Be careful when buying and selling real estate with an authorization contract in Vietnam

The Appellate Civil Judgment No. 43/2019/DS-PT dated May 3, 2019 on the dispute over the authorization contract and land use right transfer contract has the following contents:

"On November 2, 2017, Mr. A and Mr. B signed a contract to transfer land by hand, both sides acknowledged, according to which Mr. A transferred to Mr. B the entire area of ​​690m2 in plot 129, map sheet No. 03, located at X commune, Z district, Ba Ria - Vung Tau province for VND 250,000,000, Mr. B has handed over VND 70,000,000 in deposit, to perform the transfer contract on the two parties who have made an authorization contract dated November 30, 2017 certified by Chan Phong Notary Office with the content: "Party A (Mr. A) authorizes Party B (Mr. B) to be fully authorized on behalf of and on behalf of Party A to manage, use, make and sign transfer contracts, deposit contracts, lease contracts, donation contracts, mortgage contracts.... for the land use right of Party A according to the Land Use Right Certificate No. AB issued to Mr. A by the People's Committee of District Z on April 11, 2005….;

Because he owes money to Ms. Nguyen Thi H (Mrs. S), Mr. A hands over the authorization contract dated November 30, 2017 to Ms. S to keep at the Notary Office.

At the beginning of February 2018, when Mr. A returned to his hometown in Quang Nam, which was not present in the locality, Mr. B went to Ms. H's house to ask for an authorization contract without Mr. A's consent. Then, Mr. B carries out procedures for transferring the land use right of plot 129, map sheet No. 03, with an area of ​​690 m2 located in commune X, district Z, Ba Ria Vung Tau province to Ms. Nguyen Thi C and Mr. Nguyen Van D. "

The People's Court of Ba Ria-Vung Tau province has issued a decision: Declare the authorization contract dated November 30, 2017 between Mr. A and Mr. B invalid due to forgery.

Although it is illegal to use an authorization contract instead of a land use right transfer contract, the seller will have a lot of benefits and transfer risks to the buyer. With the correct implementation of normal transfer procedures, the seller must pay personal income tax as prescribed in Article 29 of the Law on Personal Income Tax 2007  of Vietnam but not with the authorization contract.

Article 29. Tax on income from real estate transfer

Tax on income from the transfer of real estate in Vietnam of a non-resident is determined by the real estate transfer price multiplied by the tax rate of 2%.

Pursuant to the provisions of Articles 562 and 563 of the 2015 Civil Code of Vietnam:

Article 562. Authorization contract

Authorization contract means an agreement between parties whereby an attorney has the obligation to perform an act in the name of a principal. The principal shall only be required to pay remuneration if so agreed or so provided by law.

Article 563. Authorization duration

The authorization period shall be agreed upon by the parties or prescribed by law; If there is no agreement and there is no law, the authorization contract is valid for 1 year from the date of establishment of the authorization.

Following that, the authorization contract verifies that the authorized person (i.e. the buyer) has the right to perform the rights and tasks within the scope of the authorization of the principal (ie the seller). In case this is a real estate transaction, the buyer has rights such as ownership, right to use, right to create the property, etc. to the extent permitted by the seller within the period agreed upon by the parties. If the parties do not agree, the time limit is 01 year. The authorization contract only gives the buyer the rights for a certain agreed period but not the full time, moreover, it does not lose the ownership of the seller.

During the performance of the contract, if events arise such as the seller intentionally wants to appropriate the property, so unilaterally terminates the authorization contract, the seller has a debt and the creditor has the right to claim the disclaiming the property or auctioning the property to pay off a debt, the buyer risks losing the property. At the end of the authorization contract period, the buyer completely loses the right to the property even though the money has been delivered in full.

On the other hand, the transfer of land use rights from one person to another can only be done by transactions such as: conversion, transfer, lease, sublease, inheritance, donation, mortgage, and capital contribution of land use rights are prescribed in Article 167 of the Land Law 2013. Therefore, the authorization contract is not a basis for performing the transfer of land use rights, it is against the law to consider the authorization contract as a contract for the transfer of land use rights when buying and selling real estate. It is a fake contract to circumvent the law. Moreover, the authorization contract also does not give rise to the full legal value of the land use right transfer contract.

When a dispute occurs and the parties initiate a lawsuit at the Court, the Court will determine that the land transfer contract between the parties is a fraudulent transaction to conceal the transfer of land, so the authorization contract is void according to the provisions of article 124 of the Civil Code 2015 and the authorization contract will be annulled. At that time, there will be more complicated legal procedures for the buyer to get his property back.

Article 124. Invalid civil transactions due to forgery

1. When the parties artificially establish a civil transaction in order to conceal another civil transaction, the forged civil transaction shall be invalidated, while the concealed civil transaction shall still be valid, except for the following cases: such transaction is also invalid under the provisions of this Code or other relevant laws.

To ensure their rights and interests, the buyer should ask the seller to make a notarized or authenticated written land use right transfer contract and carry out the procedures for granting a red book of the land plot and adjusting the land use rights. land earthquake. The implementation of procedures in accordance with the law not only ensures accuracy but also helps buyers and sellers avoid unfortunate risks later.

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