Vietnam: Factory sales and key considerations for land assets

A transferee of Vietnamese assets can avoid assumption of liabilities associated with the assets.

Take, for example, the purchase of a factory. Let’s say the transferor doesn’t own but only leases the land beneath his factory. The transferor has no right to sell the land, so how to deal with the underlying land? What if the landlord (that has leased the land to the transferor) objects to the transaction and cancels the existing lease?

Consider the following:

• To sell the factory, the transferor must have a certificate of ownership of construction work. Generally, the transferor must obtain a land use rights certificate under its name before it can build the factory. To sell the factory, it must also obtain a certificate of ownership of the factory. Without these certificates, it cannot sell the factory.
• The terms of the existing lease must permit the lease to be transferred or the landlord must independently permit it.
• If the existing lease does not allow transfer or sublease of the land, the transferee needs special approval from the landlord. In some cases, selling the assets will trigger termination of the existing lease and if a new lease can’t be signed, the landlord has the right to request the transferee to remove the assets from his land. It is obviously important to ensure that a new lease can be signed before acquiring the assets. The transferee must review the land use rights certificate and the land lease agreement. Obtaining written agreement from the landlord in advance is prudent.
• Normal commercial considerations may intervene and should be researched, pending zoning requirements. Despite the lease terms, the landlord may still refuse to transfer the lease. He may want to increase the rent or require a new lease. Sometimes this is difficult to avoid even if the lease is silent on the point.
• Of course, the transferee needs to verify that there are no registered limitations on the right to transfer either the land or the factory – for example, neither land nor assets are pledged or mortgaged to any party.

To avoid risks, the transferee must do a proper due diligence review of the land and assets.

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*Huynh Cong Tam is a partner with Russin & Vecchi. You can reach him via hctam@russinvecchi.com.vn or (84-28) 3824-3026.