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Legal Update

Methods to Determine and Manage Management Fees for Apartment Buildings

12 January 2010
Mayer Brown JSM Legal Update

Summary

The Ministry of Construction issued Circular No. 37/2009/TT-BXD on 1 December 2009 providing guidance on the method to determine and control management fees for apartment buildings ("Circular 37").

Full Update

Circular 37 provides guidelines on methods to determine and control management fees for apartment buildings; and responsibilities of the relevant parties regarding such management fees.

Circular 37 will officially take effect from 15 January 2010.

The Principles to Determine Management Fees

Management fees for apartment buildings must be approved by 50 percent or more of members of the management committee of an apartment building in the form of voting or secret ballot. Where the apartment building has not established a management committee, the apartment building management fees must be unanimously approved by 50 percent or more of the residential households living in the apartment building in the form of voting or secret ballot. Where the management fees for an apartment building are already agreed upon in the apartment purchase and sale agreement, such management fees will be applied.

Service expenses of an apartment building included in its management fees shall be collected and made on the principles of self collection, self settlement, and publicity in order to ensure the normal operation of the apartment building.

Proceeds from conducting business in other services of the common areas in an apartment building (if any) shall be accounted for in compliance with financial regimes stipulated by the Ministry of Finance and in order to offset service expenses of the apartment building for the purpose of reducing the apartment building management fees.

Method to Determine Management Fees

The services of an apartment building shall comprise controlling and maintaining operation of the equipment of the common areas of the apartment building, security, hygiene, garbage collection, gardening, pest control and other services to ensure the normal operation of the apartment building.

The apartment building management fees shall comprise the following:

  • Management expenses of the apartment building including direct expenses, expenses for general management by the managing and operating enterprise and expenses of the management committee (if any)
  • A reasonable rate of profit for a management company in charge of the management of the apartment building ("Management Company") is a maximum of ten percent (10%) of the service expenses of the apartment building upon deduction of proceeds from conducting business in the common areas of the apartment building and
  • VAT

Circular 37 also includes a formula to calculate management fees.

Control Management fees

An investor in an apartment building shall determine and make a plan on the collection of management fees, providing a basis for entering into contracts for purchase and sale of apartments and contracts for provision of services of the apartment building.

The Management Company shall take the initiative in calculating and determining apartment building management fees in accordance with guidelines in this Circular for submission of same to the investor (if any), providing a basis for approval by the management committee or by the households currently living in the apartment building.

The management committee shall be responsible to monitor and supervise the performance of the Management Company in accordance with the management agreement; check, accept and make payment and liquidate the agreement with the Management Company; and directly collect, or authorize the Management Company to collect the management fees.

Organisation of Implementation

The provincial People's Committee sets a fee schedule for management fees; and authorizes the Department of Construction to handle any disputes relating to management fees.

Management fees which are higher than the amount of fees, or the apartment building management fee range, issued by the provincial People's Committee which are approved by more than fifty percent (50%) of the households currently living in the apartment building or by more than fifty percent (50%) of members of the management committee shall apply and must also be reported to the provincial People's Committee and the Ministry of Construction for monitoring and inspection.

Where there is any dispute relating to apartment building management fees, the Management Company shall be permitted to conduct provisional collection on the basis of the ceiling amount of fees or the amount of fees stated in the apartment building management fee schedule promulgated by the provincial People's Committee up until the time the dispute is resolved.

For inquiries related to this Client Alert, please contact:

David Lim ( )

Hong Than ( )

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