Buying assets on leased land with annual rental payment, a new point of the land law 2024

The Land Law 2024 contains numerous new provisions that address the deficiencies and impediments of the former law, thereby establishing a legal corridor that is both transparent and unambiguous in its approach to land management. Nevertheless, there are numerous regulatory issues that are not reasonable, that can be explained by a multitude of interpretations, leading to confusion in the application process. Among those regulations is the regulation on the sale of assets on leased land with annual rental payment in Article 46 of this Law. 

Assets must be registered 

For leased land with annual rental payment, land users are not permitted to transfer, donate, mortgage or contribute capital with land use rights but are entitled to sell assets on the land. After going through 06 drafts, from the 4th draft to the 9th draft, receiving numerous comments from agencies, departments and experts, this condition has been stipulated in the Land Law 2024 as follows: 

The Land Law 2024 supplements the condition that assets must be “registered in accordance with the law” prior to being sold. The purpose of integrating this condition is to prevent cases of profiteering from the transfer of lease rights where in fact the construction has not yet been implemented or only a small portion of the project has been constructed. However, the definition of “registered asset” has not been explicitly defined. Presently, there are two different points of view as follows: 

First viewpoint: 

The asset must have the construction completed, be registered and have the ownership of construction works recognized by the State (certification of completion). 

Second viewpoint: 

The asset must have the construction completed and have the dossier of registration of the ownership of the works submitted to the competent State agency and have the submission accepted. 

Currently, the majority of State agencies and notary offices are opting to interpret in accordance with the aforementioned first viewpoint above. Therefore, in case the works on the land have been granted with a construction permit, have the construction completed but have not been granted with certification of completion, it is still disqualified for purchase and sale.  

Assets forced to be sold under decisions of State agencies 

In order to handle cases of coercive sale of property under decisions of State agencies, Point b, Clause 1, Article 46 provides that assets sold under valid court judgments or decisions, enforcement decisions of civil judgment enforcement agencies, or conclusions of competent state agencies in charge of inspection and examination, are not required to complete the construction in accordance with the detailed construction planning and the accepted and approved investment project (if any). This is also a regulation that leads to 02 distinct interpretations and results in confusion during the implementation process: 

Interpretation 1: 

Assets sold under valid court judgments or decisions, enforcement decisions of civil judgment enforcement agencies or conclusions of competent state agencies on inspection and examination do not need to meet the conditions of “registered” specified at Point (a). The reason is that no asset can have its ownership recognized until the construction is completed according to the plan or the issued permit. 

Interpretation 2: 

Clause 1 of Article 46 stipulates that the assets for sale must meet “all conditions”, including the condition at point (a) “assets are lawfully created in accordance with law and registered”. Therefore, regardless the asset is sold under a valid judgment or decision of the Court, an enforcement decision of a civil judgment enforcement agency or a conclusion of a competent state agency on inspection and examination, it must also be registered. 

The interpretation 2 above is currently adopted by numerous judgment enforcement agencies and asset auction units, leading to the sale of unregistered assets being subject to many obstacles. If the sale continues, since the asset is not eligible for sale, so the auction results may be canceled. If it comes to the case requiring the obligor to complete the registration before resuming the sale, it is not feasible because the asset owner refuses to cooperate. 

Upon looking into the process of developing Article 46, the writer realized that, by Point b, Clause 1, Article 46, the lawmaker intends to establish an exception for the sale of assets under the decision of the State Agency compared to the sale of assets under ordinary civil agreements as interpreted in Interpretation 1 above. The structure and arrangement of Clause 1 Article 46, however, are not entirely clear and difficult to interpret and implement in this direction. Therefore, it is crucial that the Government provide more explicit guidance to ensure that the drafting agency’s objectives are adequately supported for implementation. 

Transfer of leasehold rights 

According to Clause 2, Article 46, concurrently with the sale of the property, the lessee has the additional right to transfer the leasehold right in case the lessee has advanced the compensation, support and resettlement money but such amount has not fully been deducted from the payable land rental. There is a new entitlement for land users who leases with annual land rental payment. The objective of this regulation is to compensate and reimburse the lessee for the expenses that were spent prior to leasing the land. This is equitable for land users but may result in complications when handling assets according to court judgments and decisions. 

In case the asset is sold together with the leasehold right under an agreement between the parties, there is no issue. However, in case the seller is forced to sell the asset under the decision of the State agency or the judgment of the court, problems may arise. Court judgments and decisions only force the seller to sell the asset on the land, not the leasehold right as this right only becomes enforceable after the Land Law 2024 takes effect (August 01, 2024). Pursuant to Clause 2, Article 46, leasehold rights are understood as property rights. Therefore, in case the asset owner is forced to sell the asset, the asset owner will rely on this regulation to refuse to hand over the land if the acquirer does not reach an agreement with the seller on the leasehold right transfer price. The law does not mandate that the transfer price of the leasehold right must be equal to the investment value that has not been fully deducted, nor does it mandate that the acquirer is automatically entitled to inherit the rights of the seller in case the leasehold right arises. 

Therefore, when acquiring assets on leased land with annual rental payment, acquirer need to pay attention to this issue to avoid the risk of encountering problems in the process of receiving and handing over assets and receiving leasehold rights. This is also a matter that necessitates the Government’s guidance. 

See more:

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3/ Is it permissible to rent or borrow premises from public schools to install ATMs or vending machines?

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