The most common form of security which is created over houses and buildings is mortgage (thế chấp). However, the Civil Code 2015 also provides for other forms of securities. In this blog, we will discuss whether other forms of securities could be created over houses and buildings.

Pledge (Cầm cố) – Unlikely

Pledge of property means the delivery by one party of “property” under its ownership to another party as security for the performance of an obligation. Since the term “property” includes both moveable properties and immovable properties, it is arguable that a pledge could be created over houses and buildings being immovable properties. However, Article 310.2 of the Civil Code 2015 provides that “Where an immoveable property is the subject matter of a pledge in accordance with law, the pledge of the immoveable property shall be enforceable against a third person as from the time of registration.”

Reference to “in accordance with law” suggests that pledge could only be created over an immovable property if a law specifically allows it. However, currently the Land Law 2024 and the Residentially Housing Law 2023 only specifically allow mortgages to be created over residential houses or assets attached to land.

There are two possible interpretation of this provision:

· Interpretation 1: this provision only deals with validity against a third person. Therefore, a pledge over immovable property can still be created even if other laws do not specifically provide for it. And the pledge when created is only valid as between the parties; or

· Interpretation 2: this provision applies to all situations. Therefore, a pledge over immovable property can only be created even if other laws specifically allow so.

Performance bonds (Đặt cọc) – Possible

Performance bond means a sum of money, precious metals, gemstones or other valuable objects (performance bond property) delivered by one party (the depositor) to another party (the recipient of a performance bond) for a period of time as security for the entering into or performance of a contract. A house or building is a valuable object and therefore could be used for creating a performance bond.

There is one question though. It is not clear if a house or building which does not have a title certificate yet can still be considered as a valuable object (vật có giá trị).

Security deposits (Ký cược) – Possible

Security deposit means a sum of money, precious metals, gemstones or other valuable objects delivered by a lessee of moveable property to the lessor for a period of time as security for the return of the leased property. Similar to performance bond, a house or building could be used as security deposit.

Escrow deposits (Ký quỹ) – Not possible

Escrow deposit means a sum of money, precious metals, gemstones or other valuable papers deposited by an obligor into an escrow account at a credit institution as security for the performance of an obligation. A house or building does not fall under the list of properties which can be used as escrow deposit.

Reservation of title (Bảo lưu quyền sở hữu) – Partially possible

Pursuant to a purchase and sale contract, the ownership right to a property may be reserved by the seller until the time when the obligation to make payment is fully discharged. Since a house or building could be a subject of a sale and purchase contract, it is arguable that one can reserve the title over a house or building. However, reservation of title can only effective against a third party upon registration. In practice, it would likely be very difficult to register a reservation of title over a house or building with the National Registration Agency of Secured Transaction.

Guarantees – Not applicable

Guarantee means an undertaking made by a third person to an obligee to perform an obligation on behalf of an obligor (the principal) if the obligation falls due and the principal fails to perform or performs incorrectly the obligation . Since guarantee is an undertaking, this form of security is not applicable to houses and buildings.

Retaining property or lien (Cầm giữ tài sản) – Likely possible

Retaining property means the obligee (the retaining party) currently lawfully holding property being the subject matter of a bilateral contract will be permitted to continue to retain the property when the obligor fails to perform the obligation or performs incorrectly the obligation. The term “property” includes both movable properties and immovable properties. In addition, a house or building could be a subject matter of a bilateral contract (e.g., a lease contract). Therefore, a house or building could be subject to the retaining property. In addition, retaining property does not require registration and could take effect against third persons from the time when the retaining party holds the property.

This post is written by Nguyen Quang Vu.

Vietnam Business Law