Are off-plan properties allowed to be used to pledge in Vietnam?

Are off-plan properties allowed to be used to pledge in Vietnam? (Internet image) 

Regarding this issue, LawNet answers as follows:

1. Can off-plan properties be used to pledge in Vietnam?

According to Clause 1, Article 292 of the Civil Code 2015, pledge of property is one of the types of security for performance of obligationss.

At the same time, Article 309 of the Civil Code 2015 stipulates that pledge of property means the delivery by one party (hereinafter referred to as the pledgor) of property under its ownership to another party (hereinafter referred to as the pledgee) as security for the performance of an obligation.

Article 8 of Decree 21/2021/ND-CP stipulates that collateral for security for obligation fulfillment includes:

- Current properties or off-plan properties, except for cases where the Civil Code 2015 or other relevant laws forbid sale, transfer or other change of ownership at the time of establishing security contracts, security measures;

- Properties sold under property sale agreements with retention of ownership;

- Properties considered as subjects of obligations under infringed bilateral contracts in case of lien measures;

- Properties under general public’s ownership if prescribed by relevant laws.

Thus, according to the above regulations, off-plan properties are allowed to be pledged, except for cases where the Civil Code 2015 or other relevant laws forbid sale, transfer or other change of ownership at the time of establishing security contracts, security measures

Note: Security for obligation fulfillment in form of off-plan properties does not apply to land use right. as prescribed in Clause 4, Article 10 of Decree 21/2021/ND-CP.

2. Are the pledgees allowed to lease the pledged property?

Pursuant to Article 313 of the Civil Code 2015, the obligations of pledgees are stipulated as follows:

- Take care of and preserve the pledged property; if the pledgee loses or damages the pledged property, the pledgee must compensate the pledgor for the damage.

- Do not sell, exchange, give or use the pledged property as security for the performance of another obligation.

- Do not lease, lend, exploit the yield or income derived from, the pledged property, unless otherwise agreed.

- Return the pledged property and related documents upon fulfillment of the secured obligation or where the pledge is substituted with another security.

Thus, the pledgee is not allowed to lease, lend, exploit the yield or income derived from, the pledged property, unless otherwise agreed.

3. Is a single item of off-plan property be used as security for performance of several obligations in Vietnam?

Pursuant to Article 296 of the Civil Code 2015, single item of property used as security for performance of several obligations is stipulated as follows:

- A single item of property may be used as security for performance of several obligations if, at the time of establishment of the security transaction, the value of such property is greater than the total aggregate value of the secured obligations, unless otherwise agreed or otherwise provided by law.

- Where a single item of property is used as security for performance of several obligations, the securing party must notify the later secured party that the security property is being used as security for performance of other obligations. The provision of security on each occasion must be made in writing.

- Where the security property must be realized in order to satisfy one obligation which has fallen due, the other obligations which have not yet fallen due shall also be deemed due and all secured parties shall be entitled to take part in the realization. The secured party which provided notice of realization of the property shall be responsible for realizing the property, unless otherwise agreed by the secured parties.

If the parties wish to continue to fulfill the obligations which have not yet fallen due, they may agree that the securing party will use other property as security for performance of the obligation which has fallen due.

Thus, where a single item of off-plan property is used as security for performance of several obligations, the securing party must notify the later secured party that the security property is being used as security for performance of other obligations.

In addition, the provision of security on each occasion must be made in writing.

Nguyen Ngoc Que Anh

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