3 legal risks for Condotels under the Vietnamese laws

Date: 27 August 2021

Writer: Linh Nguyen

Currently, condo-hotels (“Condotels”) have been expanding rapidly and attracting huge attention from investors in Vietnam. However, the fact that Vietnamese laws do not have a sufficient legal frame to govern the business and management of this type of apartment causes many unresolved issues. Through this article, BLawyers Vietnam would like to provide some notes about Condotels.

I. Overview on Condotels

Condotel, also known as a Contel or Hotel Apartment, stands for condominium and hotel. This term refers to the type of hotel in which each unit is typically individually owned. Its owner has the right to stay, sell or lease at his discretion.

Condotel has both the function of an apartment and the operation of a hotel. According to the contract with the investor, the owner not only owns the apartment but also the common area and utilities such as elevators, corridors, swimming pools, playgrounds, etc.

Condotel differs from a hotel in that it allows customers to purchase full ownership and use of the apartment, or register an apartment rental program with the investor, as well as having a professional operation and maintenance management unit. Furthermore, unlike an ordinary apartment, it requires a unit to manage the hotel’s subleasing and daily operations.

II. Regulations of Vietnamese laws on Condotels

1. Term of ownership

Official Letter No. 703/BTNMT-TCQLDD dated 14 February 2020 (“OL 703”) of the Ministry of Natural Resources and Environment has identified Condotel as a tourist accommodation unit, using land for commercial and tourism business purposes.

Under Land on Law 2013, commercial and service land with an ownership term of 50 years according to the land allocation term for land allocated and leased land by the State for commercial and service purposes. Thus, the term of Condotel ownership is no more than 50 years or no more than 70 years for projects with large investment capital and slow capital recovery, as well as the investment project in a geographical area with difficult or extremely difficult socio-economic conditions that require a longer-term. Upon the expiration of the above-mentioned period, the owner is considered for an extension.

2. Are Land Use Right Certificates grantable to Condotels?

Under OL 703, if a condotel project is eligible for transfer under the provisions of Law on Real Estate Business 2014, the land use right certificate (“LURC”) must be issued to the transferee under the provisions of the Land Law and related documents.

In fact, now the Condotel owner has not been granted LURC because the law has not specified the common ownership, private ownership of the Condotel project as a basis for issuing the LURC. Law on Housing 2014 provides for private and common ownership of condominiums, but there is no law on similar application to calculate the private and common ownership of Condotel.

3. Can Condotels be sellable?

The current Vietnamese laws do not prohibit/restrict the investor from transferring Condotel to others. The laws also do not have specific provisions on the rights and obligations of the investor to own the Condotel building. Investors have still sold Condotels to buyers, but the transaction is limited and faces many challenges due to the lack of a legal framework to implement, especially the grant of private LURC to the buyer.

Even after signing a transfer contract, the Condotel buyer cannot have all 03 rights of the owner: ownership, use right, and decision right as they would with a house or other ordinary real estate. All those rights are under limitation of intestors. Investors also governed right to collect maintenance fees, operation and operation management fees, the right to provide accompanying services, the right to manage business operations, etc. As a result, despite the transfer, the Condotel buyer is still completely dependent on the investor’s decision, regardless of the buyer’s ownership or the provisions of the law.

III. 03 legal risks on Condotels

Condotel is still not specified in Vietnam’s legal documents, which carries many risks for the investor when conducting transactions for this type of apartment. In which, there are primarily 03 legal issues that must be resolved as follows:

  1. There are no specific provisions to determine Condotel private ownership, common ownership to grant LURC to the owner;
  2. There are no specific provisions to determine maintenance responsibilities, maintenance funds, management of the use of funds for condotel owners’ common ownership maintenance; and
  3. There are no specific provisions on the mechanism of building operation management when putting condotel projects into the business operation.

Such risks caused potential disputes between investors and Condotel owners.

Therefore, there should be legal regulations to resolve the above issues to facilitate the process of granting LURC for Condotels and attract investors.

Should you have any questions about the above contents, please revert to BLawyers Vietnam at consult@blawyersvn.com. We are more than happy to hear from you!

Maybe you want to read:

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Risks of signing a house and land transfer contract with a lower value than its actual one?

Protecting your right and interests in case of transferring a land lot to multiple transferees

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