POSITIVE IMPACTS OF THE NEW LAND LAW AND REAL ESTATE BUSINESS LAW ON M&A ACTIVITIES - OTIS LAWYERS

Mergers and acquisitions (M&A) in the real estate sector have always been dynamic activities that attract significant interest and participation from both domestic and international investors. In this sector, M&A transactions are largely regulated and influenced by the Land Law and the Real Estate Business Law. Recently, the National Assembly passed the Real Estate Business Law 2023 and the Land Law 2024. Both of these crucial laws will take effect at the beginning of 2025 and are expected to have significant impacts on M&A activities in Vietnam's real estate sector.

In the article below, we will outline some positive impacts of the Land Law 2024 and the Real Estate Business Law 2023 on upcoming M&A activities.

Regulation on Selling Leasehold Rights in Annual Land Lease Contracts

The concept of leasehold rights in land lease contracts is newly introduced in the Land Law 2024. Accordingly, it refers to the rights of land users formed when the state leases land and collects annual rent. Land users can transfer their leasehold rights in land lease contracts; the transferee of these rights will inherit the rights and obligations of the land user according to the Land Law and other related legal provisions.

Although the definition is quite broad, specific regulations on the transfer of leasehold rights in land lease contracts in Article 46 of the Land Law 2024 show that this is a provision for a rather specific case. Specifically, land users can sell assets attached to the land and the leasehold rights in the contract when they meet the conditions for selling the attached assets and have prepaid compensation, support, and resettlement costs that have not been fully deducted from the payable land rent. This regulation aims to resolve issues where land users leasing land with annual rent payments have prepaid compensation and support costs that have not been fully deducted from the land rent payable, allowing them to sell assets attached to the land.

Under current regulations, selling assets attached to the land leads to the state reclaiming the leased land from the seller to lease it to the buyer, who must sign a land lease contract and fulfill financial obligations for the remaining lease period. The current regulation does not address the issue of offsetting or refunding the prepaid compensation and support costs that have not been fully deducted from the land rent payable. This has been a sticking point in many M&A transactions involving the sale of assets attached to the land, as sellers often consider that they still have to pay land rent even though these costs may have been included in the sale price.

The new regulation in the Land Law 2024 addresses this issue, allowing the prepaid compensation, support, and resettlement costs that have not been fully deducted from the payable land rent to be transferred to the buyer, who will not have to pay rent for this period. This promises to save the buyer a significant amount of transaction costs.

More Favorable Conditions for Transferring Real Estate Projects

According to Clause 2, Article 49 of the Real Estate Business Law 2014, one condition for transferring part or all of a real estate project is that the transferring investor must have a certificate of land use rights for the entire or part of the transferred project. This provision poses difficulties for actual transfers since a real estate project may meet all conditions for transfer but cannot be transferred if there are issues with obtaining the land use rights certificate.

Therefore, the removal of the requirement for a land use rights certificate in Clause 3, Article 40 of the Real Estate Business Law 2023 creates a more favorable environment for project transfers. This regulation is also consistent with the reality, as Clause 10, Resolution 42/2017/QH14 of the National Assembly on pilot bad debt handling by credit institutions allows credit institutions, foreign bank branches, and debt management and asset recovery companies to transfer secured real estate projects when certain conditions are met without requiring the investor to have a land use rights certificate. This inconsistency created unfairness, as similar projects not used as collateral could not be transferred without the certificate.

Thus, the adjustment in the Real Estate Business Law 2023 to remove the requirement for a land use rights certificate is reasonable and facilitates M&A activities.

In addition to creating a more favorable environment for M&A activities, Clause 3, Article 40 of the Real Estate Business Law 2023 ensures necessary rigor by requiring transferring investors to complete all financial obligations related to land use fees, land rent, and related taxes, fees, and charges (if any) to the state before transferring the project. This requirement reflects the practical reality where parties often agree that the transferee will fulfill financial obligations for the project, making M&A activities more transparent.

Adjustments to Real Estate Project Transfer Procedures

According to Clause 3, Article 51 of the Real Estate Business Law 2014, if the transferee of a real estate project is a foreign-invested enterprise, after the competent state authority approves the transfer, the transferring investor must return the land to the state. The competent state authority then decides to allocate or lease the land to the transferee within 30 days of receiving a complete application.

However, Clause 3, Article 42 of the Real Estate Business Law 2023, when regulating this issue, introduces changes. After the competent state authority approves the transfer and the parties sign the transfer contract, land procedures will be conducted according to land law. This aims to align with changes in the Land Law 2024.

According to the Land Law 2024, specifically Article 117 on land allocation and leasing for land with existing users to others, in the case of real estate project transfer under the Real Estate Business Law, the land of the transferor will not be reclaimed. Instead, the foreign-invested economic organization receiving the real estate project transfer will be allocated or leased land without auction or bidding, specifically being allocated land with land use fees according to Clause 3, Article 119 of the Land Law 2024. Although it is still unclear how land will be allocated to the transferee without reclaiming land from the transferor, eliminating the land reclamation procedure for the transferor could save time for parties in M&A transactions, helping the transferee quickly complete the transfer process.

In conclusion, these regulations will somewhat affect M&A activities in the real estate sector and are important considerations for parties involved in transactions. Besides the mentioned provisions, the Land Law 2024 and the Real Estate Business Law 2023 contain many new regulations that may impact M&A activities to varying degrees. These regulations promise positive changes for the real estate market and M&A activities in the real estate sector.

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