Is it compulsory to compensate when unilaterally terminate the contracts for "thue khoan"?

Households in our village have signed a Forest Land Lease Contract of Enterprise-A, the lease term is 7 years. However, Enterprise-A wants to cancel the contract and does not notify the reason when they have operated for 3 years. They committed to compensate us for a sum of money to stabilize and invest in production. However, we do not want to cancel the contract because the 7-year is a period of ending one cycle, and at the end of the cycle we will be more profitable. I would like to ask you that in the contract does not stipulate the contract fine, will company A's contract cancellation be punished? Are we compensated for the unlawful act of unilaterally terminating the contract of company A? Thank you and best regards.

FDVN’s opinions:

Thank you for concerning and trusting in FDVN’s legal services. We have studied the law provisions to provide you with our advice. Please kindly see the answer below:

[1]. Provisions of the law on performance of "thue khoan" contract

According to Article 483 of the 2015 Civil Code:

“Contract for "thue khoan" of property means an agreement between parties whereby a "thue khoan" lessor delivers the property to a "thue khoan" lessee for the exploitation of its utility and for the enjoyment of the yield and income derived from such property and the lessee has the obligation to pay rent.”

However, the contract has only been 3 years since Party A unilaterally terminated the above contract. According to Article 492 of the 2015 Civil Code providing for unilateral termination of performance of contracts for "thue khoan":

“1. Where a party terminates unilaterally the performance of a "thue khoan" contract, that party must give reasonable prior notice to the other party. If the "thue khoan" is based on a season or cycle of exploitation, the period of prior notice must conform to such season or cycle.

2. Where a "thue khoan" lessee breaches an obligation and the exploitation of the "thue khoan" property is the sole means of livelihood of the lessee and continuation of the "thue khoan" would not seriously affect the interests of the "thue khoan" lessor, the "thue khoan" lessor may not terminate unilaterally the performance of the contract. In such case, the "thue khoan" lessee must undertake to the "thue khoan" lessor not to commit further breaches of the contract.”

Besides, according to Article 428 of the 2015 Civil Code:

“1. A party has the right to terminate unilaterally the performance of a contract without any compensation for damage when a party violates its obligations seriously if so agreed by the parties or so provided by law.

2. A party terminating unilaterally the performance of a contract must notify the other party immediately of its termination of the contract and must compensate if the failure to notify causes damage.

3. Where the performance of a contract is terminated unilaterally, it shall terminate from the time when the other party is notified of the termination. In such case, the parties are not required to continue to perform their obligations, except for agreement on fines for violations, compensation for damage, and settlement of disputes. A party that has already performed its obligation may demand the other party to make payment for the performed obligation.

4. The aggrieved party shall receive compensation for damage caused by the improper performance of obligation by the violating party.

5. If a contract is terminated unilaterally without any basis prescribed in Clause 1 of this Article, the party terminating unilaterally the performance of the contract shall be deemed to be the violating party and must perform civil liability as prescribed in this Code and relevant laws.”

According to the above provisions, Party A's acts of unilaterally terminating the contract will not be considered as a breach of the contract and must compensate in the following cases:

• Party A unilaterally terminates the contract in case the households seriously violate their obligations during the contract performance process.

• Party A has an agreement on unilaterally terminating the contract with the consent of households.

• Party A has informed the households of a reasonable time with the season or cycle of tree extraction under the signed contract.

However, in case Party A voluntarily terminates the contract without plausible reasons, not in the cases where it is allowed to unilaterally terminate the contract in accordance with the law, Party A will be considered a violation of contractual obligations. At the same time, in the case of land lease to benefit from crops, income from crops is the main source of income for households, households have a plan, invested effort, time, and finance into this job. Party A's unilateral termination of the lease contract causes material damage and current life, Party A is obliged to compensate the households according to the provisions of the law on the contract.

2. The levels of compensation for the damage

According to Article 419 of the 2015 Civil Code, People who damaged has the right to request the violating party to pay compensation for the following amounts:

- Compensation for damage to its supposed benefits that will be enjoyed under the contract

- Requesting the obligor to pay the costs incurred due to its non-fulfillment of contractual obligations which do not overlap with the compensation for damages for contractual benefits.

The levels of compensation for the damage is agreed by the parties, if the parties cannot agree, the levels of compensation are based on the actual loss. You are obliged to prove the damage caused by the breaching party's failure to perform the contract such as effort, time, money, and other expenses during the investment on the leased land, profit you should be entitled to when the tree comes to the harvest cycle, ... to be compensated in accordance with the law.

Above is FDVN Law Firm's advisory opinion regarding the request of a consultant of the Guest on the basis of studying legal regulations. Hopefully, FDVN's advice will be helpful to you.

Legal expert: Ngo Thi My Tram

FDVN Law Firm

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