Is it risky to buy real properties for someone else in Vietnam?

Agency Agreements

Agency agreements in real property transactions is an agreement in which the de facto owner of the real estate does not register himself as the owner on official documents (titles) but request another person to be the on-paper-owner instead. Subjects who are de facto owners of the real property usually fall into the following cases:

1. The de facto owner does not have the right to own real property, hence needing an agent to be the tilte owner. For example, Vietnam law does not allow foreigners to receive the transfer of land use rights[1] or to register as the land user on the land use right certificate.
2. The de facto owner has the right to own real property but for personal reasons, does not want to register his name on the land use rights or ownership certificates.

Although this type of agreement happens a lot in life and seems simple in nature, it has many potential risks for the de facto owner. In many cases, the de jure owner often refuses to return the property when requested, leading to the de facto owner needing to initiate a lawsuit to reclaim their property.

Settlement of disputes on agency contracts

From legal perspectives, neither the Civil Code 2015 nor the Land Law 2003 recognizes the legality of the agency agreement in real property transactions. Hence, if there occurs a dispute between the de facto and the de jure owner that cannot be reconciled, when resolving the dispute at the Court, the agency agreement will not be considered as a basis for dispute settlement. In this case, the de facto owner cannot request the Court to resolve the dispute on the agency contract, but must initiate a lawsuit to reclaim property. In this case, the Court usually rules as follows:

1. If the de facto owner has the rights to own the real property in dipsute, the Court will recognize this right and force the de jure owner to carry out procedures to transfer ownership to the plaintiff. If the defendant has made efforts in embellishing, preserving and increasing the value of the real property, the plaintiff must compensate the defendant for such efforts.
2. If the de facto owner does not have the rights to own the real property in dipsute, the Court will only compel the defendant to return the amount of money that the plaintiff has transfer to them for the purpose of purchasing the property.

However, if the de jure owner has transferred the real property to a bona fide third party, and such property has been registered at a competent state agency, even if the de facto owner has the right to own the real property, the Court will not compel the third party to return the property in dispute to the owner[2]. At this point, the de facto owner can only sue the party at fault in the performance of the transaction for reimbursement of reasonable costs and damages. Thus, it can be seen that although the agency contract is not legally valid, in actuality, the Court likely considers the agreement between the two parties and takes it into consideration when resolving the case. Therefore, when establishing an agency agreement, the de facto owner should form a written contract to serve as a basis for settlement, and deliberately establish solid evidence on money transfer wired to the jure owner to purchase properties.