Dealing with Covid-19 induced delays to real estate investment projects

By My Tran and Toan Tran

My Tran

The economic impact of the Covid-19 pandemic continues to intensify globally.[1] In Vietnam, investors of real estate projects in particular may find it difficult to meet the contemplated project timeline due to disruptions in the supply of materials, labour and finance. Not only a burden to the project’s budget, delays may also lead to the imposition of administrative fines and, more severely, forcible termination of the investment project under certain circumstances. In this article, we will explore whether affected investors can invoke Covid-19 related reasons to acquire more time to complete their projects.

An overview

Insofar as real estate projects are concerned, the relevant provisions are set out in the Law on Investment 2014 (“LoI 2014”) and the Law on Housing 2014 (“LoH 2014”). Accordingly, an investor wishing to extend their project’s schedule or overall duration, or temporarily suspend the project must obtain approval from the relevant licensing authority. The specific procedural steps which an investor has to take depend on which of the following documents they must have already obtained for the investment project: (i) Investment Registration Certificate under the LoI 2014 (“IRC”), (ii) Investment Policy Decision under the LoI 2014 (“IDP”), and/or (iii) Investment Policy Approval under the LoH 2014 (“IPA”).However, the laws are silent on whether reasons related to a pandemic such as Covid-19 constitute grounds for the authority to approve of the contemplated extension or suspension. As such, the authority will deliberate each application on a case-by-case basis, taking into account the specific impact of the pandemic on the project in question.

Toan Tran

Leeway under the Law on Investment 2014

Extension of investment project schedule
Under the LoI 2014, an investor wishing to extend the implementation schedule of their investment project is required to propose the extension in writing (accompanied by appropriate justifications) to the relevent investment registration agency for the latter’s consideration and approval.[2] Specifically, this obligation will arise if the investor contemplates extending the investment capital disbursement timeline, the construction and commissioning timeline of the main works, and/or the implemenation schedule of the project’s registered objectives. An investor may apply to extend the project schedule more than once provided that the aggregate length of extension does not exceed 24 months.Since the laws do not specify any criteria against which the authority must appraise a proposal, investors are argubably free to invoke business disruptions caused by Covid-19 to substantiate the proposal. However, it also follows that whether investors will be allowed to extend the investment project schedule on the basis of Covid-19 related grounds is at the authority’s full discretion.If an investor extends the project’s schedule at their discretion without the authority’s knowledge or approval, they will be fined between VND 20 million – 40 million (~USD 855 – 1,710).[3] In addition, the project will be forcibly terminated if it falls behind the registered schedule for more than 12 months without the authority’s approval.[4]
Amendment of overall duration or term of investment project
Similarly, an investor will be allowed to extend the registered duration of their investment project if they can provide a satisfactory explanation for the contemplated amendment.[5] The ultimate outcome will depend entirely on the authority’s discretionary evaluation of the investor’s application since the laws are also silent on whether reasons related to a pandemic could serve as a justifiable ground to amend a project’s duration.
Temporary suspension of investment project
In this regard, the LoI 2014 stipulates that an investor wishing to temporarily suspend the operation of their investment project shall notify the investment registration agency of their decision in writing. Although literally construed the provision implies that investors do not have to obtain regulatory approval before temporarily suspending their project, relevant provisions in other legal instruments suggest otherwise. Specifically, under Decree 50/2016/ND-CP, an investor who temporarily suspends their investment project without the authority’s knowledge or approval can be fined between VND 20 – 30 million (~USD 855 – 1,280).[6] Consequently, applying these provisions, it is advisable that an investor whose investment project has been disrupted by the government’s measures in response to Covid-19 obtains the relevant authority’s approval before putting their project on hold.In its notification to the authority, the investor shall specify:[7]
1. Whether the project is temporarily suspended in whole or in part;
2. The period of temporary suspension, including the contemplated starting and ending dates of the suspension;
3. The reasons for temporary suspension; and
4. Plan for resuming the project’s operation, including implementation schedule of each phase if the project is implemented in phases.
At this juncture, an investor should pay attention to whether the length of the suspension would be so extensive as to materially affect the registered schedule and/or overall term of the project. If the answer is in the affirmative, the investor will also need to comply with the applicable procedural requirements which are further discussed below.
Procedural requirements
Depending on (i) whether the investor wishes to amend the project’s schedule and/or overall term, and (ii) whether the investment project is one for which the investor must have already obtained an IRC and/or IPD, they may be subject to the following procedural requirements.

Category of investment projects	APPLICABLE INVESTMENT LICENSING PROCEDURES
Category of investment projects	Scenario 1: Amend project’s overall termwithout affecting investment schedule	Scenario 2: Extend investment schedule without changing project’s overall term
Projects for which an IPD must be obtained but not an IRC	Apply for amendment of the IPD[8]	Submit written proposal for extension[9]
Projects for which an IRC must be obtained but not an IPD	Apply for amendment of the IRC[10]	(i) Submit written proposal for extension;[11] and (ii) Apply for amendment of the IRC[12]
Projects for which both an IRC and an IPD must be obtained	Apply for amendment of the IRC, thereby having the IPD amended simultaneously[13]	(i) Submit written proposal for extension;[14] and (ii) Apply for amendment of the IRC[15]

Leeway under the Law on Housing 2014

In principle, a real estate project which is not subject to IPD requirements under the LoI 2014 will likely be caught by the IPA requirements under the LoH 2014.[16] Since project schedule and project duration are some of the provisions specified in the IPA,[17] an investor wishing to extend these features would in effect have to amend the IPA.Although the LoH 2014 and related guiding instruments are silent on the applicable procedural requirements in this regard, a practical approach would be to inform the relevant authority (i.e. one that issued the IPA for the project) in writing of the intentions to extend the project schedule and/or project duration, and simultaneously seek further guidance from the same. In addition, if the project is one for which an IRC has been granted, the investor will also need to have the IRC amended.
Next steps

As the economic impact of Covid-19 ripples globally, investors of ongoing projects may wish to start considering the possible legal responses to delays caused by the pandemic. Since failure to comply with the registered schedule carries legal repercussions, it is advisable that affected investors notify the relevant authorities of the delays and ask for more time to complete the project. This will ensure compliance with the laws while investors continue to navigate the evolving pandemic.

[1] International Monetary Fund, The Great Lockdown: Worst Economic Downturn Since the Great Depression, available at <https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-great-depression/>

[2] LoI 2014; Article 46

[3] Decree 50/2016/ND-CP; Article 13.4(c), 13.5(a)

[4] LoI 2014; Article 48.1(g)

[5] Decree 118/2015/ND-CP guiding the LoI 2014; Articles 33 – 36

[6] Decree 50/2016/ND-CP; Article 13.4(d)

[7] Circular 16/2015/TT-BKHDT; Form I.10

[8] Decree 118/2015/ND-CP; Article 36.1(c)

[9] LoI 2014; Article 46

[10] Decree 118/2015/ND-CP; Article 33.2

[11] LoI 2014; Article 46

[12] Decree 118/2015/ND-CP; Article 33.2

[13] LoI 2014; Article 40.4

Decree 118/2015/ND-CP; Articles 34.1, 35.1

[14] LoI 2014; Article 46

[15] LoI 2014; Article 40.4

Decree 118/2015/ND-CP; Articles 33.2 (as referred to in Articles 34.2, 35.2)

[16] LoH 2014; Article 170.2

Decree 99/2015/ND-CP guiding the LoH 2014; Article 9.4

[17] Decree 99/2015/ND-CP; Article 11.2(i)