Under the Law on Real Estate 2014, a real estate developer must provide a bank guarantee to any house buyer to secure for the developer’s obligations to refund all advance payment received from the buyer if the developer fails to deliver the house to such buyers on time. The refund guarantee is intended to provide additional protection to house buyers but it also adds additional costs to the transaction. There are several structures for a developer and a house buyer may employ to avoid the requirement for a refund guarantee. But each of the structures carry certain legal risks. In particular,
- Buyer's direct waiver: A house buyer may directly waive its right to receive the bank guarantee from the developer and clearly include such waiver in the house purchase contract. On one hand, technically, (1) an agreement for not providing the bank guarantee does not violate any prohibition of laws, and (2) having a bank guarantee is not legally considered as a condition for the validity of the house purchase contract. Therefore, the inclusion of a waiver of refund guarantee should not affect the legal effect of the house purchase contract between the developer and the concerned buyer. One the other hand, without a refund guarantee, the developer may be regarded as violating the house selling procedures under Article 56.2 of the Law on Real Estate 2014, which requires the developer to “send the copy of the guarantee agreement to the house buyer when signing the house purchase contract”. In addition, such waiver may be viewed as a provision limiting a good trader’s obligations which is not permitted by the Law on Consumers Protection 2010. Another issue is that the omission of the information regarding bank guarantee in the house purchase contract may be regarded as not fully following the contents of the sample house purchase contract provided under Decree 76/2015.
- Buyer’s refusal to sign: A real estate developer may send a copy of the guarantee agreement to the house buyer. The buyer will refuse to sign the guarantee agreement. This structure is possible since the Law on Real Estate 2014 requires a “guarantee agreement” which requires signatures of both the bank and the buyer instead of a “guarantee letter” which only requires signatures of the bank. However, this structure may still fail to meet the requirement of “providing a guarantee agreement with the terms lasting until the delivery of the house to the buyer” under Article 56.2 of the Law on Real Estate 2014. In addition, a reasonable developer may feel reluctant to choose this arrangement if it does not have clear evidence of the buyer’s refusal to sign the guarantee agreement to prove that it is not at fault for not having a validly signed guarantee agreement. Further cooperation from the bank (e.g. a bank’s confirmation that the buyer does not return a signed guarantee agreement within the allowed time limit as indicated in the draft guarantee agreement) may be desirable to establish the evidence of the buyer’s refusal to sign the guarantee agreement.
- Waiver of performance: A buyer may also sign an effective guarantee agreement and subsequently serving a notice to the bank to waive the guarantee obligations. In doing so, the parties may have a waiver notice as a clear evidence of the buyer’s waiver of guarantee obligations. Under the Civil Code and Circular 7/2015 of the State Bank of Vietnam on bank guarantee, the legal effect of a waiver of guarantee obligations from the buyer is well recognized. However, a waiver of guarantee obligations from the buyer will effectively terminate the guarantee agreement and accordingly, the terms of the guarantee agreement may still not satisfy the requirement under Article 56.2 of the Law on Real Estate 2014 and Article 12.1(e) of Circular 7/2015. The parties may defend that the requirement on terms of the guarantee agreement is imposed upon the developer rather than upon the house buyer. Therefore, the waiver of guarantee obligations by the buyer which lead to the failure to maintain the terms of the guarantee agreement does not go against the purpose of the laws. Another concern is that (1) the execution of a guarantee agreement by a house buyer and (2) the immediate waiver of guarantee obligations by the same person may be viewed as a series of false transactions (giao dịch giả tạo) aimed at circumventing the statutory requirement of having developer refund guarantee. However, it may not be easy in practice to prove the causal link between the waiver of the bank’s guarantee obligations and the house purchase arrangement between the house buyer and the developer, which are two independent legal relations between the house buyer and two different contracting parties.
This post is contributed by Tran Thi Thu Thao, a VILAF associate.