Introduction
In recent years, the real estate business model involving the sale of off-plan housing (housing to be formed in the future) has become a common capital-raising method for property developers in Vietnam. Homebuyers often pay a substantial portion of the contract value before construction is completed, or even before construction has commenced. While this mechanism promotes the development of the real estate market, it simultaneously creates significant legal risks when developers breach their obligations, such as construction delays, failure to hand over the property, alterations to approved designs, or failure to complete procedures for issuance of ownership certificates.
Practical dispute resolution shows that homebuyers are frequently in a weaker position due to their dependence on project progress and the financial capacity of developers. Therefore, clearly identifying the legal rights of purchasers when developers breach contractual obligations is essential to protecting buyers’ interests and ensuring market stability. This article analyzes the provisions of the 2015 Civil Code, the Law on Real Estate Business, and the Housing Law to clarify mechanisms protecting purchasers of off-plan housing.
II. Concept and Legal Characteristics of Off-Plan Housing
Pursuant to Clause 19, Article 3 of the 2014 Law on Real Estate Business:
Houses or construction works formed in the future are those under construction and not yet accepted for use.
Key legal characteristics of this type of transaction include:
- The transacted asset does not yet exist in a completed form at the time of contract execution;
- Buyers make advance payments enabling the developer to implement the project;
- The legal relationship involves high risk because it depends on the developer’s performance of obligations.
Accordingly, the law imposes strict conditions to prevent unlawful capital mobilization.
Under Article 55 of the 2014 Law on Real Estate Business, off-plan housing may only be put into business when:
- Documents evidencing land use rights are available;
- Project dossiers and construction designs have been approved;
- A construction permit has been issued where required;
- Foundation construction has been completed for apartment buildings;
- A commercial bank provides a guarantee of the developer’s financial obligations.
These requirements aim to protect purchasers even before contract formation.
III. Legal Obligations of Developers Toward Homebuyers
In transactions involving off-plan housing, developers must simultaneously comply with obligations under civil law and specialized real estate legislation.
1. Contractual Obligations
Under Article 385 of the 2015 Civil Code, a contract is an agreement establishing rights and obligations between parties. Developers must:
- Construct the project according to the agreed schedule;
- Deliver the property in accordance with committed quality and design specifications;
- Carry out procedures for issuance of the Certificate of Ownership;
- Ensure the buyer’s lawful right to use the property.
Failure to fulfill these obligations gives rise to civil liability.
2. Obligations under the Law on Real Estate Business
Article 13 of the 2014 Law on Real Estate Business requires developers to:
- Provide truthful information about the project;
- Hand over housing in accordance with the committed schedule;
- Complete procedures for issuance of ownership certificates to purchasers.
Additionally, under Article 56 of the same law, developers must obtain a commercial bank guarantee securing the obligation to refund payments if the property is not delivered on time.
This constitutes a special protection mechanism for buyers.
IV. Common Breaches by Developers
Judicial practice indicates several common forms of violations:
- Construction delays or suspension of construction;
- Delivery of housing inconsistent with agreed design, area, or quality;
- Failure to carry out procedures for issuance of ownership certificates;
- Mortgaging the project to banks without releasing the mortgage;
- Capital mobilization without satisfying legal conditions.
These violations directly affect the proprietary rights of purchasers.
V. Rights of Homebuyers When Developers Breach Obligations
1. Right to Require Continued Performance of the Contract
Under Article 351 of the 2015 Civil Code, a breaching party must continue performing its obligations and bear civil liability. Buyers may request the developer to:
- Complete construction works;
- Deliver the property as agreed;
- Remedy construction defects.
2. Right to Claim Contractual Penalties and Damages
Article 418 of the Civil Code allows contractual penalties where agreed by the parties.
Under Article 360 of the 2015 Civil Code:
The obligor in breach must compensate for all damages caused.
Compensable damages may include:
- Rental expenses incurred due to delayed handover;
- Bank loan interest payments;
- Losses arising from inability to use the property.
3. Right to Unilaterally Terminate or Cancel the Contract
Pursuant to Article 428 of the 2015 Civil Code, a party suffering a serious breach may unilaterally terminate the contract.
In such cases, buyers may:
- Request refund of all amounts paid;
- Claim damages;
- Invoke the bank guarantee mechanism under Article 56 of the Law on Real Estate Business.
4. Right to Request Payment under Bank Guarantees
The bank guarantee mechanism represents a significant advancement in Vietnamese law. Where the developer fails to deliver the property on schedule, buyers may request the guaranteeing bank to refund payments in accordance with the guarantee commitment.
This mechanism helps mitigate risks arising from developer insolvency or financial incapacity.
5. Right to Initiate Legal Proceedings and Request State Intervention
Homebuyers may:
- File lawsuits before courts in accordance with the Civil Procedure Code;
- Submit complaints or denunciations to construction or real estate regulatory authorities;
- Request administrative sanctions against violating developers.
VI. Limitations of the Current Legal Framework
Despite existing protections, several shortcomings remain:
- Bank guarantees are not consistently implemented in practice;
- Standard-form contracts often favor developers;
- Prolonged dispute resolution processes negatively affect buyers’ interests;
- No mechanism currently exists to freeze project cash flows to protect purchasers.
VII. Recommendations for Legal Improvement
To strengthen buyer protection, the law should:
- Require mandatory disclosure of bank guarantee agreements before property sales;
- Strictly control funds mobilized from purchasers;
- Standardize contracts for off-plan housing transactions;
- Increase sanctions for unlawful capital mobilization;
- Establish expedited dispute resolution mechanisms for real estate disputes.
VIII. Conclusion
Off-plan housing represents an important business model within Vietnam’s real estate market but entails significant legal risks for purchasers. Vietnamese law has established multiple protective mechanisms, including bank guarantees, compensation liability, and termination rights. Nevertheless, in practice, buyers often remain in a weaker position due to information asymmetry and disparities in financial capacity between parties.
Accordingly, continued legal reform aimed at strengthening developer oversight, protecting purchasers’ property rights, and improving enforcement effectiveness is necessary to ensure transparent and sustainable development of Vietnam’s real estate market.
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Khuong Ngoc Lan