As you
may be aware, developers and buyers of condotel projects have been plagued by
their misunderstanding of the legal regime as to what can the developers sell
to ‘buyers’ and what rights to ‘buyers’ of such condotels have. We discuss some
of these issues in our article in April 2019:
We are now pleased to report that on 14 February, the Ministry of Natural Resources and Environment (“MONRE“) issued an official letter to the lower Departments of Natural Resources and Environment (“DONREs”) in all cities and provinces in Vietnam to guide:
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 real estate projects
MONRE confirms in the letter that according to the Law on Tourism, condotels and resort villas are categorised as facilities built for tourism purposes and for the provision of tourism accommodation services.
As such, the Land Law classifies all land use rights (“LURs”) issued for the purpose to provide tourism/resort accommodation services as ‘commercial’ land.
As such, the State will lease such land use rights to investors to be uses for commercial purpose as part of their tourism/resort investment.
The term will not exceed 50 years, 70 years in special circumstances.
The State, however, will consider extension of the land use term upon its expiry if the land user still has the need to continue to use the land.
The above is not new. MONRE is simply reconfirming that resort development projects are not residential projects and the term of use is limited by duration.
This means that the land user does not have freehold or ‘long-term’ use of the land and therefore cannot transfer freehold to any buyer.
2. On the certification of ownership rights in respect of construction works/buildings on non-residential land projects
On this issue, MONRE clarities in the letter that developers of resort/tourism projects can receive LUR certificates (“LURCs”) or red books certifying their right to use the land as well as their ownership of the condotels or villas on such land.
This is also not a new point as all non-residential land users (such as a factory owner) has the right by law to be issued a LURC to certify their exclusive right to use the land as well as their ownership of assets on land (subject to satisfaction of a number of conditions such as payment of land rental and other obligations to the State in respect of the land and assets on land).
What is significant is what MONRE did not specifically state in the letter.
We believe that this letter is the first step to further guidelines on the issuance of ownership papers/red books/LURCs to the ‘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 one time for the entire term of the land lease in respect of commercial land.
If they choose to pay land rent on a one-off basis for the entire lease term, the Land Law states they can be issued LURCs certifying their right to use the land and ownership of residential house and other assets attached to land.
The Land Law also states that such land users have the following rights, inter alia: (i) to assign/sell the LUR and assets owned by them attached to the land; and (ii) to sub-lease the LUR and assets owned by them attached to the land.
Thus, the developers of condotel/villa resort projects may transfer their LURCs and ownership of such assets on such land to the buyers if they have paid land rental for the entire term of the land lease.
Given the above, the buyer may also obtain the ‘red book’ for their condotel/villa ownership and may, in turn, sell it to the third parties as they will inherit the same rights as those of the developers.
In the letter, MONRE requests DONREs in all cities and provinces to review projects already licensed to make sure they are properly issued with the right land use rights both in purpose and duration. If they meet the requirements, DONREs are requested to issue LURCs to such the land users and owners of the assets on land (which can be interpreted to mean the buyers).
We hope in the coming days, DONREs will follow the instruction in this letter, but we suspect they will ask MONRE for more guidance. We will keep you posted.
Official Letter No. 703/BTNMT-TCQLDD dated 14 February 2020 regarding the instruction on the land – use regime and the certification of ownership of non-residential buildings
DN Legal (17 February 2020)
