Is it necessary to adjust the purpose of residential land use when getting it leased for production

Currently, I have a parcel of land for residential use. However, I intend to lease the above-mentioned land parcel to Company A for production and business to serve Company A's business needs for economic reasons. Can Company A lease the land use right for doing business? What do I have to do in this case?

FDVN Opinions:

The users are allowed and encouraged to lease land use rights for production and business with the specific provisions as follows:

According to Clause 50, Article 2, Decree No. 01/2017/NĐ-CP dated June 01, 2017 of the Government on amendments to the decrees on the implementation of the Land Law, The registration of land parcels over which the right of use is acquired through transfer, lease or capital contribution for the operation of a business project or facility pursuant to Article 73 of the Land Law shall proceed in the following manner:

 “1. If the land parcels reserved for the business project or facility are used for a purpose different from that defined upon the main investor's acquisition of such land parcels through transfer, renting or capital contribution in the form of land use right, the following process shall apply:

a) If the main investor rents land use rights from land users, such land users shall undergo the procedure of land use conversion before renting out their land use rights to the main investor;”

Thus, in case an investor leases a residential land plot to set up a company, the land user shall carry out procedures for adjusting the land use purpose from residential land to commercial or service land before carrying out the procedures of construction and investment permits.

Besides, according to Article 153 of Law on land 2013, land used for trading and services; land for non-agricultural production establishments are:

+ Land used for construction of trading or service establishments;

+ Other facilities serving trading or services (including headquarters and representative offices of economic organizations).

Accordingly, residential land is not land for production and business (to build hotels, office buildings...). Thus, the investor must convert residential land into land used for production, trade, and service.

Cases of conversion of land use purpose without application for permission of competent state agencies but registration for changes are stipulated in Article 11, Circular No. 02/2015/TT-BTNMT dated 27-1-2015 and Clause 1, Article 12 of Circular No. 33/2017/TT-BTNMT dated 29-9-2017 of The Ministry Of Natural Resources And Environment:

“Cases of conversion of land use purpose without application for permission of competent state agencies but registration for changes include:

d) Converting residential land to non-agricultural land that is not residential land;”

In case where (i) the household business and individual having resident land to rent for business purpose and (ii) the investor terminates the lease without any demand for extend the lease term or have other agreements to terminate the land lease, and (iii) the assets attached to the leased land have been handled in accordance with law, the household or individual having a request to convert the land use purpose from production and business land (non-resident land) original from resident land to resident land of households or individuals are not required to pay land use levy as prescribed in Clause 3, Article 2 of Decree No. 123/2017/NĐ-CP dated 14-11-2017.

“The household/individual repurposing non-agricultural production/business land (non-residential land) originally from residential land as residential land of the household/individual shall not pay for land levy.”

Hoàng Trần Ngọc Anh – FDVN Law Firm

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