Land Bank Aquisition Under a Real Estate Deal Structuring Perspective (Part 2) - Approaches to Accessing a Land Bank
Once the transaction objective and the scope of rights the investor needs to obtain have been determined, the next step is to select the legal mechanism for accessing the land bank. Current law does not limit land bank access to acquiring land use rights. Depending on the legal status of the asset and the transaction structure, the investor may gain access through land use rights, real estate projects, the legal entity that owns the land bank, investment cooperation, leasing of land use rights, or the establishment of a future purchase right, or through a combination of several approaches within a single transaction.
1. Acquiring Land Use Rights
This is the most direct approach, in which the investor acquires land use rights from a party that lawfully holds them. As a general principle, a land user may transfer, lease or contribute land use rights as capital when the conditions under Article 45 of the 2024 Law on Land are satisfied, including conditions relating to the land use right certificate, the absence of disputes, the absence of attachment, the remaining land use term and other legal restrictions. For land within a real estate project, in addition to the conditions under land law, the corresponding conditions under the law on real estate business must also be considered.
From a transactional standpoint, this approach allows the investor to establish rights over the land bank directly, without taking on the entire operating history of a legal entity, as it would in a share acquisition. However, acquiring land use rights does not automatically entitle the investor to implement the project according to its intended investment plan. Use of the land must still conform to the land use purpose, zoning and land use plans, and the relevant investment, construction and business conditions. This is an important distinction between a land bank that can be transacted and a land bank that has genuine investment value.
It should be noted that, for foreign investors, direct acquisition of land use rights is often subject to significant limitations, because Vietnamese law strictly regulates which parties may receive transfers and the scope of land use rights available to foreign-invested economic organizations. Foreign investors do not have access to land on the same basis as domestic organizations and individuals and, in many cases, cannot directly acquire land use rights from households, individuals or domestic organizations.
2. Acquiring All or Part of a Real Estate Project
Unlike a transaction that focuses only on land use rights, the transfer of a real estate project is a project-level transaction, under which the transferee takes over not only the portion of land within the project but also the project owner’s rights, obligations, responsibilities and lawful interests in the transferred project.
The 2023 Law on Real Estate Business permits a project owner to transfer all or part of a real estate project to another investor to continue investing in construction and business operations. Article 40 of the Law sets out the conditions for a project to be transferred, including requirements relating to the investment decision or approval, detailed planning, completion of compensation, support and resettlement, and conditions relating to land use rights, financial obligations and the status of the project. The competent authority and the procedures for transfer are set out in Articles 41 and 42 of the 2023 Law on Real Estate Business, with further guidance in Decree 96/2024/ND-CP.
A notable feature of this approach is that the transaction value lies not only in the land but also in the legal value accumulated during project development. Conversely, the transferee must also take on part or all of the project’s “legal history.” Accordingly, in addition to verifying that the project is eligible for transfer, it is necessary to review the status of project implementation, land-related financial obligations, progress, contracts already signed, obligations to customers, the state of construction, disputes and outstanding obligations.
For foreign investors, acquiring a real estate project may be a more suitable approach than directly acquiring land use rights, because the transaction is carried out at the project level and through a real estate business entity that meets the conditions under Vietnamese law. However, the foreign investor must still satisfy the conditions on market access, investment, real estate business, land and other conditions applicable to foreign investors.
In other words, a project transfer is a way of acquiring an established legal and investment position, rather than merely buying a parcel of land.
3. Acquiring Shares or Capital Contributions in the Entity that Owns the Land Bank or Project
Another approach is for the investor to refrain from directly acquiring the land or the project and instead purchase shares or capital contributions in the company that owns, uses or develops the land bank or project.
The 2020 Law on Investment recognizes capital contribution and the purchase of shares or capital contributions as a form of investment, and Articles 24 and 25 set out the rights and the forms in which such transactions may be carried out. For foreign investors, the transaction must also be reviewed against market access conditions, national defense and security, and land-related conditions under the applicable law.
Structurally, this is an entity-level transaction. The land bank or project therefore remains within the company after closing. The investor changes the ownership or ownership structure of the company, rather than completing rights transfer procedures for each individual asset.
This approach is particularly suitable for foreign investors where direct acquisition of land use rights under the first approach runs into legal barriers relating to eligible parties, land type, origin of land use rights or the scope of rights that may be transferred. Rather than taking title to land use rights directly, the foreign investor can invest in an economic organization established and operating in Vietnam by purchasing shares or capital contributions. The land bank or project then remains within the Vietnamese entity, while the foreign investor gains indirect access through equity ownership and its governance and control rights in the company.
The transactional advantage is that continuity of the legal entity, existing licenses, contracts and legal relationships can be preserved. However, this is also what calls for broader due diligence. The investor takes on not only the land bank or project but also all of the company’s assets, liabilities and latent risks, within the limits of the law and the transaction agreements.
This approach therefore typically calls for corresponding contractual protections, such as seller representations and warranties, conditions to closing, price adjustment mechanisms, a holdback of part of the purchase price, indemnification for liabilities arising before closing, and control rights over material matters after the transaction.
For foreign investors, it is also necessary to review market access conditions, registration or approval procedures for the transaction, the post-transaction ownership structure, and the ability of the target company to continue holding, using or developing the land bank after the participation of a foreign investor.
4. Partnering with the Landowner or Project Owner to Develop the Project
Not every landowner has the need or the ability to transfer its assets. In such cases, the investor may opt for a cooperation structure to jointly develop and exploit the land bank.
Legally, depending on the circumstances, the cooperation relationship may take the form of a business cooperation contract, a joint venture, the establishment of a project company, or capital contribution in the form of land use rights or other assets, as permitted by law. The 2020 Law on Investment recognizes the business cooperation contract as a form of investment and also provides for capital contribution and the purchase of shares or capital contributions in economic organizations. For capital contribution in the form of land use rights, Article 45 of the 2024 Law on Land is one of the important legal bases that must be verified.
A characteristic of this structure is that the investor’s rights do not necessarily arise from becoming the direct land user; they are formed through the right to participate in developing and exploiting the project and to share in its benefits.
The legal focus of the transaction therefore lies in clearly designing the mechanisms for capital contribution, disbursement schedule, decision-making authority, rights over the assets and the project, responsibility for completing legal procedures, the method of allocating revenue and profit, the handling of delays, breaches, changes in parties, and the plan for terminating the cooperation.
In particular, in transactions where the investor contributes most of the capital but does not directly hold title to the land bank or has no corresponding decision-making authority, the governance and rights-protection mechanisms must be designed at signing, rather than dealt with only after a dispute arises in the project.
5. Leasing Land or Land Exploitation Rights
In some models, the investor does not need long-term land use rights and needs only the right to use or exploit the land for a fixed period. In such cases, leasing land, leasing land use rights or leasing assets attached to land may be more suitable than an acquisition.
Land leasing can be carried out through two principal mechanisms: a State land lease, or a lease or sublease of land use rights from a lawful land user.
(i) State land lease
Under the 2024 Law on Land, the State may lease land to organizations, individuals and other entities in accordance with law for the purpose of implementing investment projects, production, business or other lawful land use purposes. State land leases may take the form of annual rent payments or a one-time payment covering the entire lease term, depending on the specific case and applicable regulations.
For the investor, this is a land access approach in which land use rights are established directly through a land lease decision and a land lease contract with the State, rather than through a transaction with a private land user. This approach is typically considered where the land bank is under State management, where the land has not been allocated or leased to another party, or where the project falls within a case that requires investor selection procedures, a land use right auction or an investor tender under the law.
Depending on the case, the investor may have to satisfy conditions relating to investment policy approval, investor selection, financial capacity, security deposits, zoning and planning, land use purpose, project implementation schedule and other conditions before the State will lease the land. Access to land through this mechanism is therefore not a simple leasing transaction; it is usually tied to a fairly complex process of preparing and approving an investment project.
The form of rent payment is also significant for the investor’s rights. Where rent is paid in a lump sum for the entire lease term, the investor may enjoy a broader scope of rights over the land use rights, including the ability to carry out certain transactions such as transferring, subleasing or mortgaging the land use rights and the assets attached to the land, within the limits permitted by law. Where rent is paid annually, the investor’s rights are generally more limited and mainly relate to using and exploiting the land for the purpose for which the State leased it.
Accordingly, when considering a State land lease, it is necessary to verify not only the ability to obtain the lease but also to determine clearly: the applicable investor selection mechanism; the form of rent payment; the lease term; the land use purpose; the rights to transfer, sublease, mortgage and contribute as capital; financial obligations; conditions for renewal; the schedule for putting the land into use; and the legal consequences if the project is delayed or the land is used for an improper purpose.
(ii) Leasing or subleasing land use rights from a land user
In addition to leasing land from the State, the investor may lease or sublease land use rights from a party that lawfully holds them. The 2024 Law on Land recognizes the right to lease and sublease land use rights and sets out the conditions for exercising this right in Article 45. For each form of land use, the right to lease and the scope of the land user’s rights also depend on the origin and the form by which the State allocated or leased the land.
The advantage of this approach is that the investor can reduce its up-front capital requirement and concentrate resources on constructing, operating or exploiting the asset. However, it is necessary to clearly distinguish between leasehold or exploitation rights, on the one hand, and land use rights and project development rights, on the other. Being able to lease a piece of land does not automatically mean that the investor may build or implement any type of project on it.
The contract must therefore fully address the lease term, land use purpose, construction and improvement rights, exploitation rights, subleasing rights where permitted by law, rent adjustments, treatment of assets formed on the land, early termination, and the mechanism for dealing with assets at the end of the term. At the same time, it is necessary to verify the lessor’s rights, any mortgage or transaction restrictions affecting the land use rights, the consistency of the lease purpose with zoning and planning, and the ability to use the land to implement the intended investment plan.
6. Deposits, Priority Rights, Purchase Rights and Other Mechanisms to Secure the Land Bank Before Closing
In practice, the target land bank may not yet be in a condition for the transaction to be completed immediately, or the investor may need time to complete legal due diligence, arrange financing and determine the investment structure. In such cases, control over the investment opportunity before the formal transaction is completed can be designed through a deposit, an agreement in principle, an exclusivity undertaking, a priority right or a purchase right.
These mechanisms do not immediately create land use rights for the investor. Their value lies in creating a window of time for the investor to complete the necessary conditions before deciding on the formal transaction, while limiting the possibility that the owner transfers the investment opportunity to a third party.
Structurally, it is necessary to clearly distinguish between a priority right, a purchase right and control. An agreement that allows the investor priority in negotiations does not mean the investor can compel the seller to transfer; likewise, a purchase right has practical value only when the exercise conditions, term, price or method of determining the price, and the parties’ cooperation obligations are sufficiently clearly stated.
For transactions with a long preparation period, provisions on exclusivity, no transfer to third parties, conditions for exercising the purchase right, refund or treatment of the deposit, changes in the legal status of the asset and the seller’s responsibilities while awaiting closing are of particular importance.
Conclusion
There is no single optimal transaction structure for every land bank. An appropriate real estate transaction structure must start from the investment objective, the legal status of the land, the investor’s need to control rights, and its ability to allocate capital and risk. It is therefore necessary to determine whether the investor genuinely needs land use rights, project development rights, control of a legal entity, exploitation rights or economic benefit rights.
On that basis, the investor assesses the land bank, selects a structure and allocates risk appropriately. A good structure is not necessarily the simplest one; it is one that achieves the economic objective with the necessary scope of rights, an appropriate level of capital and the ability to control risk throughout the life of the transaction.
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