Global Vietnam Lawyers is pleased to introduce an article by Lawyer Nguyen Thi Hang – Lawyer Vu Nguyen Thanh Luong titled “The Land Law 2024 And Business Cooperation Contracts: Legal Obstacles Arising From “Production and Business Cooperation with Land Use Rights”.

The contribution of land use rights (LUR) to business cooperation contracts (BCC) poses numerous legal challenges, leaving investors grappling with complex issues in search of viable solutions. While the Land Law 2024 is expected to address and resolve previous legal obstacles, the current legal framework governing this matter remains unclear. It contains significant gaps that require further clarification and reform, as analyzed below.

The practice of utilizing LUR for BCC has long been prevalent in Vietnam. This structure enables parties to effectively leverage land resources without establishing a new legal entity. However, the legal framework governing such cooperation remains inadequate and lacks clarity, creating significant challenges for investors and other parties. To gain a clearer understanding of the changes introduced by the Land Law 2024 and to assess its potential impact on business cooperation activities involving LUR, it is necessary first to review the historical development of the relevant laws.

First, the use of LUR under previous laws

Before the enactment of the Land Law 2024, neither the Land Law 2003 nor the Land Law 2013 provided a specific definition of “capital contribution with LUR” nor did they contain provisions distinguishing between (1) the contribution of LUR to establish a legal entity and (2) the contribution of LUR for business cooperation under a BCC.

Second, the Land Law 2024 provides a significant change.

To address the limitations of the previous laws, the Land Law 2024 drafting process incorporated feedback and introduced substantial revisions. Report No. 86/BC-BTNMT dated 03 August 2022 by the Ministry of Natural Resources and Environment (now the Ministry of Agriculture and Environment) on the review of the Land Law 2013 noted that: “The Land Law 2013 provides that land users may contribute capital with their LUR. However, under the Investment Law 2020 and the Enterprise Law 2020, land users may contribute capital with LURs for business cooperation or to form part of a company’s charter capital. Nonetheless, the Land Law 2013 does not clearly regulate these two forms of capital contribution, nor does it provide distinct mechanisms suitable to the nature and characteristics of each type of transaction. It is therefore recommended that the Land Law 2013 be revised and supplemented to clearly and comprehensively regulate the contribution of LURs for both business cooperation and capital contribution to a company’s charter capital.”[1]

To address this matter, the Ministry of Natural Resources and Environment proposed a clear distinction between the two concepts of “capital contribution with LUR” (in Vietnamese: "góp vốn bằng QSDĐ") and “contribution of LUR” (in Vietnamese: "góp QSDĐ"). Based on this proposal and comments received during the drafting process, the Land Law 2024 was officially enacted and now differentiates the following concepts:

These newly defined terms in the Land Law 2024 reflect a legislative effort to remedy the shortcomings of the Land Law 2013. However, upon further analysis and practical application of the Land Law 2024 and its associated legal instruments, we have observed that these new provisions still contain ambiguities and give rise to legal uncertainties. As a result, implementation in practice remains challenging, and further guidance and clarification from the relevant authorities are necessary.

First, the Land Law 2024 does not clearly specify whether LUR’s contribution to BCC would constitute “production and business cooperation with LUR” or clarify which types of land are eligible for such contribution.

Upon reviewing the relevant provisions, the phrase “production and business cooperation with LUR” appears only twice in the Land Law 2024—once in a definitional clause and once in Article 192 regarding the consolidation of agricultural land. Accordingly, although the Land Law 2024 does define “cooperation in production and business with LUR”, as outlined above, it is limited to one of several mechanisms intended to consolidate and increase the area of agricultural land[4] for more efficient agricultural production. Specifically, Article 192.1 of the Land Law 2024 provides:

“Consolidation of agricultural land means increasing the area of agricultural land for production through the following methods:

(a) Conversion of agricultural LUR through land readjustment and land swap plans;

(b) Leasing of LUR;

(c) Production and business cooperation with LUR.”

This raises the question of whether “production and business cooperation with LUR” is synonymous with contributing LUR to BCC. If the answer is yes, does it follow that this form of cooperation applies exclusively to agricultural land within the narrow context of “agricultural land consolidation”? If so, does this mean that other types of land, such as commercial or residential land, cannot be contributed to BCC? Is the legislature being overly cautious in regulating transactions involving LUR, thereby inadvertently restricting the rights of land users?

In addition, Article 219 of the Land Law 2024 provides for “contributing LUR and land readjustment” as a mechanism for rearranging land within a specified area, based on the consensus of land users to reallocate all or part of their LUR in accordance with a plan approved by a competent authority. This raises further questions: Is a “cooperation agreement”[5] entered into by land users under this provision, a form of “production and business cooperation with LUR”? Or is it a different type of BCC that may apply to land types other than agricultural land (considering that the contribution and readjustment of LURs may also be used for redevelopment projects in rural residential areas, urban renewal projects, or the renovation or reconstruction of old apartment buildings)?

In any case, it is evident that the above provision, and the Land Law 2024 as a whole, adopt a relatively narrow approach to regulating “production and business cooperation with LUR” and “contributing LUR.” If applied strictly, these provisions do not appear to provide a sufficient legal basis for an investor to contribute LURs (which are neither agricultural land nor part of an urban redevelopment, renovation, or reconstruction project) to the BCC with another party. These ambiguities significantly hinder the ability to determine the scope of the Land Law 2024 in regulating cooperative business arrangements involving LURs and to identify which types of land are legally permissible for such contributions.

Second, the Land Law 2024 does not explicitly provide for the right of land users to "production and business cooperation with LUR," nor does it recognize the LUR’s contribution to BCC.

A review of the provisions on land users’ rights under the Land Law 2024[6] reveals that no category of land user—including individuals, economic organizations, or foreign-invested economic organizations—is expressly granted the right to “production and business cooperation with LUR,” or any other right that would permit the use of LUR for business cooperation through the BCC. Is this an oversight in the Land Law 2024, or does it reflect a deliberate legislative intention?

If the law is interpreted, applied, and enforced strictly according to its wording, land users, including domestic organizations and foreign-invested economic organizations, would not have the right to use LUR (particularly for project-related land types such as commercial/service land or residential land) to engage in business cooperation under the BCC, as the Land Law 2024 does not provide for such a right. This creates legal uncertainty and could be viewed as a restriction on the rights of land users. This omission in the Land Law 2024 appears to be inconsistent with the provisions of the Investment Law 2020, which grants investors the right to use project LUR for business cooperation[7] as well as with the Civil Code 2015, which permits parties to establish civil transactions that are not prohibited by law. This raises the question: can it be inferred that land users may still use LUR for participation in the BCC under other laws, notwithstanding the absence of such a right in the Land Law 2024?

Third, does LUR become jointly owned property of the BCC members under the Civil Code 2015?

Compared to previous legislation, the Land Law 2024 introduces definitions to clarify that “production and business cooperation with LUR” is not considered as capital contribution in the form of LUs and does not entail a transfer of LUR. However, as analyzed above, the Land Law 2024 still does not clearly address whether “production and business cooperation with LUR” constitutes a form of contribution of LUR to BCC, and whether a party is permitted to contribute LUR to BCC. Suppose that such contribution is permissible under the 2020 Law on Investment and the Civil Code 2015, the question remains: what is the legal status of ownership of the contributed LURs?

The Land Law 2024 fails to clarify or resolve the overlap with the provisions of the Civil Code 2015 regarding cases where LURs are used under the BCC. Specifically, if the use of LURs in the BCC is deemed a form of "cooperation contract" under Article 504.1 of the Civil Code 2015, then the contributed LURs will be considered as common property in proportion among the cooperating members ("property contributed by members, jointly created by them, and other property as prescribed by law shall be considered common property in proportion among the cooperating members"[8]). In such cases, the disposal of this property must be agreed upon in writing by all members under Article 506.2 of the Civil Code 2015.

As a result, the provision under the Civil Code 2015 that property, including LUR, contributed to BCC becomes jointly owned in proportion among members raises further complications concerning the procedures for registration of changes and updates to the Certificate of LUR, ownership of residential housing and other assets attached to land (LURC) after LUR has been contributed to BCC. At present, the Land Law 2024 does not provide regulations on this issue and appears to leave it unaddressed. The competent State authorities’ lack of regulation via updates to the LURC for LUR contributed to the BCC may create the risk that the status of land bound by BCC may become difficult to detect or verify. This leads to legal uncertainty in cases where a party who has contributed LUR to BCC (but LURC still only reflects the original contributor’s name without any updates) subsequently carries out transactions such as transferring LUR to another party. In such instances, the remaining BCC members would be unaware of and unable to control the transaction. This could adversely affect the rights of the cooperating parties as well as bona fide third parties.

In essence, it appears that the Land Law 2024 has not resolved the overlaps and inconsistencies among the relevant legal provisions regarding the contribution of LURs to BCCs, resulting in divergent interpretations and practical difficulties in implementation.

Therefore, at this stage, when investing in the form of contributing LUR to BCC, the involved parties should seek official guidance from the competent state authority prior to implementation, based on a comparison of the applicable legal provisions against the specific case files. Besides, in order to address the aforementioned legal uncertainties and to establish a clear and transparent legal framework for transactions involving the contribution of LUR to BCC, it is respectfully proposed as follows

Author: Nguyen Thi Hang and Vu Nguyen Thanh Luong – Global Vietnam Lawyers

[1] Page 17 of Report No. 86/BC-BTNMT dated 03 August 2022

[2] Article 3.22 of the Land Law 2024

[3] Article 3.26 of the Land Law 2024

[4] Article 192.1 of the Land Law 2024

[5] Article 100.3(a) of Decree 102/2024

[6] From Article 26 to Article 44 of the Land Law 2024, only Article 37.1(h) provides a regulation regarding the rights and obligations of individuals using land, which states: “To contribute capital with LUR, or assets under their ownership attached to the land, to an organization; or to contribute land use rights jointly with other individuals or overseas Vietnamese for the purposes of production and business cooperation.” We understand that this case still constitutes a “capital contribution with LUR” for the purpose of establishing or increasing the charter capital of an economic organization.

[7] Article 53.1 of Decree No. 31/2021 stipulates that “Investors may use land use rights and assets attached to land under an investment project for business cooperation purposes.”

[8] "Joint ownership by shares is a form of co-ownership in which each co-owner's share of ownership in the common property is determined." (under Article 209.1 of the Civil Code 2015)