Construction on Leased Land from Individuals: Legal Considerations for Businesses

As land resources become increasingly limited, leasing land from individuals or other entities for business operations has become a common solution for many enterprises. However, not all businesses fully understand the legal regulations surrounding the construction of facilities on leased land—especially when the lessor is an individual. 

A lack of legal awareness or a subjective approach during implementation can lead to serious legal risks, such as disputes over ownership of the constructed property, denial of construction permits, or ineligibility for compensation when the State reclaims the land. This article analyses key legal issues that businesses must consider to ensure lawful and secure investment when building on land leased from individuals. 

1. Conditions the Lessor Must Meet

According to Article 37 of the 2024 Land Law, individuals who are allocated land by the State within the prescribed limits; land allocated with land use fees; land leased with a one-time payment for the entire lease term; land with recognized land use rights; or land acquired through transfer, exchange, donation, or inheritance—are permitted to lease land use rights to organizations, individuals, or overseas Vietnamese investing in Vietnam. 

However, to lease land, the land user must meet the conditions specified in Article 45 of the 2024 Land Law, including: 

• Possession of a valid Land Use Rights Certificate or a Certificate of Ownership of Residential Housing and Land Use Rights; 

• The land must be free of disputes, or any disputes must have been resolved by a competent authority, with legally effective judgments or decisions; 

• The land use rights must not be subject to seizure or enforcement measures under civil judgment enforcement laws; 

• The land must be within its legal usage term; 

• The land use rights must not be subject to temporary emergency measures under applicable laws. 

If the lessor falls under special categories—such as ethnic minorities granted land under State support policies, or land leased from the State with annual payments—additional specific conditions must be met before exercising the right to lease (Article 45.3 of the Land Law). 

Additionally, if the land user has deferred financial obligations or is recorded as owing financial obligations, these must be fulfilled before exercising rights such as transfer, lease, sublease, donation, mortgage, or capital contribution using land use rights (Article 45.5 of the Land Law). 

Households and individuals who meet the above conditions are permitted to lease their land use rights. 

2. Verifying Land Use Purpose

Under the Land Law, land used for constructing commercial, service, or business-related facilities (such as those built by enterprises for their operations) is classified as commercial and service land, which falls under non-agricultural land (Articles 9.2 and 206 of the 2024 Land Law). Meanwhile, land held by individuals is typically designated for non-commercial purposes (e.g., residential or agricultural use). 

Therefore, when leasing land from individuals for business activities, enterprises must verify the land use purpose and, if necessary, apply to convert it to commercial and service land in accordance with legal regulations. Key considerations include: 

• Land use term after conversion: When converting residential land (non-agricultural land with long-term stable use) to commercial and service land (non-agricultural land with a fixed term), the converted land may still be used long-term (Articles 171.11 and 173.3 of the Land Law). 

• Compliance with zoning and land use plans: The conversion must align with the area’s zoning and land use plans. Therefore, parties should verify whether the land can be converted to commercial and service use before signing the lease agreement. 

• Challenges in reverting land use purpose: After the lease term ends, reverting the land from commercial and service use back to residential use requires approval from competent authorities (Article 121 of the Land Law). This process can be costly, time-consuming, and subject to rejection depending on the authority’s discretion and the area’s zoning at the time. 

Constructing facilities on land leased from individuals requires careful legal scrutiny—not only of the lessor’s qualifications and the land’s designated use, but also of the broader legal framework to mitigate potential risks. Once the basic conditions regarding land use rights and zoning are met, businesses must continue to pay close attention to other legal aspects such as the lease agreement’s content and form, procedures for obtaining construction permits, and the establishment of ownership rights over the constructed property. These issues will be analyzed in detail in the next section to provide businesses with a comprehensive and proactive approach to investment. 

3. Entering into a Lease Agreement

According to Article 27 of the current 2024 Land Law, lease agreements or sublease agreements for land use rights and assets attached to land are not required by law to be notarized or certified. However, the parties may still choose to have the agreement notarized or certified if they wish. 

To protect the interests of the lessee and facilitate future business-related procedures, it is advisable for the lease agreement to be notarized. The agreement should also clearly specify the following key terms: 

• Lease term: If the lessee intends to construct permanent structures and conduct long-term business, it is recommended to include provisions granting the lessee the right to proactively renew or extend the lease. 

• Land use purpose: The land use purpose should be consistent with the business activities of the enterprise. 

• Right to construct and own buildings: The lessee’s right to construct and own buildings on the leased land during the lease term should be clearly stated. 

• Handling of buildings upon lease expiration: Depending on the type of structure built and the intended use of the land by the lessor after the lease ends, the parties may agree on appropriate solutions to protect their interests, such as dismantling the structure and restoring the land to its original condition, transferring ownership of the building to the landowner at a preferential value after depreciation, etc. 

4. Recording the Lessee in the Land Use Rights Certificate (LURC)

According to Article 95.4 of the 2013 Land Law, for land that already has a certificate, the land user who leases or subleases the land use rights must carry out procedures for registration of changes in accordance with the law, regardless of the lease purpose. Accordingly, after signing the lease agreement, the lessee may proceed with the procedures for land change registration and have their information recorded in the LURC. 

However, the change registration provisions in Article 133 of the 2024 Land Law only mention registration in cases where land use rights are leased or subleased for infrastructure construction and business projects. 

Currently, the Land Law and its guiding documents do not clearly define whether infrastructure business projects refer only to industrial parks, industrial clusters, or may include other types of projects. Therefore, businesses should consult with local authorities before implementation to minimize risks. 

5. Construction Permit

According to legal regulations, construction works must have a construction permit issued by a competent authority, except for cases exempted from construction permits (Article 89.1 of the 2025 Consolidated Construction Law—hereinafter referred to as the Construction Law). 

The application for a construction permit must be carried out by the project owner in accordance with Article 102 of the Construction Law. By law, the project owner is the agency, organization, or individual that owns capital, borrows capital, or is directly assigned to manage and use capital for construction investment activities (Article 3.9 of the Construction Law). Accordingly, the lessee may act as the project owner. 

It should be noted that recording the project owner on the construction permit will serve as a basis for proving ownership of the construction work when registering ownership rights in the future. 

Conclusion: 

Although the law does not prohibit it, constructing facilities on land leased from individuals carries significant legal risks if businesses do not proactively research and fully comply with relevant regulations. From verifying the legal status of the lessor and checking the land use purpose, to executing the lease agreement, registering changes, and obtaining construction permits—each step must be carried out carefully, transparently, and with consultation from legal experts or competent authorities. Only by ensuring all these factors can businesses confidently invest, operate efficiently, and safeguard their legitimate interests. 

Date written: 20/08/2025

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