Conditional Acceptance of the Construction Works for Commissioning

The Law

On 15 May 2015 the Government issued Decree No. 46/2015/ND-CP (Decree 46) to provide further guidance on the Law on Construction 2015 with respect to quality management and maintenance of construction works, pointing out:

“The responsibility for the quality of the works remains with the survey construction contractors, design contractors, and supply contractors, even after their work has been inspected and accepted by the employer, or after the defect liability period has expired. This means that these contractors may be held liable for damages evidenced to be caused by the quality of their works.”

What does it mean for businesses?

Under Decree 15/2013/ND-CP, acceptance of construction works for commissioning into use when they have not satisfied all requirements of the design, of national technical regulations, of standards applicable to the construction works, and the technical specifications and other requirements of the employers specified in the agreements is generally not allowed.

However, Decree 46 entitles the employer to conditionally accept the construction works for commissioning into use, if the issues with respect to quality of construction works do not affect the weight-bearing capacity, the life cycle and the functions of the works and if the construction works conform to the safety requirements.

Decree 15/2013/ND-CP allows the employer and contractor to freely agree on the minimum amount of the warranty fee retained by the employer. However, to the extent of State owned works, this has been restricted by Decree 46. Accordingly, the warranty fee for State owned works must not be less than 3% of the contract value for works of grade 1 or special grade, and 5% of contract value for the works of other grades.

Decree 46 stipulates that survey contractors should pay significant attention to the quality of their works. Therefore, we suggest that survey contractors to provide sufficient and eligible resources to ensure their works are compliant with the technical plan, as this is required by Decree 46. We would also warn that the Decree also entitles the employer to completely suspend the construction survey works upon finding them not compliant with the technical plan, or the construction survey agreement.

Decree 46 will take effect from 01 July 2015

By Vietnam Law Insight.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com

Construction Master Planning: More Defined Procedures

Decree No. 44/2015/ND-CP Clarifies Construction Master Planning

What does the law say?

On 6 May 2015, Government issued Decree No. 44/2015/ND-CP, providing guidance for a number of regulations on construction master planning (“Decree 44”). This Decree provides detailed regulations on a number of articles in the Law on Construction No. 50/2014/QH13, including the formulation, evaluation and approval of construction master planning, as well as master planning implementation and planning permits.

What does this mean for businesses?

More defined procedures for construction industry and investors

Firstly, specific functional areas with the scale over 500 ha shall be put under the general planning category, to ensure the suitability for provincial planning, urban planning, and to form a basis for zoning, and detailed planning.

Secondly, areas (over and below 500 ha) inside specific functional areas shall be put under the general planning category, ensuring its suitability for provincial planning, urban planning, and again to form a basis for zoning planning and detailed planning.

Thirdly, Areas inside specific functional areas upon instruction shall be placed under the detailed planning category, in order to ensure that the general planning framework, and zoning planning is more rigid, and to form a basis for issuance of the construction permit.

Fourthly, in the event that a single investor undertakes a construction project of less than 5 ha, (or under 2 ha if it is an apartment building project), the project must be created without the formulation of a detailed construction planning. Drawings of the general site plan, architectural plan, solutions to technical infrastructure in the fundamental design must comply with zoning plans or planning permits, ensuring the connection with technical infrastructure and compliance with architectural space in the area.

Finally, the planning permit shall be issued to investors who are qualified for implementing the investment in the construction project. The maximum period of a planning permit with respect to a concentrated construction project is 24 months from the date of issuance, until the detailed planning is approved. The maximum period for a planning permit with respect to a separate construction project is 12 months from the date of issuance until the construction project is approved.

Streamlined instruction on planning permits

The following functional areas directly related to the issuance of the planning permit are detailed in Decree 44: (i) procedures for the issuance of planning permit; (ii) application for obtaining planning permit; and (iii) contents of the planning permit. For any construction planning project with the planning tasks being approved before the effective date of this Decree, the formulation, evaluation and approval shall be conducted under the Government’s Decree No. 08/2005/NĐ-CP dated 24 January 2005 on construction planning.

Decree 44 shall take effect from 30 June 2015.

By Vietnam Law Insight.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com

One-size-fits-all contracts may not resolve disputes

LNT’s Thai Binh Tran and Quang Dao Nguyen look at some of the issues raised by the Ministry of Construction’s Circular 03 which insists on a standardised approach to property contracts between individuals and real estate developers.

In apartment sales and purchase transactions, the individual purchaser is often in a weaker position since they often have to accept entering into a standard form contract drafted by a real estate developer. Such contracts generally contain terms favourable to the developer, and may impair the buyer’s interests. This is one of the major causes of disputes arising between developers and individual purchasers.

To address that issue, the Ministry of Construction (MoC) has issued a standard form contract on apartment sales and purchases as a basis for individual purchasers to follow. The guidelines and regulations by the MoC detailing the terms in sale and purchase of apartments are necessary, because they provide clarity and transparency in apartment sale and purchase transactions, as well as protecting the individual’s interests, thereby mitigating disputes between the parties, and facilitating the development of the real estate market in general.

However, recent regulations provided for in Circular 03/2014/TT-BXD (Circular 03) requiring parties to “comply with contents and strictly apply the standard form contract” have caused many difficulties and adverse consequences in practice.

So, what does “non-applying standard form contract” mean?

Prior to Circular 03, the standard form contract for an apartment sale and purchase was prescribed in Circular 01/2009/TT-BXD, later known as Circular 16/2010/TT-BXD. However, these guidelines did not strictly require parties to apply the standard form contract, and also did not provide serious consequences for non-compliance therewith (the invalidity of these contracts). Therefore, in practice, the standard form contract is for reference only.

According to Circular 03, apartment purchase and sale transactions between a developer and an individual purchaser must be in strict accordance with the standard form (issued in conjunction with this Circular). More importantly, a contract signed between the developer and individual purchaser “shall not be recognised and not qualified for issuance of ownership certificate” of ownership to the individual purchaser, if it does not “conform and/or accord with the standard contract”.

The unclear provision of “complying with the standard contract” that real estate developers, when carrying out the registration of sample contract for apartment sale and purchase, are required to amend the sample contract in a way that all words, structure, and order of clauses in the standard contract issued by the MoC must be used and applied.  As such, although the sample contract submitted by the developer is in accordance with principles set forth in the standard contract by the MoC, the registration will still be rejected if the contract has not used the words or the structure of the standard contract.

In our opinion, such interpretation is unreasonable and inflexible, resulting in many problems for both the developers and the individual buyers. The MoC should clarify these issues and if the MoC’s opinion is as interpreted above, then our interpretation results in the legal consequences as discussed below.

Administration of civil transactions

It is clear that an apartment sale and purchase contract between a developer and a individual purchaser must adhere to principles and regulations of the law on the subject matter, however, this does not mean that it is necessary that such a contract need be strictly copied for every sentence, word, or order set forth in the standard contract.

The mandatory use of the wording mentioned above clearly goes against the principle of freedom in entering into an agreement – the key principle of civil transactions. According to this principle, the developer and the individual purchaser have the right to freely agree on the content, and the rights and obligations of each party. Provided that such agreements are not contrary to the laws, it must be recognised by the state. Among various options to address an issue of apartment purchase transactions (such as payment, dispute resolution, etc.), the developer and the individual purchaser may negotiate and agree with the most favourable option. The mandatory use of the standard contract has taken away the freedom in agreements, seriously affecting the interests of both parties. For example, disputes between the developer and the individual purchaser, can be resolved either in a people’s court or in commercial arbitration at the parties’ discretion. However, in a standard form contract, dispute resolution by the court is the only option for parties even though the option of a commercial arbitration may be more appropriate.

Interference in the court’s jurisdiction

According to the Circular 03, the signed contract will be invalid if it is not in compliance with the standard form contract. As such, an agreement (dispute to be resolved by commercial arbitration), despite its full compliance with the law (Law on Commercial Arbitration), may still be invalid if it is not subject to the provision of the standard contract (dispute resolution by the court). However, according to the Civil Code, if the form and content of a contract is in conformity with legal regulations, that contract is valid. This begs the question, is the effectiveness of Circular 03 higher than the Civil Code? Furthermore, this shows that the regulations of the MoC has somewhat interfered in the jurisdiction of the court.

Conclusion

Without a clear explanation from the MoC regarding the requirement of compliance with the standard contract, the parties have been obstructed in their performance, if the aforementioned interpretation is consistent with the opinion of the MoC, those regulations are contrary to the fundamental principles of civil transactions. Therefore, in order to ensure freedom in negotiation, regulations in Circular 03 should only be construed as a requirement for complying with rules and principles of transaction, not necessarily a requirement to comply with every sentence and word of the standard contract.

By Vietnam Law Insight, LNT & Partners

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com

Legal changes bolster market economy reform_Dec 2013

The National Assembly concluded a busy year which included the ratification of a revised Constitution, the Land Law and the Law on Public Procurement. It is expected the new laws will help develop a more liberal economy.

Le Net at LNT & Partners law firm takes a look at the developments and their anticipated effects.

Revised and Restated Constitution

The 1992 Constitution was revised after more than 20 years of Vietnam’s economic reform process. Once again, it underlines the leading role of the Communist Party, the state sector as the foundation of the economy and the notion that land belongs to the whole nation and is administered by the state. The new constitution states that private and foreign-invested sectors are granted equal rights to set up and run their businesses. The state sector is supported and maintained only in core industries.

The Constitution allocated more powers to the National Assembly and president. The National Assembly is now vested with the right to decide on national fiscal and monetary policy. The president has the power to appoint deputy prime ministers or ministers as proposed by the National Assembly, appoint high-ranking officials and high court judges. The Constitution also clarifies the power of the People’s Procuracy and establishes the State Auditing Agency.

The Constitution stipulates that any “unconstitutional” acts shall be resolved. The Constitution can be seen as a positive move towards the constitutional rule of law.

Three major legal changes should help liberalise the economy further

New Land Law

The new Land Law, which replaces the 2003 legislation, addressed concepts of landed property and compulsory purchases or seizures – a huge source of dispute in the last decade – particularly after notorious cases in Haiphong and Hung Yen. The new Land Law specifies the instances in which such compulsory seizures may occur, which mainly relate to ODA projects, infrastructure development or social housing projects. Moreover, the land price or land pricing method shall be decided by the state with an aim to limit its affect on the real estate market. In addition to land prices and compensation, the new Land Law reduces the scope for amended land zoning planning. The law clearly states that once zoning has been approved, it cannot be changed except under special cases. It is hoped that this strict rule will avoid unplanned urbanisation and the exploitation of those that control land allocations before real investors with fiancial capacity have an opportunity to invest.

The law introduces two concepts: a land price table and particular land price. While the land price table is introduced once every five years, the particular land price will be determined on a case-by-case basis, by a land valuation committee based on the land price table and market price. The land price table is used to calculate land compensation and land use fees for individuals or households, whereas the particular land price is used for land compensation and land use fees for economic organisations or foreign-invested enterprises.

An important part of the Land Law is devoted to land compensation payments and clearances. The law allows provincial people’s committees to determine land prices for compensation and provides a timeline for voluntary land compensation in the case of land recovery, following which the state could apply for a forced land clearance. The compensation is prioritised in the form of land compensation and, only when there is no land available, would monetary compensation be applied. The law also requires the land developer to propose a relocation project before implementing land compensation.

Foreigners and overseas Vietnamese are now allowed to receive land use right certificates if they are allowed to buy houses or apartments adjacent to land pursuant to the Law on Housing. It does not affect the right of foreign-invested enterprises to obtain land use right certificates for industrial land or residential land projects. The new law also maintains the status quo for projects that have already been granted freehold or leasehold status before the introduction of the new law on July 1, 2014.

New Public Procurement Law

The Law of Public Procurement, also effective from July 1, 2014, is introduced with the aim of reducing waste and corruption in public procurement, as well as encouraging private-public partnerships. The new law supplements new methods in the assessment of bids, including bidding concentration and tendering in specialist industries such as pharmaceuticals and medical equipment. Bid concentration is a new feature of this Law on Public Procurement, which authorises the project owner to organise bids for a single professional purchaser instead of multiple suppliers. This process may expedite the public procurement process while maintaining control over cost over-runs and co-ordination among the suppliers. The law implements and combines widely recognised international public procurement principles with local experience in relation to public procurement issues.

To enhance the efficiency of public procurement, the law hands bid appointments down to ministries or provincial people’s committees, rather than the prime minister. The decision-maker will also have to answer to supervisory authorities, to the public, and project owners.

To reduce the price adjustments or project cost over-run problems, the Law on Public Procurement prioritises fixed price methods. If other methods are used, such as lump sum unit price or adjusted unit price, then the bid decision-maker must explain why the selected method of public procurement is preferred vis-à-vis fixed price contracts.

In short, the three laws earmarked by the National Assembly mark a bold step towards stronger reforms to confer more supervisory powers and reduce the abuse of power, waste and corruption, while recognising the importance of professional and uniform executors.

All eyes are now on how the new laws will be implemented.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com