On 2 March 2023, the Royal Government of Cambodia issued Sub-Decree No. 50 on the Management of Real Estate Development Business (“Sub-Decree 50”). Although Sub-Decree 50 was issued, Prakas No. 089 dated 20 January 2020 on the Management of Real Estate Development Business (“Prakas 089”) remains valid and enforceable.
Similar to Prakas 089, Sub-Decree 50 was issued to determine the rules and procedures for managing and inspecting the real estate development business in Cambodia to ensure the effectiveness and transparency of management and control of the real estate development business, equity and balance of interests between developers and buyers, attracting investors and trust to the public preventing any financial risk in the real estate sector, and contributing to preventing money laundering activity in the real estate development sector.
There will be a number of new Prakas or implementing regulations are to be issued under this Sub-Decree 50 which we note that detailed procedures on granting business licenses or permits and the mechanism on management of business operation will be determined by the joint Prakas between the Ministry of Economy and Finance (“MEF”) and Non-Bank Financial Service Authority (“FSA”). Furthermore, the mechanism on inspection of real estate development business, the dispute resolution procedures and rules-procedures on administrative penalties and breach will be determined by separate regulations.
The Sub-Decree 50 contains 31 articles and 9 chapters which also provides the new competent authority to regulate the real estate development business in Cambodia and to manage and control the real estate development business to the Real Estate Business and Pawnshop Regulator (“RPR”) of FSA and the Provincial/Municipal Department of Economy and Finance (“PDEF”) that is the Etat Major of the RPR.
The Sub-Decree 50 categorizes the business licenses and permits in three categories:
- Category 1: License or permit for housing development business;
- Category 2: License or permit for co-owned building development business; and
- Category 3: License or permit for land lot development business.
In addition, the licenses or permits under category 1 (housing development business) and category 2 (co-owned building development business) above are divided into two sub-types of licenses and permits:
- Type 1: license and permit to be granted to any developer who has completely finished construction, prior to announcement for sales and leases; and
- Type 2: license and permit to be granted to any developer who, at the same time, starts construction and announces gradual sales or leases.
The detailed rules and procedures to obtain the above licenses or permits will be determined by a joint Prakas between the MEF and the FSA.
As of today, the rules and procedures to obtain the above business licenses or permits under the current Prakas 089 is still applicable.
Pursuant to this Sub-Decree 50, the defined term of “real estate development business” has been updated to include the business or investment activities for developing housing, co-owned building or land-lot for sale or lease”.
The “lease” was defined under the Sub-Decree 50 as the lease of land or building of a developer with a term of at least 10 years while the Prakas 089 determines only a long-term lease with the term of at least 15 years.
From general view of the Sub-Decree 50, it provides the main provisions covering the real estate business operation, inspection, reporting, dispute resolution and penalties for violation of Sub-Decree 50’s provisions.
- Real estate business operation: Under the provision of the real estate business operation of Sub-Decree 50, the developer with license or permit is required to fulfill their obligations under the sale and purchase or lease contract of which sample has been submitted to the RPR.
In addition, under the Sub-Decree 50, the developer has to apply for the property management license or cooperate with a licensed property management company after the handing over the house or co-owned building to the buyers. The developer needs to inform the RPR or PDEF on the name of the real estate agent who cooperatively sells the project of the developer.
According to the Sub-Decree 50, we do not see the provisions related to the buyer’s obligations while those are stipulated in the Prakas 089.
- Sale and Purchase Agreement or Lease Contract (“SPA or Lease”): The Sub-Decree 50 requires a number of terms and conditions to be included in the SPA or Lease, for instance, the parties, name of the project, project location, size of the property, date of construction commencement and completion, obligation of ownership transfer and liability in case of default and the list of the materials to be included in the house or co-owned building (etc.) where the condition of list of materials was not included in Prakas 089.
The same Sub-Decree 50 further provides that if the signatory of the SPA or Lease is not the legal owner or a lessee, the signatory is required to obtain a power of attorney from the owner or the lessee.
- Business Guarantee: The developer who wishes to obtain the license/permit under type 2 needs to deposit the business guarantee pursuant to the joint Prakas to be issued by MEF and FSA.
- Developer’s Account: The Developer must open a developer’s account in order to receive all kinds of deposit pursuant to the SPA or Lease; and this account can be closed until the development project has been completed and permitted by the RPR.
- Suspension and completion of the project: The licensed or permitted developer who wishes to suspend or finish the project has to file a written application to the RPR or PDEF. The detailed procedures will be determined by the joint Prakas between the MEF and the FSA.
- Inspection: The RPR or PDEF is entitled to nominate a competent authority to investigate or prevent any project from being carried out without any license or permit and to inspect any project under operation with a license or permit. Likewise, the developer has to provide any report or documents required by the RPR. The detailed mechanism for such inspection will be determined by a separate regulation.
- Reporting: The licensed or permitted developer is required to provide an audited financial annual report to the RPR no later than 3 months after each fiscal year and any other report as required from time to time by a separate regulation.
- Dispute Resolution: If there is any dispute related to the real estate development business, any party is entitled to file a complaint to the RPR before the dispute is referred to an arbitration or competent court, except for the criminal case. A detailed procedure of the dispute resolution will be provided in a separate regulation.
- Penalty: Any developer that violates the provision of the Sub-Decree 50 or any relevant regulations is subject to the administrative penalties as stated below:
– a written warning;
– prohibition from conducting operation or restriction for certain activities;
– temporary suspension of the license or business permit for from 6 (six) months to 1 (one) year;
– revocation of the issued license or permit or principle permit;
– freezing the real estate development account;
– freezing the business security deposit;
– making a public announcement about violation of the provisions of this Sub Decree 50;
– possible monetary fines; and
– taking any other action measures in accordance with the existing laws and regulations.
The Sub-Decree 50 does not provide any specific amount on the monetary fines while the details of rules-procedures on administrative penalties and breach will be determined by a separate regulation.
We note that the Sub-Decree 50 is effective from 2 March 2023 onward, and a number of new parkas and separate regulations are to be issued in order to implement many provisions of this Sub-Decree 50.
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The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.