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Each Industrial zone in Vietnam is developed by an Infrastructure Development Company. These companies lease large areas of land from the government, which have been zoned for production and business activities. They build infrastructure, divide the land into smaller lots, and sublease these plots to other companies. The companies that lease the land construct manufacturing plants and carry out production and business activities. Due to market demand and business plans, the transfer and acquisition of manufacturing plants are quite common. Below are some legal issues that buyers need to consider when engaging in such transactions:
Legal Documentation
Before deciding to acquire, the buyer must thoroughly review the legal documents of the manufacturing plant provided by the seller. Key documents include:
- Land Sublease Agreement: This is an agreement between the seller and the Infrastructure Development Company, detailing the rights and obligations of the seller regarding the leased land, such as rental prices, annual or one-time rental payments, transfer rights of the manufacturing plant, financial obligations in case of transfer, etc.
- Certificate of Land Use Rights, Ownership of Housing, and Other Assets Attached to Land (“Land Use Rights Certificate”): Although the seller leases land from the Infrastructure Development Company, registration with the competent state authority is still required, and the seller is issued this certificate.
- Investment Registration Certificate: To conduct production and business activities, the seller must register its manufacturing plant project with the Industrial zone Management Board.
In addition to these key legal documents, buyers should review other documents such as construction permits, environmental permits, and utility contracts within the Industrial zone.
Based on the legal due diligence results, the buyer can assess whether the legal status of the manufacturing plant complies with regulations.
Rights to Transfer the Manufacturing Plant
Depending on the legal status of the seller’s land lease, the transfer of the manufacturing plant can be conducted under different legal methods:
- Annual rental payments for leased land: The seller can transfer assets attached to the land and is given priority to continue leasing the land from the Infrastructure Development Company.
- One-time rental payment for the entire lease term: The seller can transfer the land use rights and the assets attached to the land.
Responsibilities Toward the Infrastructure Development Company
Each Industrial zone has its own procedures for transferring manufacturing plants. The parties should seek advice and guidance from the Infrastructure Development Company to ensure a smooth transaction. Moreover, the Land Sublease Agreement may contain specific provisions related to the transfer, which require careful review:
- Notification or approval: Depending on the agreement, the seller may need to notify or obtain written consent from the Infrastructure Development Company for the partial or full transfer of the manufacturing plant.
- Transfer fees: In many cases, aside from fees such as registration tax or state-imposed taxes, the parties may need to pay a transfer fee to the Infrastructure Development Company. This fee might be specified in the Land Sublease Agreement (e.g., 1% of the transfer price) or imposed by the Infrastructure Development Company even if not explicitly mentioned. The transfer fee amount and payment responsibility should be clarified in the transfer agreement.
- Land rental fees: If land rental is paid annually, the buyer must renegotiate and sign a new Land Sublease Agreement with the Infrastructure Development Company. The rental terms, particularly the rental price, might change significantly compared to the original agreement.
- Signing new agreements: Apart from signing a new land lease agreement (or amending the existing one), the seller must terminate utility contracts within the Industrial zone, such as those for waste treatment and water usage. The buyer will then need to sign new contracts for these services.
Responsibilities Toward Competent Authorities
- Land use registration update: The parties must register land use changes with the Land Registration Office where the manufacturing plant is located. A new Land Use Rights Certificate will be issued to record the buyer as the new land user.
- Investment project registration: The buyer must apply for a new Investment Registration Certificate for the manufacturing plant before commencing operations. Simultaneously, the seller must terminate the existing investment project or adjust their Investment Registration Certificate for land area and project scale in cases of partial transfer.
- Other obligations: Depending on the buyer's production and business activities after acquiring the plant, they may need additional approvals, such as environmental or fire safety permits.
Other Legal Issues
- Mortgage release prior to transfer: If the property is mortgaged as collateral for financial obligations, the seller must complete the mortgage release procedures before the transfer. This often requires settling debts or financial obligations, which could significantly affect the transaction structure.
- Contract notarization: The transfer agreement between the buyer and the seller must be notarized at a notary office to be legally effective, provided neither party is a real estate business entity.
The above outlines some fundamental legal issues related to transferring manufacturing plants within Industrial zones. Depending on the specifics of each Industrial zone or the legal documentation of individual manufacturing plants, the legal issues to be considered may vary. Buyers should exercise caution in reviewing these aspects.
For any questions or comments, please contact:
OTIS AND PARTNERS LAW FIRM
Office address: 2nd Floor, CT3 Building, Yen Hoa Park View Urban Area, No. 3 Vu Pham Ham Street, Yen Hoa Ward, Cau Giay District, Hanoi
Email: [email protected]
Hotline: (+84)987748111
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