Background

Under the business cooperation contract (BCC) structure, the parties do not establish an entity but usually cooperate to use their available resources, including land use rights (LUR) to do business. The party having LUR (Landlord) will “contribute” its LUR to the BCC and allow the other party (Developer) to develop house/construction works on the land while retaining title to the LUR.

Discussion

Under the current land law, implementing a project involving LUR via BCC is arguably possible. However, the relevant regulations seem vague and may give rise to certain legal issues. With new regulations of the Land Law 2024, the BCC structure will have a more concrete legal framework. In particular,

• Article 148 and 149 of the Land Law 2024 now codifies regulation on granting ownership certificates to owners of ready-built house/construction works who are not simultaneously land user under Decree 43/2014 guiding the Land Law 2013. In this regard, the Land Law 2024 now expressly recognizes BCC as valid evidence of the owners’ lawful right to use the other party’s land for building their houses/construction works. In light of this clear regulation, the Developers to the BCCs now may find it confident that its title to the building on land will be protected;

• Under the current Decree 43/2014, to apply for building ownership certificate, the Developer under BCC must obtain the Landlord’s written approval for construction of the land-attached assets (landlord consent), which is notarized or certified in accordance with laws. As such, it is not clear whether the BCC can serve as landlord consent, or the Developer must have both BCC and notarized landlord consent. Given new regulation of the Land Law 2024, the Developer will only have to submit BCC to apply for its building ownership certificate;

• The new regulations of the Land Law 2024 will mitigate a risk that a BCC contract is regarded as a land sub-lease contract between the Landlord and the Developer; and

• According to the current Real Estate Business Law 2014, the sale and purchase of house/construction works must be associated with LUR. This regulation poses a risk that the Developer is not able sale its properties constructed under the BCC without transferring LUR. The new Real Estate Business Law 2023 replicates this regulation but adds an exception: “unless the Land Law provides otherwise”. This exception may reasonably be interpreted to cover the case where the Developers sell their properties attached to land used via the BCC.

This post is written by Nguyen Hoang Duong and edited by Nguyen Quang Vu.