Draft Amended Land Law (Vietnam)

Abolishment of land price bracket

Under the Draft, the land pricing system will comprise of “land price table” and “specific land price” instead of three types of land price as prescribed under the Current Law. The “land price bracket”, which is promulgated by the Government as a basis for the provincial People’s Committee (“PC”) to produce the “land price table”, will no longer be part of the land pricing system, and the PC will publish the land price table annually. According to the Current Law, the land price bracket (applicable to certain regions in the country) and the land price table (applicable to certain areas in the province) are published on a five year basis, whereas the specific land price is determined and approved by the PC on a case by case basis. This change is expected to give certain flexibility to the PC in determining the land price in its provinces.

As the land price is used for various transactions between the land user and the State, the Draft appears to continue the current regime that the land price in the table will often be set to be lower than the specific land price (although the Draft stipulates that the fixing of land price (land price table and specific land price) must be consistent with “the common price on the market in ordinary conditions”). This regime is aimed to allow the land users to pay less to the State in some special cases and pay full in other cases. In particular, the land price in the table and the specific land price will be used for the following different purposes:

Limitation on lump sum payment of land rent

The cases eligible for making a lump sum payment will be limited to the following two categories:

• using land to implement investment projects on agricultural production, forestry, aquaculture, salt production; and
• using industrial zone land, industrial cluster land, export processing zone land, or high-tech zone land

Under the Current Law, a user of land leased from the State may choose to pay land rent either annually (annual payment) or fully upfront (lump sum payment), and in the case of annual payment, the land user may apply for a permission from the competent authority to convert to the lump sum payment. In respect of the annual payment, land rent is fixed for a period of five years and thereafter, the relevant authority shall adjust the land rent in accordance with the applicable regulations. The Draft will continue with this regime of five years stability.

The lump sum payment of land use fee (applicable to land allocated for residential development) will remain unchanged.

More specific provision on extension of land use term

The Draft continues the principle for determining land use term as set out under the Current Law. The land use term is based on the operational duration of the project as approved by the competent authority. In any event, the land use term may not exceed 50 years; however, if the project requires a substantial amount of investment capital and needs a longer time to pay back, or otherwise locates in a location with difficult social-economic conditions, a longer land use term of up to 70 years may be granted.

Notably, the Draft, however, indicates that enterprises may be permitted to adjust their land use term before the expiry of the term as long as they obtain an approval for amendment of the operational duration of the project in accordance with the applicable law on investment (probably means amendment of investment policy approval (“IPA”) and/or investment registration certificate (“IRC”)). Additionally, the adjustment must be consistent with the annual land use planning and zoning of the relevant district and must satisfy the environmental conditions in accordance with the applicable law on environment protection. This new regulation is likely to be good news to those who wish to upgrade their factory but the remaining land use term is not long enough for paying back the upgrading costs and generating a reasonable profit.

Clearer regime for land auction and project tendering

Under the Draft, an investor may acquire land for his investment project by one of the following four methods:

1. land allocation or lease without land auction/project tendering,
2. land auction,
3. project tendering, or
4. agreement with existing land user.

Compared to the Current Law, the Draft specifies conditions and procedures for each method, especially the land auction method and project tendering method. In respect of land auction, the Draft contemplates that the land must have been fully cleared and a 1/500 master plan covering the land must have been issued by the competent authority.

For project tendering, the land may not need to be fully cleared but the project must fall into a category where land recovery by the State is permitted by law. In addition, if the project is a township project or commercial housing project, it must use a land area of 50ha or more in rural area and 20ha or more land in urban area.

The key conditions and typical cases of the four methods are summarized as follows:

The Draft also emphasizes that, instead of obtaining the land lease or allocation from the State (under method (i) through (iii) above), the enterprise may acquire land directly from the existing land users (method (iv) above). However, the enterprise may need to obtain permission from the competent authority to convert the land use purpose to be one that is suitable for the project and pay the additional land use fee/land rent to the State.

With respect to a township project, rural residential project or commercial housing project, that will use residential land (whether 100% residential land or a certain portion of project area is residential land and the remainder is other types of land), the enterprise is required to acquire the residential land and other land from the existing land users for the project; and if there is no residential land, the enterprise may only acquire the land by way of either land auction or project tendering (as the case may be). If the Draft is passed in its current contents, this can be deemed as a new policy affecting hundreds of township/residential development projects in the country which have been put on hold for many years due to lack of a concrete policy (consequently, they have not been able to obtain an IPA approving them as developers to develop the project). The developers of these projects have acquired land from the existing land users but no part of the acquired land is residential land.

Land clearance by the State for township project, rural residential project and commercial housing　project

Under the Draft, the State will handle land recovery (land clearance) for township project, rural residential project, and commercial housing project (among other things), if the project does not use any residential land. If there is certain residential land in the project area, the developer will need to acquire land through entering into agreement with the existing land users (rather than relying on the land clearance handled by the State).

Notably, the Draft includes commercial housing project in the list of projects that can rely on land clearance by the State. However, as noted above, the land clearance by the State will mean that the land must be put on public auction or project tendering, whereas under the Current Law, the State may clear the land and allocate/lease such land to the developer without needing to go through the land auction or project tendering process.

Further, the State will not clear land for the township project, rural residential project, or commercial housing project, if a certain portion of project land is residential land. This means the developer will need to acquire land directly from the existing land users in this case.

Leasing right is saleable or mortgageable

In addition to the concept of transfer/mortgage of “land use rights” as currently contemplated under the Current Law, the Draft introduces a new concept of sale/mortgage of “leasing right under land lease contract” provided this right will be exercised together with sale/mortgage of the assets on the land. To enjoy this right, the land user must have (i) completed the construction of assets on land and (ii) advanced money for the land compensation/clearance cost (which has not been fully deducted against land rent payable to the State). The new concept appears to reduce the adverse effect from the limitation on lump sum payment of land rent (as discussed above).

Under the Current Law, only the use rights in respect of land leased with lump sum payment of land rent (or allocated land with lump sum payment of land use fee) may be transferred or mortgaged. The user of land leased with annual payment of land rent is not permitted to transfer or mortgage the land use right (or leasing right).

Dispute settlement

Disputes relating to land will be settled by a competent court (the relevant people’s committee is required to provide relevant documents to the court). If the dispute arises from commercial activities relating to land, the dispute may be referred to either a competent court or arbitration. Currently, the dispute settlement body is subject to whether the land user has a land use right certificate (“LURC”) or not. If there is a LURC for the land, the dispute must be referred to a competent court, whereas if there is no LURC for the disputed land, a party may request either a competent court or competent people’s committee to settle the case. The Current Law also does not make it clear whether the dispute arising from commercial activities relating to a land can be referred to an arbitration for settlement.