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E-Contract in real estate transactions

In 2020, the Prime Minister approved the "National digital transformation program by 2025 with orientation towards 2030" under Decision No. 749/QD-TTg triggering off the national digital transformation in Vietnam.

Amidst such indispensable trend, and the Covid-19 pandemic, e-commerce transactions have been, are and will continue either shaping the digital transformation trends, or being tremendous supports not only for the digital transformation but also for the improvement of the enterprises’ business potential.

The reality has proved that e-commerce transactions have a significant impact on all businesses. However, the legal framework for e-commerce transactions in the real estate business remains inadequate and has not yet been fully utilized the e-commerce infrastructure of this field yet.

Thus, this article aims at scrutinizing applicable regulations and providing answers on the following queries: (1) What is an e-commerce contract? (2) Does the e-contracts could apply to real estate transactions under the current laws? and (3) Some recommendations to advance the law regarding electronic contracts for real estate transactions.

1. What is an e-commerce contract? How do the application of e-commerce contract in real estate transaction under the current Vietnamese laws?

The Vietnamese laws provides synchronous legal framework regarding the contracts in general and the e-contracts in general, based on the fact that e-commerce natures as a commercial transaction inherited contract regulations on electronic environment. The Vietnamese laws also defines that the e-contracts under Article 33 of the Law on E-Commerce Transactions 2005 are a contract that is presented as data messages and is legally verified.

Under the classification and actual transactions, types of level of e-contracts are as follows: 

• Level 1: One party uses a digital signature.
• Level 2: One party uses a digital signature to sign the contract and the other uses eKYC to verify; and
• Level 3: Both parties use digital signatures in their transactions.

In correspondence to the above, the common types of e-contracts in practice include:

• The sample contracts that the sellers/service providers publish for the buyer/client to confirm.
• Contracts are formed through electronic transactions.
• Contracts via email.
• Contracts that use digital signatures.
• Smart Contracts (This article will not mention such type contract that stored on a blockchain).

Accordingly, e-contracts are used in all aspects of many industries: from contracts among enterprises/ individuals; to sample contracts or e-commerce orders. Albeit a wide application in various industries, the laws onelectronic transactions of real estate are extremely limited. As we know, the promulgation of the Law on Electronic Transactions has opened a new turning point for electronic transactions in 2005.

However, it does not encourage to use of electronic platforms for all business transactions, especially for real estate that not only is very active but also very risky. Particularly, Article 1 of the Law on Electronic Transactions 2005 excludes cases that are not applicable, among others, the issuance of certificates of land use rights, house ownership, and other real estate.

Both legal and practical basis for limiting the application of regulations on electronic transactions in the issuance of certificates of land use rights, house ownership, and other real estate is given as follows:

(a)     Firstly, the management of typical real estate transactions (with wide interpretations) must be tightened.

(b)     Secondly, the provisions of other relevant laws limit the engagement form of a contract as follows:

Under Article 121 of the Law on Housing 2014, one of the mandatory contents of a housing contract is that “Signatures and full names of contracting parties, if the contracting party is an organization, the contract must contain stamps (if any) and position of the signatories”.

Article 4.18, Law on negotiable instruments 2005 stipulates that “signature” as follows: “Signature is a hand-written signature directly on a negotiable instrument of a person who has rights and obligations towards the negotiable instrument or authorized by the law. The signature of the representative of the organization on the negotiable instrument must be accompanied by a stamp”.

Under Article 122.1 of the Law on Housing 2014, an agreement on assignment, gift, exchange, capital contribution, mortgage, or transfer of the sale and purchase of commercial house agreement is required to notarize or authenticate the agreement unless otherwise prescribed by the law (giving charity houses, buying and selling social houses).

Under Article 167.3.(a) of the Land Law 2013, the contracts for assignment, gift, mortgage or capital contribution via land use rights or rights to use land and land-attached assets must be notarized or authenticated, except the case of real estate business on lease or sublease of land use rights or rights to use land and land-attached assets, a contract on exchange of agricultural land use rights; a contract on transfer of land use rights or rights to use land and land-attached assets or land-attached assets in which one party or all parties involved in the transaction is/are a real estate business organization.

(c)    Thirdly, the current notarization laws kept silent on notarization of electronic contracts (including cases where one party signs with digital signature; contracts signed by both parties with digital signature, contracts where both parties go to the notary office and sign the at the notary office with digital signature,…).

The foregoing regulations significantly affect the digitized real estate transaction market. Therefore, it is necessary to form a separate legal framework for electronic contracts in real estate transactions for the following reasons:

• The first, the contracts for the sale and purchase of houses, real estate, which are concluded by electronic means, will be invalidated due to the violation of the formality conditions under Article 129 of the Civil Code 2015 (unless the parties have performed at least 2/3 of their contractual obligations).

The above consequence has seriously hindered the freedom of contract, the freedom to choose the method of entering into a contract among the parties, and has not taken advantage of Vietnam's digital economic resources and infrastructure for the following reason:

First, while most commercial fields can apply relevant regulations regarding the using of electronic means, especially, electronic contracts for their transactions, transactions concerning real estate business is "left behind".

In addition, currently, enterprises in Vietnam are almost required to have a "digital signature" to conduct certain transactions as follows: Electronic signature under the laws of the seller; of the buyer in case the buyer is an accounting unit. (Point e, Clause 1, Article 6 of Circular 32/2011/TT-BTC); Electronic invoices are signed by digital signature. (Clause 2, Article 3 of Decree 119/2018/ND-CP); and taxpayers who conduct business activities in locations with information technology infrastructures must declare, pay taxes, and conduct transactions with tax administration agencies via electronic means under the law (Clause 10, Article 17 of the Law on Tax Administration 2019)

Next, the context of digital transformation is strongly happening and having a strong impact on all industries and fields. Thus, the lack of applying the regulations on electronic transactions in real estate businesses seem show that the laws are being left behind the development of society and has unforeseen the market development.

Finally, such regulations are going against the efforts of the Ministry of Industry and Trade in developing regulations regarding the authentication of e-commerce contracts and the National E-contract Development Axis https://ceca.gov.vn/ under Decree 52/2013/ND-CP amended by Decree 85/2021/ND-CP.

• Secondly, when reviewing Article 1 of the Law on Electronic Transactions 2005, we find that the limitation of the scope of regulation is applicable to the issuance of certificates of land use rights, houses ownership and other real estate. However, the definition of "issuance" remains unclear, whether it only applies to contracts for the transfer of land use rights, houses, and real estate??? or it applies to the procedures at the authorities to "transfer the name of user/owner"?

A crucial question is that, assuming Article 1 of the Law on Electronic Transactions 2005 is limited to the signing of contracts for the transfer of land use rights, housing, and other real estate, etc.,. If so, whether pre-agreements of the parties (for example, proposal to enter into a contract, pre-agreements before entering into a transfer contract, negotiations, etc.,) made by electronic means, will it be recognized as valid?

• Third, in the context of every enterprises has a digital signature, and this digital signature can be authenticated with current means through the national electronic authentication center – the Ministry of Information and Communications (http ://digisign.vn/ ) and in the near future e-contracts will have a vivid authentication mechanism (through e-contract validation organizations, National E-contract Development Axis,…), the law on notarization should change its traditional formula to be able to adapt to new trends.

2. Some recommendations for improving legal regulations regarding e-contracts in real estate transactions?

In the context of the applicable regulations and strict views for real estate transactions has a negative impact on the digital transformation trends in businesses, going behind market demand while the rapid shifts of customer behavior to online have gradually formed. It is vital to create a legal framework for e-contracts in real estate businesses as follows:

(a) Firstly, the Law on Electronic Transactions 2005 should be revised and amended for real estate transactions to overcome the current limitations.

(b) Secondly, the law on notarization needs to supplement regulations on the notarization of documents, especially contracts regarding real estate businesses that have been duly digitally signed by the parties/ certified by the organization validating the electronic contract.

3. Conclusion

Vietnam has suffered 04 waves of Covid-19. In addition to the challenges in implementing the dual goals of "social-economic development" and guarantee of the health and safety of the people, the opportunities in the technology application business and e-commerce has been shaped increasingly.

The author believes that when the online behavior has gradually become familiar, Sooner or later, real estate transactions will be forced to adapt to nearly approach the development trend with the market soon.

In that context and to keep up with the digital transformation process, Vietnamese laws in general, especially, the laws on electronic transactions and the laws on notarization in real estate businesses, in particular, are required to be scrutinized and improved in proper ways.  

Nhu Nguyen (Associate)