Positive impact of the new Land and Real Estate Business Law on M&A transactions

HM&P Law Firm
Resources
    Positive impact of the new Land and Real Estate Business Law on M&A transactions
    Posted on: 08/05/2024

    The article is made in collaboration between VCCI-HCM and HM&P Law Firm. In this article, Lawyer Nguyen Nhat Duong and Vu Trung Thanh (HM&P) will mention some positive impacts of the new Law on Land 2024 and the Law on Real Estate Business 2023 on M&A deals in the coming period. Besides, this article was published in the Legal Electronic Magazine on May 7, 2024. Below is the English version:

    Mergers and acquisitions (M&A) in the real estate business have always been one of the most dynamic activities that attracts the attention and participation of many foreign and domestic investors. In this field, the Law on Land and the Law on Real Estate Business are the main legal framework for M&A transactions. Recently, the National Assembly has promulgated the new Law on Real Estate Business 2023 and the Law on Land 2024. Both documents will take effect in early 2025 and are expected to have a significant impact on real estate M&A transactions in Vietnam. In this article, we will mention some positive impacts of the new Law on Land 2024 and the Law on Real Estate Business 2023 on M&A deals in the coming period.

    New provisions on sale of lease rights under an annual rent land lease agreement

    The lease rights in the land lease agreement is a new term of the Law on Land 2024, which arises when the state decides to lease the land to the land user on the basis of the annual rent. The land user is entitled to transfer the land lease rights in the lease agreement, and the transferee of the land lease rights is entitled to receive the rights and obligations of the land user under the Law on Land and other relevant laws. Despite the general description, when referring to the transfer of lease rights in the land lease contract prescribed in Article 46 of the Law on Land 2024, it appears to be a special right available in some specific cases. Specifically, the land user is entitled to sell the assets attached to the land and the lease rights in the land lease agreement only if he fulfills all the conditions for selling the assets attached to the land and has deposited the compensation, support and resettlement money that has not been fully deducted from the land rent to be paid. The above provisions deal with the situation where the land user has paid the annual rent and deposited the compensation, support and resettlement money that has not been deducted from the land rent, and then conducts the sale of the assets attached to the land. According to the existing law, the sale of assets attached to the land will result in the return of the land acquired by the seller to the state, and the buyer will sign a lease contract with the state and fulfill the financial obligation for the remaining lease term. Therefore, it can be seen that the current law has not solved the problems of deduction and return of compensation, support and resettlement funds paid by the seller but not fully deducted. Therefore, the new provisions will remove an obstacle to asset acquisition M&A deals involving the transfer of land, as the seller is still obliged to pay the rent, even if such an amount has been calculated in the transaction price. The new provisions of the Land Code 2024 will solve this problem, as the amount paid by the seller for compensation, assistance and resettlement will be transferred to the buyer without being fully deducted from the rent payable for the land, and the buyer will not have to pay rent for this period. This will help the buyer to reduce the cost of the transaction.

    More favorable conditions for transferring a real estate project

    According to Clause 2 Article 49 of the Law on Real Estate Business 2014, one of the conditions for transferring the real estate project or part of the real estate project is that the developer must have obtained the Land Use Right Certificate (LURC). The above provisions have caused some obstacles to the transaction, as they restrict the right to transfer the real estate project that has already met the conditions to be transferred, but cannot be issued the LURC due to some reasons (not subject to the conditions to transfer a project). Therefore, the elimination of the conditions for obtaining the LURC in Clause 3, Article 40 of the Law on Real Estate Business 2023 will create a favorable legal corridor for project transfer transactions. The above provisions are also in line with Article 10 of Resolution 42/2017/QH14 of the National Assembly dated June 21, 2017, on piloting mechanisms for settling bad debts of credit institutions and branches of foreign banks that allow the transfer of real estate projects used as collateral eligible for transfer but not granted the LURC. The new provisions will create fairer conditions for projects that are not used as collateral, as the requirement to have a LURC will not be imposed on the transferor. Ultimately, the Law on Real Estate Business 2023, which eliminates the requirement to have obtained the LURC prior to the transfer of the project, is a reasonable adjustment that will create favorable conditions for M&A transactions.

    In addition to creating more open conditions for M&A transactions, Clause 3 Article 40 of the Real Estate Business Law 2023 also ensures strict conditions that the developer, when transferring the real estate project, must fulfill the financial obligation related to the land (if any), including the land tax and other relevant taxes, fees, charges, prior to the transfer. The above provisions result from the fact that the parties to the transactions often agree that the transferee will bear the financial obligation of the project, and the new provisions will make M&A transactions more transparent.

    Amendment to the procedure for transferring real estate projects

    According to Clause 3 Article 51 of the Law on Real Estate Business 2014, if the transferee of the real estate project is a foreign-invested enterprise, the transferor shall carry out the procedure of returning the land to the State after the approval of the transfer of the project; and the State agency shall re-allocate or re-lease the land to the transferee within 30 days from the date of receipt of the valid dossier. However, Clause 3 of Article 42 of the Real Estate Business Law 2023 has made amendments to the above provisions when allowing the parties to carry out the land-related procedures stipulated by the Land Law after the decision on the approval of the transfer has been issued. The provisions are intended to refer to the amended provisions of the Law on Land 2024.

    According to Article 117 of the Law on Land 2024, the allocation and lease of land in the case of transfer of the real estate project in accordance with the Law on Real Estate does not require the return of the land to the state authority. Alternatively, the state agency will allocate or lease the land to the foreign-invested enterprise without bidding or tendering, which is expressly stipulated in Clause 3 of Article 119 of the Law on Land 2024. Although the law is unclear as to how the land will be allocated to the transferee after the conditions for the return of the land have been removed, the above provisions will save the parties considerable time in completing the project transfer transaction.

    In conclusion, the authors believe that the above provisions will have a positive impact on real estate M&A transactions and are the contents that the parties to the transactions should pay attention to. Apart from the provisions analyzed herein, the Law on Land and the Law on Real Estate Business 2023 contain many other provisions that will affect M&A transactions at various levels. These provisions promise to bring positive changes to the real estate market in general and to real estate M&A transactions in particular.

     

    Read more at:

    VCCI: Những tác động tích cực của Luật Đất Đai và Luật Kinh Doanh Bất Động Sản mới đến hoạt động M&A

    Legal Electronic Magazine: Những tác động tích cực của Luật Đất đai và Luật Kinh doanh bất động sản mới đến hoạt động M&A