LEGAL UPDATE: Did you know that there has been some new development on issues relating to condotels in Vietnam?

As youmay be aware, developers and buyers of condotel projects have been plagued bytheir misunderstanding of the legal regime as to what can the developers sellto ‘buyers’ and what rights to ‘buyers’ of such condotels have. We discuss someof these issues in our article in April 2019:

Cleaning up condotel legislation in Vietnam

We are now pleased to report that on 14February, the Ministry of Natural Resources and Environment (“MONRE“)issued an official letter to the lower Departments of Natural Resources andEnvironment (“DONREs”) in all cities and provinces in Vietnam toguide:

1.     The regime for land use in respect of non-residential real estate projects; and

2.     The certification of ownership rights in respect of construction works/buildings on non-residential land projects.

We highlight the salient points of the letter below.

1.     On the land use right regime for non-residential realestate projects

MONRE confirms in the letter that accordingto the Law on Tourism, condotels and resort villas are categorised as facilitiesbuilt for tourism purposes and for the provision of tourism accommodationservices.

As such, the Land Law classifies all land userights (“LURs”) issued for the purpose to provide tourism/resort accommodationservices as ‘commercial’ land.

As such, the State will lease such land userights to investors to be uses for commercial purpose as part of theirtourism/resort investment.

 Theterm will not exceed 50 years, 70 years in special circumstances.

The State, however, will consider extensionof the land use term upon its expiry if the land user still has the need tocontinue to use the land.

The above is not new. MONRE is simplyreconfirming that resort development projects are not residential projects andthe term of use is limited by duration.

This means that the land user does not havefreehold or ‘long-term’ use of the land and therefore cannot transfer freeholdto any buyer.

2.     On the certification of ownership rights in respect of constructionworks/buildings on non-residential land projects

On this issue, MONRE clarities in the letterthat developers of resort/tourism projects can receive LUR certificates(“LURCs”) or red books certifying their right to use the land as well as theirownership of the condotels or villas on such land.

This is also not a new point as allnon-residential land users (such as a factory owner) has the right by law to beissued a LURC to certify their exclusive right to use the land as well as theirownership of assets on land (subject to satisfaction of a number of conditionssuch as payment of land rental and other obligations to the State in respect ofthe land and assets on land).

What is significant is what MONRE did notspecifically state in the letter.

We believe that this letter is the first stepto further guidelines on the issuance of ownership papers/red books/LURCs tothe ‘buyers’ of condotels and resort villas.

The reason we think so is:

According to Article 172 of the Land Law,economic organisations has the rights to choose to pay rent annually or onetime for the entire term of the land lease in respect of commercial land.

If they choose to pay land rent on a one-offbasis for the entire lease term, the Land Law states they can be issued LURCscertifying their right to use the land and ownership of residential house andother assets attached to land.

The Land Law also states that suchland users have the following rights, inter alia: (i) to assign/sell the LURand assets owned by them attached to the land; and (ii) to sub-lease the LURand assets owned by them attached to the land.

Thus, the developers of condotel/villa resortprojects may transfer their LURCs and ownership of such assets on such land tothe buyers if they have paid land rental for the entire term of the land lease.

Given the above, the buyer may also obtainthe ‘red book’ for their condotel/villa ownership and may, in turn, sell it to thethird parties as they will inherit the same rights as those of the developers.

In the letter, MONRE requests DONREs in allcities and provinces to review projects already licensed to make sure they areproperly issued with the right land use rights both in purpose and duration. Ifthey meet the requirements, DONREs are requested to issue LURCs to such theland users and owners of the assets on land (which can be interpreted to meanthe buyers). 

We hope in the coming days, DONREs willfollow the instruction in this letter, but we suspect they will ask MONRE for moreguidance.  We will keep you posted.

Official Letter No. 703/BTNMT-TCQLDD dated 14February 2020 regarding the instruction on the land – use regime and thecertification of ownership of non-residential buildings

DN Legal (17 February 2020)