LEASE PURCHASE OF OFF-PLAN HOUSING AND GUARANTEE ISSUES

The purpose of a guarantee in off-plan housing transactions is to ensure the investor’s financial obligations to customers when the investor fails to comply with the commitment. Not only in sale and purchase transaction, the business of lease purchase of off-plan housing also places this requirement on investors. Applicable from January 1, 2025 according to the effectiveness of the Real Estate Business Law 2023, how is this issue guided?

What is lease purchase of off-plan housing?

Lease purchase of housing or building refers to the practice whereby the tenant-buyer is required to pay the landlord an agreed-upon upfront amount of the price of the housing or building (also called as option fee) which does not exceed 50% of the value of the agreement on lease purchase of the housing, building or the building’s floor area; the remaining amount shall be considered as rent expense which shall be monthly paid to the landlord within a specified period of time, unless otherwise agreed upon by the parties; at the end of the lease purchase period, the tenant-buyer shall be entitled to the ownership of the housing, building or the building’s floor area if he/she has fully paid the remaining amount.

Therein, off-plan housing or building means any housing or building which is under construction or has not yet undergone acceptance testing in accordance with regulations of the Construction Law.

How is the investor’s responsibility for implementing guarantee procedures regulated?

Before participate into lease purchase transaction off-plan housing, real estate project investors must obtain approval from a guarantor to issue guarantees for the investor’s financial obligations to the home purchaser. When the investor does not hand over the house as committed in the off-plan housing sale contract. In particular, the financial obligations mentioned here include the amount of money the investor has received in advance from the purchaser and other amount (if any) as agreed in the off-plan housing lease purchase contract signed.

The purpose of the guarantee is to ensure the investor’s financial capacity to solve problems arising from the construction process, maintain safety for users, and ensure that the construction works meet the requirements of the project in technic, safety and quality standards.

Can the lessee-purchaser refuse a guarantee when signing a lease purchase contract of off-plan housing?

Prioritizing the principle of respect for establishing agreements on the basis of freedom, the law allows parties to choose whether or not to have a guarantee for the investor’s financial obligations in the transaction of sale and purchasing off-plan real estate. However, it should be noted that this agreement of the parties must be recorded in writing at the time of signing the contract.

In case of agreement on the choice of guarantee, the guarantee bank will sign a guarantee agreement with the investor; issue letters of guarantee to lease purchase parties.

What is the scope, conditions, content and duration of the guarantee?

The scope of guarantee, conditions required to perform guarantee obligations, content and guarantee fees are agreed upon by the parties. All of this content is recorded in the guarantee agreement signed between the guarantor and the investor of the off-plan real estate.

The validity period must be specifically stated in the guarantee agreement signed between the guarantor and the project investor, and the guarantee letter from the guarantor for the leasee-purchaser of the off-plan housing.

>> PAYMENT FOR OFF-PLAN HOUSING TRANSACTION https://linconlaw.vn/payment-for-off-plan-housing-transaction/

>> APARTMENT LEASING CONTRACT, WHAT FOREIGNERS NEED TO KNOW https://linconlaw.vn/apartment-leasing-contract-what-foreigners-need-to-know/

What should the lessee-purchaser of off-plan housing pay attention to in order to enjoy the rights from the guarantee request?

The lessee and purchaser of off-plan housing has the right to request the investor to provide a letter of guarantee before making payment under the off-plan housing lease purchase contract. The specific time limit for providing the letter of guarantee is agreed upon by the parties. If there is no other agreement, the investor shall provide a letter of guarantee to the buyer within 10 working days from the date of signing the lease purchase contract for future housing.

In case the investor does not hand over the house as committed; If the financial obligations to the hire-purchaser are not performed or are not fully fulfilled, the guarantee bank can act on behalf of the investor to fulfill the financial obligations to the hire-purchaser in accordance with the commitment in the letter of guarantee. Note that the bank will only performs the guarantee obligation under the requests of lessee-purchaser.