Unusual obstacles for leasing of future properties under the Law on Real Estate Business 2023
Article 23.1 of Vietnam's 2023 Law on Real Estate Business explicitly allows real estate developers to sell future properties, such as houses, buildings, or floor areas within a building. However, the law is silent on the leasing of future properties (except for hire purchase transactions). This omission has led to uncertainty regarding the legality of such transactions.
On the one hand, leasing of future properties was clearly permitted in a similar Article of the Law on Real Estate Business 2014. Accordingly, one could argue that the omission of leasing from Article 23.1 of the Law on Real Estate Business 2023 indicates that a real estate developer cannot lease future properties.
On the other hand, the following arguments support the view that leasing of future properties is still permitted under the Law on Real Estate Business 2023:
It is difficult to understand the rationale for the Government to prohibit a real estate developer from leasing a future property while allowing the same property to be sold. Selling a property is usually more complicated than leasing one. Therefore, if selling future properties is permitted then there is no reason from prohibiting leasing future properties. Leasing is very common for commercial properties such as retail or office.
Under the Law on Residential Housing 2023, it appears that a developer of a commercial housing project is allowed to lease residential houses. If the draftsman of the Law on Real Estate Business 2023 really intends to prohibit leasing of future properties then the Law on Residential Housing 2023 should also remove the ability of a developer of a commercial housing project to lease houses.
If the Law on Real Estate Business 2023 prohibit leasing of future properties, it is not clear if the developer could receive deposit or bookings from customers in return for commitments to lease the properties when they are completed.
· Under other provisions of the Law on Real Estate Business 2023, a real estate developer is still allowed to lease properties in general which could include both existing properties and future properties.
In light of the above, the omission of leasing of future properties could well be a drafting mistake similar to the omission of the ability of a foreign invested company to lease properties for their operation under the Law on Real Estate Business 2014.
This post is written by Nguyen Quang Vu.