2022 clearly defines:

• Transfer of the entire real estate project is the case when the investor transfers the entire real estate project, lawful rights, obligations and interests of the investor and related parties (if any) to the transferee through a contract made in writing according to Decree 02/2022 and approved by the competent State agency.

• Transfer of part of a real estate project is the case when the investor transfers to the transferee part of a real estate project that he is permitted to transfer, and lawful rights, obligations and interests of the investor and related parties (if any) for such part of the project through a contract made in writing according to Decree 02/2022 and approved by the competent State agency.

6. Detailing the procedures for transferring the whole or part of a real estate project of which the investment is decided by the provincial People’s Committee or the Prime Minister

Accordingly, Articles 11 and 12 of Decree 02/2022 details the procedures for transferring all and part of real estate projects, notably:

• The transferor and the transferee must complete the signing of a transfer contract within a maximum of 30 days from the date of the decision allowing the transfer of the real estate project or part of the project. The contract for transfer of the project or part of the project is concurrently the contract for the transfer of land use rights of the project or part of the project (except for the case of annual land rental payment).
• After signing the contract, the parties must pay taxes and fees and hand over the project documents. The handover must be made in writing and signed by the parties. The transferee is entitled to continue implementing the project or part of the project after fulfilling its tax and fee payment obligations and receiving the handover of the project or part of the project;
• At least 15 days before the handover procedure, the transferor must notify in writing all customers and related parties and publish the notice at least 03 consecutive times in a local newspaper or on a television channel (central or local) about the transfer of the project or part thereof. In case the customer or related parties make claims about the transferred project or part thereof regarding their interests, the transferor must settle the issue before carrying out the handover procedures.

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The post Legal Alert No.01 – January 2022 appeared first on Global Vietnam Lawyers.

source https://gvlawyers.com.vn/legal-alert-no-01-january-2022/

Contract breach and criminal liability after Covid-19

GV Lawyers would like to introduce our valued readers an article by Lawyer Hoang Thi Hoai Thu and Assistant Attorney Nguyen Cong Duy Thong titled “Contract breach and criminal liability after Covid-19” posted on the Vietnam Lawyers Electronic Journal on 28/10/2021.

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(LSVN) – A breach of a contractual obligation is not a crime, a person who violates a contractual obligation, whether an individual or a commercial legal entity, will only take civil liability towards the breached party. However, for each specific case, if the party violating the contract is an individual, intentionally evading in order to appropriate the aggrieved party’s property, that individual may be examined for criminal prosecution.

The Covid-19 epidemic has been causing a lot of difficulties to the Vietnamese economy in general and the provinces under its direct impact in particular. Many measures to limit the epidemic spread have been implemented, including social distancing according to Directive 16/CT-TTg dated 31/03/2021 of the Prime Minister. Accordingly, businesses providing non-essential services must suspend operations. For businesses that are allowed to operate, they must meet the epidemic prevention and control conditions and carry out production and business in the form of “3 on-site” operation or “1 route between 2 places” movement, and at the same time must ensure carry out periodic testing for the workforce at the enterprise.

This situation has thrown into difficulties not only suspended businesses but also businesses that are allowed to operate. As a result, many contracts have been signed but one or more parties cannot meet the agreed terms, leading to a breach of contractual obligations, even a “break of contract” is predictable in many transactions. Faced with such situation, many businesses and individuals have worried whether businesses or individuals breaching contractual obligations due to any epidemic or other obstacles will have to bear criminal responsibility, or whether they merely take civil liability towards the violated party?

In what cases will they be criminally penalized for breach of contractual obligations?

Criminal liability is the offender’s responsibility for bearing the impact of the State’s coercive measures and the penalties prescribed by the penal code. This is the responsibility to bear the legal consequences of criminal acts against the State, not against the person or organization whose legitimate rights or interests are directly infringed by the criminal act. The purpose of criminal liability is to deprive or limit the offenders of some legitimate rights or interests, to punish, and at the same time to educate them to obey the law, not to re-offend, commit a new crime.

According to the Civil Code 2015 (CC 2015), the Commercial Law 2005, the party that violates the contractual obligations will have to bear civil liability towards the breached party. In fact, many cases of breaching contractual obligations and having to bear civil liability but intentionally evading performance of the responsibility towards the aggrieved party, since then the breaching party has suffered criminal liability in belated regrets as in the following cases:

N.V.T., former Deputy Chief Justice of a District People’s Court, signed a credit contract with a bank to borrow VND 250 million, with a loan term of 36 months from 08/07/2014. T. has paid the debt until 25/12/2014. After that, the bank repeatedly asked T. to pay and even went to T.’s office to notify the overdue debt. T. signed a working record and overdue debt notice but failed to do so, and fled his residence. On 06/04/2020, T. was arrested under a wanted warrant. After the process of investigation, prosecution and trial, the Trial Panel sentenced T. to 30 months in prison for the crime of “abusing trust to appropriate property”.

It can be seen that with the act of violating the debt repayment obligation under the credit contract, T. should only have been held civilly responsible to the bank, but T.’s intentional escape so as to evade payment of the debt and appropriate the bank’s money has constituted a crime and was prosecuted for criminal liability.

The said example is the case of an individual who violates his contractual obligations and incurs legal liability when he intentionally evades. So, what will be the responsibility of commercial legal entities that violate the contract, is it possible to be prosecuted for criminal liability?

According to the Criminal Code 2015, commercial legal entities are only criminally responsible for certain crimes such as “Smuggling”, “Illegal transportation of goods and currency across borders”, “Manufacturing and trading in counterfeit goods”;… Beyond this scope, the commercial legal entity will not be charged with other counts. Therefore, if violating a contractual obligation, then intentionally evading the performance of civil liability, the commercial legal entity may be subject to the application of the prescribed measures by the competent authority to force the performance of civil liability towards the aggrieved party.

In short, a breach of a contractual obligation is not a crime, the person who violates a contractual obligation, whether an individual or a commercial legal entity, will only be liable to the aggrieved party.  However, for each specific case, if the party violating the contract is an individual intentionally evading in order to appropriate the aggrieved party’s property, that individual may be examined for criminal prosecution.

It is whether a violation of contractual obligations caused by the Covid-19 epidemic will be criminally responsible.

According to the CC 2015, the obligor that violates the obligation shall bear civil liability towards the obligee. However, not in every case the violator shall bear civil liability towards the aggrieved party. For example, if the breaching party fails to properly perform its obligations due to a force majeure event or due to the implementation of a decision of a competent state management agency that the parties cannot know at the time of entering into the contract, violating parties are not liable for civil liability, unless otherwise agreed or otherwise provided by law in accordance with the CC 2015 and the Commercial Law 2005.

Upon applying the said exemption provisions to the case where a contract has been signed but either party cannot perform its obligations in the context of the outbreak of the Covid-19 epidemic, the following possibilities may arise: (i) the parties could not have foreseen the outbreak of an epidemic, when an epidemic occurred, either party tried all ways but could not perform its obligations, (ii) not directly from the epidemic but due to a decision on the implementation of social distancing by the competent authority where either party is forced to breach its obligations without overcoming this despite having tried every way. Depending on each case, the Covid-19 epidemic or a decision of a competent authority will become a force majeure event, enabling the violating party to be exempted from civil liability towards the violated party. In this case, the violating party will not be prosecuted for penal liability because it only violates the civil obligation due to force majeure events, and does not intentionally appropriate the property of the aggrieved party. However, it should be noted that the violating party should not arbitrarily refer to the Covid-19 epidemic or a decision of a competent authority as a force majeure event in order to be exempted from performing obligations and from civil liability. Because, if the breaching party fails to perform its contractual obligations and the conditions of force majeure events (objective, unforeseen, irreparable) are not guaranteed, the breaching party is likely to bear legal consequences.

In addition, if the force majeure event no longer exists, that is, the epidemic situation improves or the decision of the competent authority on social distancing is abolished, the violating party that is no longer hindered by force majeure event must be obliged to continue to perform the contract (unless the parties agree to terminate the contract). At that time, if the violating party fails to perform its obligations, intentionally evades it in order to appropriate the property of the violated party, it is likely that the violating party will be examined for criminal prosecution.

Solutions for the parties to protect their legitimate rights and interests

Currently, social distancing has been eased, but epidemic control measures are still being strengthened. Businesses have gradually resumed operations, but have not yet been able to recover immediately under the “new normalcy”. Therefore, the violation incidents and their consequences will be difficult to handle satisfactorily and promptly. In order to be able to maintain the partnership but still legally protect their interests in order to survive and develop in the “new normalcy” and “living with the epidemic”, the question is raised: what businesses and individuals who signed the contract should do?

For the breached party: If it is not possible to negotiate together, depending on the subject that has entered into the contract, the aggrieved party may choose the appropriate solution as follows:

– If the subject entering into a contract with them is a commercial legal entity or other organizations, the two parties may request an intermediary mediation unit or competent jurisdiction to resolve the dispute.

– If the subject of entering the contract with him is an individual, the violating party can also choose the said settlement method. However, when realizing that the violating individuals intentionally appropriate their property, the aggrieved party may request the competent authority to examine and impose the criminal liability on the violator, and at the same time any claim for damages.

For the violating party: Evading the performance of obligations is not be allowed, it should be proactive in proposing possible solutions for the parties to consider and come to an agreement. In addition, it is necessary to stay calm before threats to criminalize civil disputes because they may just be groundless accusations to pressure the violator.

At the same time, the violating party can contact law-practicing organizations for advice and assistance in negotiating with the aggrieved party as well as avoiding potential risks and minimizing the risk of constituting any crime.

 

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The post Contract breach and criminal liability after Covid-19 appeared first on Global Vietnam Lawyers.

source https://gvlawyers.com.vn/contract-breach-and-criminal-liability-after-covid-19/