Vietnam's new Land Law offers project developers more certainty and new complexities

By Giles Cooper, Ha Le, Huyen Nguyen, Son Tran, Minh Hoang
Energy Environment & Planning Vietnam

Developers and lenders: start preparing now 20 min read

Extensive changes to the Land Law are set to align the legal framework to acquire land more closely with practical realities, particularly for energy and infrastructure project developers. The new law is also expected to improve certain project owners' ability to borrow against land, addressing a long-time quirk in the law that penalised developers of nationally important energy and infrastructure assets entitled to exemption from land rent. Developers and lenders alike should pay special attention to the changes and, given traditionally long project development timelines in Vietnam, prepare now for the new law's application.

After 10 draft versions, Land Law 2024 was passed by the National Assembly of Vietnam in an extraordinary meeting in January 2024, replacing Land Law 2013. The new law aims to improve efficiency of land management and use in Vietnam and introduces significant changes impacting both domestic and foreign investors using land in Vietnam.

This Insight highlights some of the key changes, with a focus on issues of note for energy and infrastructure project development.

Quick glance of key changes

Move towards land leases with annual rental payment

Land Law 2024 makes a marked shift towards promoting annual payment of rent over one-off payment to ensure stable revenue source and avoid loss of State budget. Changes include:

  • fewer cases able to choose one-off payment of rent;
  • new ability to convert from one-off to annual payment; and
  • new 'lease right' concept for lessees of land with annual payment that can be transferred or leased.

While annual land rent will help reduce the upfront financial burden of investors, it also means they will not have long-term cost certainty as rent will be adjusted over time. It also means fewer lessees will be able to transfer or mortgage their land use rights, as such rights are not available to lessees that pay rent annually.

Land leases in economic zones and high-tech zones
  • People's Committees (instead of management boards of economic zones and high-tech zones) will be in charge of clearing and leasing land.
  • 70-year lease terms will no longer be expressly allowed in economic zones, only for high-tech zones.
Land rent reduction/exemption

If land rent is reduced or exempted under the law, economic organisations (both domestic and foreign invested) will enjoy the same rights and obligations as if they pay land rent upfront in full, thereby allowing mortgage and transfer of land use rights. In addition, Land Law 2024 expands the list of cases eligible to land rent exemption and reduction.

Land recovery, clearance and compensation for project development
  • The list of projects for which the State will be responsible to clear necessary land (ie 'projects for socio-economic development for national and public benefit') is now more detailed.
  • Linking land prices directly with market value rather than artificial State price tables (see section 6) should facilitate faster land clearance/compensation processes, but also add to expenses, and any benefit could be offset by other changes that may prolong procedures. 
  • Allowing developers to reach private agreement with existing land users to acquire land is a significant change, although subject to consent from provincial People's Committee. This change formalises a relatively common practice for project developers and will enhance developers' ability to properly recognise actual project expenses.
'Direct land lease/allocation', tendering for investor selection and land auction
  • For the first time, cases subject to 'direct land lease/allocation' (ie without holding a tender or auction), cases subject to land use right auction and tendering for purposes of investor selection are all gathered in one place, being the Land Law.
  • There will still be cases where renewable energy project investors can lease land directly without going through tendering or auction, but details won't be available until an implementing Decree.
Land price determination

Changes to the land price regime will have a major impact on all existing and future projects using land. Even though provincial People's Committees will still set land prices (based on market value), removal of the current five-year land price framework will provide greater flexibility to ensure land prices reflect market conditions. Land prices will likely be higher than previously, and will fluctuate annually rather than on a five-year basis as under current law. 

Other notable changes
  • More clarity on 'foreign invested economic organisation' (FIEO) definition.
  • Using land for multiple purposes is allowed.
  • Vietnamese commercial arbitration is allowed to resolve 'disputes arising from commercial activities relating to land'.
  • New regulation on sea reclamation of relevance to port, LNG-to-power projects and offshore wind projects.
  • Risk of land being taken back by the State for failure to pay land rent or land use fee.

Key changes

1. Major shift towards land leases with annual payment

Under Land Law 2013, investors are generally granted the flexibility to choose between two land lease methods: paying rent annually or one-off upfront payment for the full term. Land Law 2024 shifts towards promoting annual payment by reducing the cases where one-off payment can be made, and simultaneously introduces more rights for land users paying rent annually. Ostensibly, this change is to ensure stable revenue source and avoid loss to the State budget.

Fewer cases that investors can choose to pay one-off land rent upfront

Only in the following limited cases can land users opt to pay rent on a one-off basis upfront:

  • Using land to implement investment projects in agriculture, forestry, aquaculture and salt making.
  • Using land in industrial parks, industrial clusters, high-tech parks and worker accommodation in industrial parks.
  • Using land for public purposes having business purposes. This includesconstruction works for transportation, energy, telecommunications, water supply, drainage and waste treatment. For energy projects at least, this is status quo.
  • Using commercial and service land for tourism and office business activities.
  • Using land to build social housing for rent according to the provisions of housing law.

For other types of land that do not fall within the cases listed above (eg 'non-agricultural production and business land', which under Land Law 2013 potentially covers a wide range of privately funded projects), land users must pay land rent annually.

Notably, in the case of annual payments, investors cannot control the overall land rent payable given that the annual amount will be subject to adjustment over time. Another key concern when paying land rent annually is that the land user is not permitted to transfer or mortgage the land use right, both of which are permitted in the case of leasing land with a one-off payment. For cases where such rights are crucial (eg project financing), investors may be able to shop for the project location strategically (eg inside industrial parks) to secure their choice of paying rent upfront regardless of the project's business sector. That said, from experience, many local developers initiate projects and opt to lease land with annual payment rather than one-off payment (assuming land is not exempt from rent) for cost reasons. As a result, this change may not have a material impact on the status quo in practice. 

We note for completeness that if a land user has opted for a specific land rent payment method prior to the effective date of Land Law 2024, that option will be permitted to remain until the end of the relevant lease period (regardless of how the land/location would be categorised under Land Law 2024).

New right to convert from one-off payment to annual payment

While Land Law 2013 only allows conversion from annual payment to one-off payment of land rent, Land Law 2024 now allows the inverse, provided the relevant use falls within the cases for which Land Law 2024 allows one-off payment of land rent. In case of conversion to annual payment, land rent already paid upfront will not be refunded to the investors, but instead be deducted from the annual rent. Given a change to annual payment would not result in any cash back, and also limit the rights of the land user (no right to transfer or mortgage the land use rights), we do not expect to see this option used often in relation to projects.

Note that annual rent will be adjusted after the first five years of the lease term, however, Land Law 2024 provides certain stability such that the increase must not exceed a percentage approved by the Government (tied to the consumer price index (CPI)).

New right to transfer or lease the 'lease right' under the land lease agreement in case of annual payment

For land leases with annual payment, land users cannot transfer, sublease or mortgage the land use right. This principle remains unchanged in the new law. However, lawmakers appear to have sought to 'compensate' for this drawback by introducing a brand-new concept of a 'lease right' derived from a land lease agreement with annual payment. In particular, Land Law 2024 allows land users to transfer or lease this new lease right, provided it is done together with transfer or lease of assets attached to land and subject to certain conditions. Transfer of such lease right appears intended to be not just 'transfer of a right' but complete transfer of all the lessee's rights and obligations under the original land lease agreement to the transferee. The transferee in such case will be allowed to continue using the land with the same purpose within the remaining lease term and must carry out necessary land registration steps with the local authorities. It is less clear what form of lease of this new 'lease right' would entail, but it appears to be a form of sub-lease. More guidance is required to clarify this. Notably, the new law is silent as to whether this new 'lease right' can be mortgaged together with assets on the land—we expect this issue will be further clarified under the implementing regulations of the new Land Law.

2. Changes to land lease in economic zones and high-tech zones

The management board of an economic zone or high-tech zone used to be the authority in charge of managing and leasing out land located in the relevant zone. In economic zones, the management board is also required to carry out compensation and land clearance before leasing land to investors.

However, according to a report of the Ministry of Natural Resources and Environment (MONRE), practice has shown that management boards in economic zones lack resources and manpower to manage projects using land efficiently. Furthermore, the obligation to 'clear' land before leasing in economic zones also put pressure on the State budget. For those reasons, Land Law 2024 no longer delegates such power to management boards. This means that land in economic zones will be compensated, cleared and leased by the relevant provincial People's Committees. Similarly, under the new Land Law, management boards of high-tech zones no longer have the power to lease land.

The lease term for projects located in economic zones is no longer expressly allowed up to 70 years, but will be subject to the authority's determination, depending on the specific land use purposes. In contrast, Land Law 2024 expressly provides that the lease term for projects located in high-tech zones can be up to 70 years.

3. Changes to reduction and exemption of land rent

Under Land Law 2024, even if land rent is reduced or exempted pursuant to law (usually as an investment incentive to support encouraged sectors or investment in areas with socio-economic difficulties), economic organisations (whether purely domestic or FIEO) will still enjoy the same rights and obligations as if they paid land rent in full (ie including the right to transfer and mortgage their land use rights). This is very different from the position under Land Law 2013 where such actions were not allowed. In practice, the current position has complicated many project financings given energy projects are exempt from land rent—an incentive that limited their ability to secure financing. That said, under the new law, if such a land user transfers their land use right before expiration of the lease term, they will have to pay back the reduced/exempted rent to the State. Effectively the obligation to pay back rent becomes a debt towards the State—something that would have higher priority to settle than debts towards private entities, including lenders, in case of a liquidation event. Significant questions remain, however, as to how the quantum of such repayment would be determined given Land Law 2024 provides that, in case of land rent exemption/reduction, it is not required to determine land price or calculate the land rent. Furthermore, on its face, this obligation would seem to apply in case of a lender's enforcement of security over land resulting in transfer of land, something that would likely be complicated by the prior land user's presumed financial difficulties at the time.

In addition, Land Law 2024 expands the list of cases eligible to land rent exemption and reduction. Land used for projects in encouraged business sectors or areas remains in the list (with exception of commercial housing and 'commercial/service land'). This means renewable energy projects generally and LNG-to-power projects located in certain areas having socio-economic difficulties may still enjoy land rent exemption, but this can only be confirmed once the relevant Decree is issued. Some additional cases include: public-private partnership (PPP) projects, manufacturing warehouses, clean water supply projects and sewage treatment projects. The Government may add more cases to this list subject to consent from the Standing Committee of the National Assembly.

4. Land recovery, clearance and compensation for project development

One key change of Land Law 2024 is that it specifies the 'socio-economic development' purposes for which the State can recover land. This takes the form of a non-exhaustive list covering 32 items (Article 79). There is a 'sweeper' sub-clause to allow the addition of other projects not listed therein, though it would require the National Assembly to pass an amendment to the Land Law 2024 using an accelerated process to add such projects.

For projects falling within this list, the State will be responsible to 'clear' the necessary land (ie carry out compensation, relocation and land clearance), revoke the land from its existing users and allocate/lease the clean land to investors. To expedite the process, investors may advance the compensation money, which will later be offset against an applicable land rent/land use fee.

Prolonged land clearance and compensation procedures have long been a key factor in delays to infrastructure projects in Vietnam. One reason for the delays is that land users have been unhappy with the amount of compensation offered for land which, under current law, is based on artificial land price frameworks set each five years. Legislating that land compensation prices will be closer to actual market prices determined annually should help make outcomes more palatable to land users and therefore speed up land clearance processes. Nevertheless, other changes in Land Law 2024 might otherwise prolong the overall timeline to complete land recovery, clearance and compensation, eg:

  • The new law requires commune-level People's Committee to conduct consultation meetings with affected land users on proposed land recovery and compensation plans before issuing any land recovery notice. Under Land Law 2013, the land recovery notice is issued first, marking the official start of the land recovery process.
  • The timing for issuance of the land recovery decision—the final step in the reclamation process—is pushed back under the new law. Under current law, this decision is issued simultaneously with the decision approving the plan for land compensation and reallocation. However, under Land Law 2024, the land recovery decision can only be issued after the compensation and reallocation (if any) have actually been completed.

Land Law 2024 also introduces a new option for investors, in certain cases, to acquire land via direct agreement with the incumbent land users. In all cases, such private agreement with current land users must be subject to consent from a provincial People's Committee. This is a welcome move in principle, but the consent requirement raises questions as to how much autonomy parties have in negotiating such agreements. Land Law 2024 is silent on the specific conditions for such consent, so further guidance will need to be issued otherwise it will largely depend on the authorities' discretion.

5. 'Direct land lease/allocation', tendering for investor selection and land auction

Ever since the promulgation of Tendering Law 2023, there has been a major black spot that could not be adequately solved by Land Law 2013. Unlike its previous iteration, Tendering Law 2023 does not list out cases where tendering is required to select investors, but refers to the land law or specialised laws to determine this need. However, the current Land Law 2013 lacks clear terms on investor selection, which created inconsistency and confusion in implementing Tendering Law 2023.

Land Law 2024 appears now to have closed this gap. For the first time, allocation or lease of land via tendering for selection of investors with respect to projects using land is expressly included in the Land Law (although this is not yet a one-stop shop). For completeness, these tendering cases, together with cases where auction of land is required, and cases where either of these methods applies, will need to be read together with Article 29 of Investment Law 2020 on investor selection, amongst other regulations. For specific requirements and procedures of tendering, investors will still need to look into Tendering Law 2023 and its guiding documents.

'Direct land lease/allocation'

Cases where investors can lease/be allocated land without having to go through either a land use right auction or tendering for investor selection are:

  • allocation of land without land use fee or land use fee is exempted, unless the specialised law requires determination of the number of investors with interest;
  • land lease with land rent exempted, unless the specialised law requires determination of the number of interested investors;
  • projects the land for which shall be recovered by the State (Article 79 projects) that use public investment capital;
  • PPP projects;
  • Article 79 projects that do not use public investment capital and the specialised law requires determination of the number of interested investors, but only one investor meets the interest calling requirements;
  • having carried out a land use right auction twice but unsuccessfully—ie there is only one person registering to participate or there is no participant;
  • a foreign invested economic organisation being transferred real estate projects; and
  • certain cases relating to land users being individuals.

In general, this list of projects eligible for 'direct land lease/allocation' is broader than that set out under Land Law 2013. The list is also non-exhaustive as it contains a catch-all provision covering other cases as 'decided by the Prime Minister'.

Based on the above list, for privately funded projects such as a solar/wind power plant or a port, 'direct land lease/allocation' may apply in three instances:

  • the land rent for the project is exempted (see further section 3) and specialised laws do not require to determine the number of interested investors. Currently we are not aware of such requirement for wind and solar power plants as well as ports;
  • if specialised laws in the future require determination of the number of interested investors but only one investor meets the interest calling requirements; or
  • a land auction fails twice for the reason that there is only one person registering to participate or there is no participant.
Tendering to select investor for projects using land

Under Land Law 2024, tendering is compulsory to select investors for projects using land in the following cases:

  • investment projects to build a new or renovate urban areas with mixed service functions; rural residential projects; or
  • investment projects using land which requires land recovery and having to organize tendering to select investors according to specialized laws.

This means that, other than urban areas projects and rural residential projects (as set out in the first bullet point above), potential investors must look into the specialised laws to see whether their contemplated projects using land are subject to mandatory tendering procedures for investor selection. In absence of which, potential investors will have to look further to the cases of land auction under Land Law 2024 and investor selection under Investment Law 2020, to know how investors will be selected for the projects.

Unless new specialised regulations for the renewable energy sector require tendering to select investors (there is no such requirement at present, but it has been mooted), tendering pursuant to the Land Law for selection of renewable energy investors will not be required. However, in practice, there are still cases where provinces actively choose to carry out tenders (on an ad-hoc and voluntary basis) even though tendering is not compulsory at law.

Land use right auctions

Land Law 2024 has simplified some of the rules on land auctions in comparison to Land Law 2013.

First, with respect to types of land subject to auctions, all land areas (eg land use for public purpose, land having water surface, land under management of the land development funds or unused land) that are managed by the State can be put out to auction, provided they do not fall under cases of direct land lease/allocation (Article 124) or tendering for investor selection (Article 126). The provisos here (direct lease/allocation and tendering) mean the provision is not as broad as it might first appear. For example, if the relevant land falls within the case of rent exemption, then no land auction process would be required. Under Land Law 2013, renewable energy projects are subject to land rent exemption, thus the land for those projects is not required to be auctioned. Under Land Law 2024, this likely remains unchanged, though needs to be confirmed in the guiding Decree in due course.

Second, auction of land is not applicable where the State leases land with annual payment, but only for allocation of land with a one-off land use fee (applicable only to domestic land users) or leasing land with a one-off payment. Under Land Law 2013, authorities may choose to apply land auction regardless of the land rent payment method.

Third, Land Law 2024 requires that the land area to be auctioned must be 'clean'—ie all the land recovery, clearance, compensation and reallocation for such land area has been completed. This is a higher condition as compared to Land Law 2013, which only requires completion of the land clearance step. Such 'clean' land must also be within a project area with established transport infrastructure. For housing projects, the 1/500 detailed master plan for the relevant land plot must also be approved if the authority wants to conduct a land auction.

In general, we believe these changes to the land auction regime will not likely affect development of large-scale projects, given they usually require land recovery and thus do not qualify for land auction, but instead tendering for investor selection. In addition, if land rent or land use fee is exempted (which is likely for projects falling within encouraged sectors or located in geographic areas with special conditions), then land auction will not apply either.

Nevertheless, if a project is subject to land auction, we expect the overall timeline for project development might be extended given the stricter rules and new time limit on 'direct land lease/allocation' in the event of a failed auction. In particular, a 'direct land lease/allocation' can only be conducted within 12 months from the date of a second failed auction, (failing which the land must be subject to re-auction).

6. Land price determination

One of the key principles of Land Law 2024 is that land price must be determined in accordance with the market price. To be more specific, the land price will be determined based on the purpose, the term, inputs required in the relevant method used for calculating the land price, relevant regulations and other factors impacting the land price. These other factors could include land price recorded in national data base, land price recorded in contracts, land price collected after survey and information regarding expense or income received from the use of the land.

As such, Land Law 2024 has removed the land price framework that used to be issued by the Government every five years as the basis for provincial People's Committees to formulate their land price tables. Instead, starting from 2026, each province will calculate its land price table annually using different calculation methods and factors provided at law as discussed above. 

Changes to land pricing will inevitably have a huge impact on all existing and future projects using land. Even though provincial People's Committees will still set the land prices, the removal of the five-year land price framework issued by the Government gives them greater flexibility to adjust prices to reflect the market. Land prices are expected to be higher (closer to market practice) and will no longer be stable for five-year terms anymore, but rather adjusted annually. This will result in changes (and uncertainty) when seeking to finance projects using land. In addition, change to land prices will significantly impact land compensation amounts to be paid to land users and hence the entire land recovery process as discussed above. Uncertainty remains as to how 'market prices' will be determined for land and we expect further detailed provisions to be issued to clarify this point. Despite likely higher costs for land, a major benefit is that the actual cost of land acquisition should be properly recognised for project development cost purposes. To date, additional amounts paid over and above the land price frameworks (required in practice to acquire land in many cases) has not been recognised as project costs.

7. Other notable changes

Below is a brief snapshot of other significant changes in Land Law 2024:

More clarity on 'foreign invested economic organisation' (FIEO) definition

Land Law 2013 defines 'foreign-invested enterprise' to capture all enterprises with foreign ownership, regardless of ratio. Under Land Law 2024, an FIEO is an 'economic organization that must meet the conditions and carry out investment procedures prescribed for foreign investors according to the provisions of the Law on Investment to implement projects using land.' The new definition can be interpreted in two ways. First, it could refer to Article 23.1 of Investment Law 2020 (covering economic organisations which must meet the conditions and carry out investment procedures prescribed for foreign investors). If so, the scope of captured FIEOs is different under Land Law 2024. In particular, enterprises having less than 50% direct foreign ownership will likely no longer be considered FIEOs for purposes of Land Law 2024 and can therefore be treated similar to purely domestic organisations. On the other hand, enterprises having more than 50% direct or indirect foreign ownership will likely be considered FIEOs for purposes of Land Law 2024. Alternatively, the new definition could refer to Article 3.22 of Investment Law 2020 under which FIEOs are enterprises having foreign investor(s) as member(s)/ shareholder(s). This echoes the FIEO definition under the current Land Law. As of this Insight's date, evidence suggests that MONRE favour this second interpretation based on a MONRE official's presentation at a recent public event. The status of an FIEO would impact the right to use land of the relevant entity, as in principle rights and obligations of the domestic organisation would be broader than those of an FIEO.

Using land for multiple purposes

A land area can now be used for multiple purposes provided that, among other conditions, land can still be converted to its 'main' purpose anytime and such multi-purpose use does not impact national security. For example, this change means agricultural or non-agricultural land can also be used for construction of telecommunication infrastructure or solar power plants without having to conduct procedures to convert the recorded land use to public purpose use. This change signifies a potential development for new business models such as an agri-solar power project, though more guidance is expected on this new way of using land.

Use of arbitration

Land Law 2024 expressly allows parties to choose Vietnamese commercial arbitration to resolve 'disputes arising from commercial activities relating to land'. Land Law 2013 only refers to People's Committee and courts as venues for resolving land disputes. While a welcome change on the face of it, the key question here is still what would constitute a dispute arising from commercial activities relating to land (eg whether a land use right transfer agreement or a mortgage agreement qualifies). If this is not defined more clearly, there will be arguments as to whether a dispute falls within this category, risking the validity of an arbitral award on same.

Sea reclamation

Land Law 2024 sets out, for the first time, principles and competent authorities responsible for land reclamation activities. Sea reclamation activities in certain areas (such as in port-related areas) are subject to in-principle approval from the National Assembly or the Prime Minister. This is highly relevant to projects having port components or power projects such as LNG-to-power projects or offshore wind projects. While awaiting further guidance from the Government, one immediate noteworthy point is that Land Law 2024 makes it clear that allocation of sea area will be conducted simultaneously with land allocation/land lease.

Risk of land being taken back by the State for failure to pay land rent or land use fee

Under Land Law 2013, if a land user fails to pay land use fees or land rent when due, the authorities must impose an administrative fine first, giving the land user a second chance to make the outstanding payment, before having any power to take back the land. Land Law 2024, however, empowers authorities to immediately take back land following missed payments without having to impose an administrative fine first. Investors, especially those that pay land rent annually, should pay extra attention to ensuring they meet their land payment obligations.

What's next?

Land Law 2024 will take full effect on 1 January 2025, though certain provisions on sea reclamation (Article 190) and amendments to the Forestry Law 2017 (Article 248) will take effect from 01 April 2024.

The MONRE is expected to develop five Decrees and 15 Circulars to implement the new Land Law. The first drafts of four such Decrees (listed below) have been released for public comment:

  • Decree on guidance for implementation of the Land Law.
  • Decree on compensation, support and resettlement upon land recovery by the State.
  • Decree on basic land survey; registration and issuance of the certificate of land use rights and assets attached to land, and land information system.
  • Decree on land prices.

The draft Decree on administrative sanctions relating to land is not yet public.