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Future-formed real estate (FFRE) transactions are increasingly common in the market, especially in major urban areas. However, since the asset does not yet exist at the time of contract signing, investors must carefully assess legal factors to minimize risks. Below are some key legal considerations:
Legal Conditions of the Project
Before signing a purchase agreement, investors should verify the project’s legal status, including:
- Planning and construction permits: The project must have an approved planning decision and valid construction permits in accordance with the law.
- Land use rights certificate: The developer must legally own the land use rights, free from disputes or unresolved mortgages.
- Bank guarantee: Under the Real Estate Business Law, the developer must obtain a bank guarantee to ensure the timely handover of the property.
Purchase Agreement and Key Contractual Terms
FFRE purchase agreements must be executed in writing and notarized as required by law. Key contractual terms to consider include:
- Contract value and payment schedule: Investors should review clauses on payment amounts, timing, and methods to ensure financial feasibility.
- Handover timeline and penalties for violations: The agreement should clearly define the handover schedule, delivery standards, and penalties for delays or breaches.
- Transfer conditions: Some projects impose restrictions on property transfers before handover, so investors should be aware to plan accordingly.
Legal Risks and Mitigation Measures
- Risk of project delays: Some projects may face legal or financial setbacks. Investors should choose reputable developers, monitor actual progress, and check for bank guarantees.
- Ownership risks: Signing contracts for properties that do not yet exist carries the risk that the developer may use the property as collateral for loans. Investors should thoroughly review contracts and obtain commitments regarding ownership.
- Legal policy changes: Future regulatory changes may impact financial obligations or handover conditions. Investors should stay informed of new policies to prepare accordingly.
Engaging in future-formed real estate transactions presents both opportunities and risks. To ensure a secure and effective investment, investors must thoroughly assess the project’s legal standing, contractual terms, and protective measures.
ASL Law is a leading full-service and independent Vietnamese law firm made up of experienced and talented lawyers. ASL Law is ranked as the top tier Law Firm in Vietnam by Legal500, Asia Law, WTR, and Asia Business Law Journal. Based in both Hanoi and Ho Chi Minh City in Vietnam, the firm’s main purpose is to provide the most practical, efficient and lawful advice to its domestic and international clients. If we can be of assistance, please email to [email protected].
ASL LAW is the top tier Real Estate law firm in Vietnam. If you need any advice, please contact us for further information or collaboration.
