Business cooperation in real estate investment projects: Note

Business cooperation in real estate investment projects is a strategic solution that helps parties share resources, minimize risks and optimize investment efficiency. However, to cooperate effectively and ensure legality, the parties need to clearly understand the legal regulations related to land, investment and construction. Correct and complete understanding helps prevent disputes and create a solid legal foundation for the project.

Popular forms of business cooperation in real estate investment projects

Vietnam’s real estate market is developing strongly with many diverse forms of investment cooperation. Investors can choose a method that suits their business goals and actual conditions. The Law on Investment 2020 clearly stipulates legal forms of investment in Vietnam.

According to Article 21 of the Law on Investment 2020, businesses can make investments in many forms such as establishing new economic organizations, contributing capital to buy shares, implementing investment projects or business cooperation. Each form has its own legal characteristics and advantages, suitable for different investment goals in the real estate sector. Specifically as follows:

Business Cooperation Contract (BCC)

Business Cooperation Contract (BCC) is one of the flexible forms of investment cooperation, allowing parties to jointly implement projects without establishing a new legal entity. According to Article 27 of the Law on Investment 2020, BCC helps businesses minimize the burden of company management and operations, while optimizing profits thanks to the flexibility in cooperation agreements.

This form is especially suitable for projects with short implementation periods that require close coordination between parties but does not require the establishment of a joint company. For example, foreign corporations can cooperate with Vietnamese businesses through BCC to quickly enter the market without having to go through procedures to establish a new legal entity.

>>> Reference: Things to note when negotiating BCC business cooperation contracts.

Contribute capital, buy shares

Capital contribution or share purchase is one of the forms of investment cooperation widely applied in many fields such as finance, real estate and technology. According to Article 24 of the Law on Investment 2020, investors can:

• Contribute capital to Vietnamese businesses, become a shareholder or capital contributing member, thereby participating in operating or enjoying profits from business activities;
• Buy shares from existing businesses, help expand markets, control business operations and increase power in the industry.

This form is suitable for businesses that want to expand quickly without having to start from scratch. However, according to Decree 31/2021/ND-CP, some conditional business lines will limit the ownership ratio of foreign investors, requiring parties to comply with strict regulations when conducting transactions.

Joint Venture

According to the provisions of Clause 5, Article 29 of the Law on Competition 2018, a joint venture is a form of cooperation in which two or more parties jointly establish a new enterprise, contribute capital and share management rights.

This is one form of investment cooperation that helps take advantage of the strengths of both domestic and foreign businesses, especially in fields that require large capital, modern technology and high expertise. For example, a foreign company can provide technology, while a Vietnamese business can contribute its distribution network and knowledge of the local market.

Mergers, Acquisitions (M&A)

M&A (Mergers and Acquisitions) is one of the forms of strategic investment cooperation, in which one business acquires or merges with another business to expand scale, enhance financial strength and improve competitiveness.

M&A helps businesses save time entering the market, taking advantage of the target company’s available resources and customers. However, Point a, Clause 10, Article 17 of Decree 31/2021/ND-CP stipulates that foreign investors participating in M&A may have their ownership ratio limited in some specific industries such as banking, telecommunications and aviation, to protect national interests and economic security.

Public-Private Partnership (PPP)

Public-private partnership is an investment model based on partnerships between the public and the private sector. According to Clause 10, Article 3 of the Law on Investment in the form of Public-Private Partnership 2020, PPP is defined as an investment method implemented on the basis of term-term cooperation between the State and private investors.

According to Clause 9, Article 3 of the Law on Investment in the form of Public-Private Partnership 2020, PPP projects include activities such as construction, operation, and business of infrastructure works; renovate, upgrade and expand existing works; or operate and sell existing projects. This form helps reduce the budget burden on the State, while creating opportunities for private businesses to access large infrastructure projects.

Above are some popular types of business cooperation today. Investors depend on their needs, investment purposes, financial capital and economic potential,… to choose the appropriate form of business cooperation.

Basic elements in real estate investment business cooperation contracts

Real estate investment business cooperation contracts play a decisive role in ensuring the rights of participating parties. This document establishes the legal relationship between partners and regulates all activities throughout the cooperation process. A complete real estate business cooperation contract needs to include the following basic elements:

• Information of the parties participating in the cooperation: The contract must clearly state the information of the parties participating in the cooperation (name, address, contact information, legal representative). This ensures transparency and easy identification of each party’s responsibilities. For businesses, it is necessary to provide full information about the business registration certificate, tax code and legal representative;
• Objectives and scope of cooperation: It is necessary to clearly define the objectives of cooperation, such as building, buying, selling, leasing, or developing real estate projects. The parties also need to clearly indicate the scope of cooperation: cooperation on a specific project or long-term cooperation on many projects. The objectives and scope of cooperation must be consistent with current legal regulations and the capacities of the parties;
• Investment capital and capital contribution method: The contract needs to clearly define the capital contribution level of each party and the capital contribution method. Capital can be cash, property, land use rights or other assets. Determining the contribution rate of each party will directly affect the division of profits and responsibilities in cooperation;
• Rights and obligations of the parties: The specific rights and obligations of each party need to be clearly recorded in the contract. For example, one party is responsible for providing capital, the other party will be in charge of project management and implementation. The responsibilities of each party during project implementation must be clearly defined, including responsibilities for taxes, fees and other financial obligations;
• Profit sharing and risk division: One of the most important things in a real estate business cooperation contract is how profits are shared after the project is completed. Normally, profits are divided according to the contribution ratio, but the parties can also agree another way based on each party’s efforts, experience, or expertise;
• Implementation time and project progress: The contract should clearly stipulate the project implementation time, specific progress milestones, and provisions related to adjusting progress in case of necessity. It is necessary to clearly define the start and end of cooperation, as well as important milestones during project implementation;
• Dispute resolution clause: To avoid unnecessary problems, the contract should have clauses stipulating how to resolve disputes between the parties, for example through mediation, arbitration or court. This provision helps the parties have an effective solution when disagreements arise during the cooperation process.

Thus, the above elements are basic to have in a business cooperation contract. Depending on the type of project, the needs of the parties, the location of the project, and the type of real estate, the parties can add or remove appropriate provisions.

Some things to note when doing business cooperation in real estate investment projects

When participating in business cooperation in real estate investment projects, investors need to pay attention to a number of important issues to ensure efficiency and limit risks. In fact, many disputes have arisen from the parties’ failure to comply with legal regulations or lack of careful preparation before cooperation. To avoid unnecessary risks, the parties need to pay attention to the following issues.

Requirements for real estate projects

Requirements for real estate projects are intended to ensure the legality and quality of real estate projects, protecting the interests of participating parties. Specifically, according to Article 11 of the Law on Real Estate Business 2023, real estate projects must meet the following requirements:

• Real estate projects must be consistent with planning and land use plans;
• Real estate projects must be in accordance with approved planning according to the provisions of law on construction and law on urban and rural planning;
• The order and procedures for investing in and building real estate projects comply with the provisions of law on: planning, investment, land, construction, housing and relevant laws;
• Comply with construction permits in cases where construction permits must be issued;
• Real estate projects must be invested and built according to progress, planning, design and within the investment project implementation period approved by a competent state agency;
• For housing construction investment projects, in addition to meeting the regulations in Clauses 1, 2, 3, 4 and 5 of this Article, they must also meet the requirements according to the law on housing.

Thus, when participating in business cooperation in real estate investment projects, the parties need to pay special attention to the legality of the project. When considering investing in a real estate project, customers need to carefully check the project’s legal documents such as: land allocation decision, investment license, construction license, detailed planning approval decision and other documents related to the legality of the project.

Consult experts

Before making a decision, investors should consult with real estate experts, construction experts, financial experts, and lawyers to evaluate the project, evaluate relevant legal issues and clarify whether the cooperation complies with the law, what risks there are, and the feasibility and effectiveness of the cooperation relationship.

From there, investors will work together to build a smart cooperation structure, planning a detailed and specific roadmap for the investment process to ensure effective and successful cooperation as well as legal rights for all parties.

Draft detailed and strict contracts

When deciding to sign an investment cooperation contract, investors should also consult or invite lawyers and experts to participate in drafting the contract to protect their best interests, thereby minimizing disputes and damages.

Clauses on measures to handle contract violations need to be specifically stipulated to avoid the situation where one party takes advantage of loopholes to avoid responsibility. Commitments on progress, quality and payment methods need to be clearly recorded in the contract.

Thus, when carrying out business cooperation in real estate investment projects, investors need to pay attention to some of the above issues before conducting investment activities.

Common risks when cooperating in real estate investment projects

In all forms of commercial transactions, there are always many potential legal risks. Understanding these risks will help you anticipate possible consequences and find countermeasures to minimize the possibility of actual damages.

1. Lack of information about the project and partners

When investing, investors do not thoroughly learn about the partner as well as the investment project or relevant legal regulations, leading to problems arising during the contract implementation process and no solution.

There are projects that do not yet have legal procedures and are not eligible to mobilize capital, but secondary investors do not research carefully or, for profit purposes, ignore legal issues, leading to extremely painful consequences.

2. The contract is sketchy and lacking in rigor

The contents and terms of the agreement are quite sketchy, unclear, and strict, leading to each party having a different understanding or allowing one party to take advantage to violate the contract.

In addition, investment cooperation contracts in the real estate sector are often drafted by the original investors, so they often tend to offer unfavorable terms to secondary investors. Some contracts can be up to hundreds of pages. Secondary investors do not have enough time and do not spend enough time researching but still decide to sign. When a dispute occurs, it is too late to discover the unfavorable content.

3. Limited financial capacity

The dispute is due to the parties’ lack of capital and inability to perform the contract. Many projects take too long and ineffective project implementation also leads to disputes due to failure to ensure investors’ rights under the contract.

4. Change in legal policy

Disputes are caused by the parties’ unforeseen changes in the law or circumstances, which leads to problems occurring when objective situations arise and there is no way to handle them.

Planning, land and construction regulations in Vietnam are regularly adjusted, directly affecting the progress and effectiveness of real estate projects.

Judicial practice shows that disputes in this field are often complex and long-lasting, causing great time and financial loss to the parties. To limit risks, investors need to clearly understand the above issues to eliminate possible risks.

Consulting services for drafting real estate business cooperation contracts at Long Phan Consulting Company

Below are some of the consulting services for drafting real estate business cooperation contracts at Long Phan Consulting Company that we provide to you:

1. Preliminary consultation before drafting the contract:

• Analyze business cooperation models (joint ventures, BCC contracts, capital contributions…);
• Review the conditions of the participating parties (legal capacity, land use rights…);
• Determine the legality of real estate projects (land legality, investment license…).

2. Draft the content of the business cooperation contract.
3. Review and edit contracts provided by customers.
4. Support in preparing dossiers and documents for negotiations.
5. Consulting on registration and notarization procedures (if necessary):

• Guide and support procedures for notarizing cooperation contracts;
• Consulting on documents related to registration of capital contribution using land use rights, assets on land…

6. Consulting on how to resolve disputes related to the contract (if any):

• Provide optimal solutions;
• Authorized representative works with competent authorities.

Above are some consulting items when you use our services. In addition, we provide an in-depth service package, supporting you from A to Z during the process of implementing real estate investment project business cooperation.

Some frequently asked questions about business cooperation in real estate investment projects

We would like to provide you with some common questions about business cooperation in real estate investment projects. Please refer!

What advantages does the Business Cooperation Contract (BCC) form have over other forms of cooperation?

BCC allows parties to cooperate without establishing a new legal entity, minimizing management burden and optimizing profits.

What are the main risks to keep in mind when participating in real estate business cooperation?

Main risks include lack of information about projects and partners, sketchy contracts, limited financial capacity and changes in legal policies.

Why should you consult experts before cooperating in real estate investment?

Consulting experts help evaluate projects, assess legal risks and ensure compliance with legal regulations.

What elements are needed in a real estate business cooperation contract?

Required elements include information of the parties, goals and scope of cooperation, investment capital, rights and obligations, profit sharing, implementation time and dispute resolution terms.

What benefits does public-private partnership (PPP) bring to the state and private investors?

PPP helps reduce the budget burden on the state and creates opportunities for private businesses to access large infrastructure projects.

Why is it important to thoroughly check the legal documents of a real estate project?

Thorough inspection helps ensure the legality of the project, protects the rights of participating parties and avoids legal risks.

What happens if one party violates the terms of the real estate business cooperation contract?

The contract should contain provisions for remedies for violations, such as financial penalties or other legal measures.

How can parties effectively resolve disputes in real estate business cooperation?

The contract should include a provision for dispute resolution, for example through mediation, arbitration or court.

Why is clearly defining the goals and scope of cooperation important in the contract?

This helps ensure that all parties understand the purpose and boundaries of the collaboration, thereby minimizing the risk of misunderstandings and disputes.

How can changes in legal policy affect real estate cooperation projects?

Policy changes can affect project schedules, costs and feasibility, so keeping up to date with legal information is important.

Above is an answer to the issues that you often care about. We hope that the above answers have partly answered your questions surrounding business cooperation in real estate investment projects.

Conclude

It can be seen that business cooperation in real estate investment projects still has many potential high risks if the parties do not thoroughly understand the legal regulations. Please contact Long Phan Consulting Company immediately via the hotline 0906735386 to receive detailed advice from our team of experts on drafting real estate business cooperation contracts, ensuring legal rights for customers when participating in real estate investment projects.