ARTICLE
27 March 2023

Factory Sales And Key Considerations For Land Assets

RV
Russin & Vecchi

Contributor

Russin & Vecchi was founded in Asia over 60 years ago. We have offices in Ho Chi Minh City and Hanoi. We work with global clients and with international law firms. From entry strategy to operations, we help clients navigate the complex and changing Vietnamese regulatory framework. We deliver creative, compliant, and practical solutions.
A transferee of Vietnamese assets can avoid assumption of liabilities associated with the assets.
Vietnam Real Estate and Construction

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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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