Facing difficulties due to Covid-19, can real estate investors delay or extend the payment schedule?

Facing difficulties due to Covid-19, can real estate investors delay or extend the payment schedule?

The Covid-19 epidemic has activated the “force majeure” clause in contracts, especially for the purchase and sale of houses formed in the future. So is this considered a force majeure event, and can investors delay or extend the payment schedule?

Is the Covid-19 epidemic considered a force majeure event for homebuyers?

In order to consider whether the Covid-19 epidemic is a force majeure event, it must first be based on the content of the house purchase and sale contract (hereinafter referred to as the Contract) that the parties have agreed upon.

In case, in the content of the Contract, events are listed as force majeure events, including regulations on group A infectious diseases, then the Covid-19 epidemic is considered a force majeure event.

Thus, regarding the legal consequences of a force majeure event, the parties shall strictly comply with the contents of the Contract when this event occurs. That is, the party that fails to properly perform the obligations is not liable for civil liability such as fines, interest, etc. (for civil contracts) or the violating party is exempt from liability for violations.

If the contract does not provide for force majeure events, how will it be handled?

In case the content of the Contract does not provide for force majeure events, at this time, it must be based on the general provisions of the law such as the Civil Code 2015 or specialized laws such as the Commercial Law 2005.

Clause 1, Article 156 of the 2015 Civil Code stipulates: “A force majeure event is an event that occurs objectively, which cannot be foreseen and cannot be remedied even though all necessary measures have been taken and permissiveness”.

Thus, in order to consider whether the Covid-19 epidemic is considered a force majeure event, that event must satisfy the following three conditions.

Firstly, in terms of “objectivity”, decisions, acts, and documents of competent State agencies to prevent the Covid-19 epidemic such as Directive No.16/CT-TTG dated March 31, 2020, of the Prime Minister, the blockade order of the government … are events that take place outside of the will of the buyer, seller or the contracting parties, so they should meet the objectivity of the force majeure event.

Second, in terms of the “unforeseen” factor of the Covid-19 epidemic on the performance of the contract, it is necessary to specify the time when the contract is entered into. epidemic and legal measures (blockade…) can be applied to limit the spread and development of epidemics.

For example, when the parties entered into a contract, there was no outbreak of an epidemic or there was an epidemic before but the epidemic was completely controlled. However, during the performance of the contract, the epidemic broke out, so the parties could not anticipate it. Thus, in this case, the Covid-19 epidemic occurred in response to the unpredictable (unforeseeable) factor of the parties.

Conversely, when the parties sign a contract in the context of knowledge about the Covid-19 epidemic situation, it no longer responds to “unpredictability”.

Third, consider the “irreparable” factor. This means that when a force majeure event occurs, the party affected by this event must take all necessary and permissible measures to remedy the consequences.

However, the affected party still cannot remedy the consequences. This means that not when a force majeure event occurs, the affected party will automatically be exempt from liability due to the breach or not be liable for civil liability for failing to properly perform its obligations under the Contract.

Thus, in order to consider whether the Covid-19 epidemic is a force majeure event for the homebuyer to be able to extend, postpone the payment of monetary obligations and not have to bear civil liability (fines, interest, or fees). other sanctions agreed upon by the parties) for failure to properly perform the payment obligation when that eventfully meets the above 3 conditions.

Therefore, not all cases when the outbreak of the Covid-19 epidemic is considered a force majeure event, and the home buyer is entitled to postpone the payment of the house purchase.

For example, the case where the home buyer has only one source of income is the salary when working at enterprise A, but due to the Covid-19 epidemic, business A is forced to stop operating, resulting in the homebuyer not being able to buy a house. pay wages and are unable to pay rent on time in the contract. In this case, the Covid-19 epidemic is considered a force majeure event for the buyer.

Conversely, also for the above example, but the home buyer has many different sources of income that are not affected by the Covid-19 epidemic (income from property rental, business investment …), Therefore, the Covid-19 epidemic is not considered a force majeure event for the buyer, because it does not meet the “irreparable” condition.

When affected by the Covid-19 epidemic, what should investors do?

When there is a force majeure event affecting the payment of the house purchase, the buyer must immediately notify the seller. Notify in writing to the head office address if the seller is an enterprise or the seller’s residence for an individual, notify via email, phone call…

Regarding the legal consequences of force majeure events, the buyer is not liable for civil liability (no penalty for violations due to late payment of house rent or other sanctions agreed upon by the parties in the contract…) according to Clause 2, Article 351 of the 2015 Civil Code.

In addition, for subjects participating in a house sale and purchase contract governed by commercial law (which is an activity for profit purposes), the violator (the house buyer) is exempt from liability for such acts. violations (not having to pay fines, interest, or other sanctions) as prescribed at Point b, Clause 1, Article 294 of the Commercial Law 2005.

You can download our Legal handbook For COVID19 in Vietnam here.

ASL LAW is real estate law firm in Vietnam. If you need any inquiry, please contact us.

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