Contract structure in a condo-hotel project in Vietnam

In a condo-hotel project, the hotel developer sells hotel rooms to investors and offers a rental pool program which will be managed by a hotel operator after the hotel is constructed. The contract structure of a condo-hotel could be very complicated since it needs to address and allocate the needs and risks of among various parties including the hotel developer, condo owners, operator, and project lenders. In addition to these common issues, there are certain Vietnamese law issues for a condo-hotel project in Vietnam.

Hotel room vs. residential apartment: A condo-hotel room which usually has a kitchen is similar to a residential apartment (chung cư). However, if a condo-hotel is sold as a residential apartment, then various limitations under the Real Estate Law 2015 and Residential Housing Law 2015 will apply. In particular:

  • The operator of a residential apartment building is required to set up a company in Vietnam to provide the services. On the other hand, the operator of a hotel is not required to so. And in practice, most hotel operators in Vietnam do not set up a company in Vietnam to provide their services.
  • The common facilities and structures of an apartment building are jointly owned by the hotel developer and the apartment owners. Joint ownership will limit the hotel developer’s ability to maintain and renovate the hotel in accordance with brand standards of the operator.
  • An apartment building is run and managed by the “building owner meeting” (hội nghị nhà chung cư) and a building management board which is selected by the apartment owners. If a hotel is run and managed by a building owner meeting then conflicts between the hotel operator and the building management board about how the building should be run may arise.
  • The management fee in an apartment building is capped by local regulations. If a management fee is too low, then there may be insufficient fund to maintain the hotel in accordance with the brand standards.
  • From a zoning perspective, a residential apartment building may require a supporting school or kindergarten and a residential unit (tổ dân phố) both of which are not available in a hotel.

To avoid the Residential Housing Law 2015, both developers and owners need to agree that the condo-hotel is not a residential apartment. It is helpful that the Law on Tourist provides a concept of “tourism apartment” (căn hộ du lịch). While the concept is not clear, if a condo-hotel is regarded as a tourism apartment then it is arguable that the Residential Housing Law 2015 will not apply to the relationship between hotel developer and investors.

The role of hotel developer in the rental program: In the rental program, the hotel developer will “acquire” the hotel room from investors and engage a hotel operator in managing such rooms. Revenue from renting out the room (after deducting certain expenses) will be shared between the investors and the developer. In the contractual relationship with the investor, the developer could be:

  • A rental agent acting on behalf of the investor to rent out the hotel room to hotel visitors;
  • A lessor who leases the hotel room from the investor to sub-lease the hotel room to hotel visitors; or
  • A co-investor who “cooperates” with the investor via a business cooperation contract to jointly rent out the hotel room to hotel visitors.

It appears that a sale and leaseback arrangement would give the hotel developer more flexibility in dealing with the hotel room. However, a lease back agreement will need to be back-to-back consistent with the sale agreement and hotel management agreement.

Securities law issue: At the time being, unlike in the US, the concept of securities under the Securities Law 2006 seems not broad enough to capture a condo-hotel sale contract.