LAND LAW 2024: PROBLEMS WHEN INVESTORS WIN TCKT AND PAY COMPENSATION, SUPPORT, RESETTLEMENT

Articles by Lawyer, M.Sc. Pham Thanh Tuan - Legal Expert, WeLand Legal Director

The Land Law 2024 has two new regulations that are worth noting that the successful investor sets up an economic organization to implement the project; and must contribute enough capital to realize the clearance within 6 months, otherwise the successful result of the bid will be canceled. When the Land Law 2024 enters into force on January 1, 2025, the application of the above provisions may be hampered without clearer guidance provisions.

Specifically, Article 126 of the Land Law 2024 provides: (i) successful investors who bid to establish an economic organization (TCKT) to implement the project (Clause 6, Clause 7, Article 126) and (ii) investors or TCKTs established by successful investors must provide sufficient capital to carry out compensation, support, and resettlement (BTHTTC) within 6 month from the date requested; otherwise the result of the successful bid will be annulled (Clause 8, Article 126).

Establishment of an economic organization for the implementation of the project

How is the implementation of the project understood by TCKT? The Land Law 2024 and the relevant documents at this time do not clearly define the nature and characteristics of this type of business. In fact, different legal documents have different ways of defining names, such as:”enterprise project“,”economic organization established by the successful investor“or”enterprises for the implementation of business investment projects“... [1]. For the purposes of this article, we collectively refer to”economic organization“as stipulated by the Land Law 2024.

The goal is to establish TCKT in order to implement the project on behalf of the successful investor, thereby specializing the investment activity, enhancing the expertise in the management and operation of a specific project. So in which case did investors set up TCKT? The establishment of the TCKT depends on the method of investor selection.

The Investment Law 2020 provides for three methods of investor selection, including: (i) land use rights auction, (ii) tender for the selection of investors to implement land-use projects, and (iii) approval of investment policies concurrently with investor approval. Corresponding to the three methods of investor selection, the Land Law 2024 provides, respectively, three methods for the state to assign land and lease land to investors: (i) land delivery through QSDD auction (Article 125), (ii) land transfer through land use project tender (Article 126) and (iii) land assignment for land lease not through tender or auction (Article 126) 124).

Paragraphs 6 and 7 of Article 126 of the Land Law 2024 stipulate that successful enterprises have the right to implement or establish a TCKT to implement the project on their own (except in cases where foreign investors after winning the tender are obliged to establish a TCKT). Thus, the investor selected by the method of QSDA auction or approval of the investment policy simultaneously with the investor's approval will not be able to establish a TCKT. In other words, only in the case of investor selection according to the tender method, the investor is established TCKT. The above provisions in Article 126 of this 2024 Land Law are basically”inherits“The content in Article 57, Clause 5 of Decree 25/2020/ND-CP allows investors who win land use projects to establish project enterprises.

For ease of visualization, let's try to use an illustrative example as follows: Enterprise A won the tender and was approved by the provincial People's Committee of People's Committee for the selection of investors for a 10ha urban area project. Company A has two options for project implementation:

Option 1:Company A directly implements the project;

either

Option 2: Company A establishes enterprise B (since A holds 100% of the capital) for enterprise B to carry out the project.

If enterprise B is established, enterprise A does not have to undergo the procedure of adjusting the project (through the transfer of the project, transfer/contribution of capital by land use rights...) according to the provisions of the Investment Law, the Law on Real Estate Business; all obligations of enterprise A in respect of the urban area project are automatically transferred to enterprise B. In this case, the investment project contract will be signed between 3 parties including the provincial People's Committee with enterprise A (investor) and enterprise B (TCKT established by investor A). Enterprise B will be the subject of land allotment by state agencies, land leasing as well as conducting business and operating urban projects.

When TCKT implements the project, investors may encounter difficulties regarding the timing of the establishment of the TCKT, and the transfer of capital in the TCKT.

However, when TCKT implements the project, investors may encounter some of the following pitfalls:

Premier: About the time of the establishment of the TCKT. Currently, the new Decree 25/2020/ND-CP stipulates that the moment when investors “start” the establishment of TCKT is only after a decision has been made to approve the results of the investor selection; it is not specified when the “end” of this period will be. The investor selection tender process will be completed when the investor has signed the project contract with the competent authority.

However, in fact, there are many cases in which investors set up TCKT after the project tender process has ended, even when the project enters the construction phase. This leads to difficulties with financial accounting, deducting the cost of compensation for land clearance from land use funds between the investor and the established TCKT.

To illustrate this content, we continue with the example above as follows: If enterprise A, after winning the tender, has signed a project contract and advances its capital to the agency tasked with clearing compensation. Then, when preparing to be assigned the land, enterprise A established TCKT as enterprise B. Enterprise A and the Provincial People's Committee sign an annex to the project contract, defining the legal status of enterprise B as TCKT implementing the project. In this case, the competent authority shall assign the land to enterprise A (successful investor) or land to enterprise B (TCKT implements the established project after Party A has contributed capital to the BTHTTC).

If the provincial People's Committee assigns land to enterprise B, will this enterprise be able to deduct the cost of rent that enterprise A has advanced? By the financial principle of the land law stipulates that investors who have directly paid BTHTTDC capital or in some other special cases (such as inheritance of lease rights in land lease contracts paid annually...) are entitled to deduct or inherit the obligation to deduct BTHTTDK money from land use fees, land rent must be paid.

These are complex issues that arise if the parties do not take into account the timing of the establishment of the TCKT.

Secondly: the transfer of capital in the TCKT. Another issue that is also of concern is that when investors win the bid to establish TCKT, are they free to transfer their share of capital as members of ordinary enterprises?

Due to the fact that there are no separate regulations governing the organization and operation with TCKT, this is a problem that has many different interpretations. If a member is allowed to freely transfer the share capital/equity in the TCKT, it is easy to create the status of transfer of disguised projects, a form of “selling young rice”; if the transfer of capital is prevented from transferring capital, there is no clear legal mechanism because the transfer of capital is the right of the members/shareholders in the company according to the provisions of the Enterprise Law.

Cancellation of bids when enterprises delay in compensation for clearance of premises

The Land Law 2024 also has a new regulation on the responsibility of investors who win tenders to pay for BTTC capital. Accordingly, Clause 8 of Article 126 allows the competent authority to cancel the successful tendering result when the investor or the TCKT established by the investor delays the capital of the CCP within 6 months from the date of receipt of the request.

It can be seen that the above regulation comes from the fact that many localities currently do not have a balanced allocation of funds for BSE work, budget resources must be prioritized for programs and goals that are more urgent. Therefore, it is necessary to require investors to invest capital for the project in order to accelerate the progress of compensation for the clearance of the projects.

However, the legislative technique in Clause 8 of Article 126 of the 2024 Land Law is not very strict, the content of which conflicts, even contradicts the 2023 Tender Law, which will come into force from January 1, 2024, namely:

Premier: Clause 2, Article 17 of the Tender Law 2023 provides for general circumstances in which tenders must be cancelled, but there is no situation in which investors who have delayed the capital of BTTC are canceled. If the competent authority uses Clause 8, Article 126 of the Land Law 2024 to cancel the tender because the enterprise does not pay enough capital, it will not comply with the provisions of the 2023 Tender Law on cancellation cases. This is the conflict between the content law (Land Law 2024) and the formal law (the 2023 Tender Law) that makes it difficult to apply in practice to the authorities.

Second:The timing of the cancellation of the tender is inappropriate, lacks logic. Clause 3, Article 17 of the Tender Law 2023 stipulates that the last time for the competent authority to cancel the tender is”before signing the contract“. The signing of the project contract is the final step in the process of selecting the investor to implement the project. The time when the investor invests the BTHTTC capital must take place after the signing of the project contract between the investor and the state agency. Thus, if the provisions of Clause 3, Article 17 of the Procurement Law 2023 are applied on the timing of the cancellation of the tender, the competent authority will not be able to cancel the tender when the investor has signed the project contract and transferred to the obligation to pay the BTTC capital [2].

In the project implementation process, after the completion of the bidding process for the selection of investors (the final step is the signing of the project contract), the competent authority will carry out the procedures for land reclamation. The land reclamation is carried out through several steps: notification of land reclamation, measurement of inventory, approval of compensation plan, investment investors, compensation payments, etc. Separately, the notice period for the person with the land withdrawn until the decision to recover the land is made is 6 months for non-agricultural land, 3 months for agricultural land (Article 85 of the Land Law 2024).

Thus, it usually takes about 12 months or more from the time the investor contracts the project contract to the moment when the investor advances the investment. Therefore, the application of Clause 8 of Article 126 of the Land Law 2024 to cancel a tender when an enterprise does not provide sufficient capital for the implementation of the CCP will contradict the provision in Clause 3, Article 17 of the 2023 Tender Law on the timing of the cancellation of the tender.

Resolving the legal consequences of cancellation of tenders when the enterprise has implemented legal procedures for such projects and land is extremely complicated, many difficulties arise. The Land Law 2024 and the Tender Law 2023 do not seem to have foreseen these complex situations.

Thus, the provision of the 2024 Land Law on land allotment to TCKT established by the successful investor has removed a lot of legal problems. Due to the lack of regulations in the Land Law 2013, many localities wishing to assign land to the project enterprise/TCKT must have written consultation with the Ministry of Resources & Environment.

The regulation on the responsibility of adequate capital adequacy of enterprises is in accordance with the current socio-economic context of our country, solving many problems of delayed implementation of BSE due to lack of capital.

However, in order for the new regulations to really take effect and effectively, in the coming time, the authorities need to study to issue appropriate guidelines and limit the difficulties in implementing the Land Law 2024 and the Procurement Law 2023.

[1] Clause 5, Article 57 of Decree 25/2020/ND-CP stipulates that successful investors may directly implement the project or establish it”enterprise project“to carry out the project. Meanwhile, Clause 6, Clause 7, Article 126 of the Land Law 2024 provides for the State to assign land to the successful Investor or”economic organization“set up by the successful investor. Article 49 of Decree 23/2024/ND-CP stipulates that successful tendered investors have the right to establish”enterprises for the implementation of business investment projects“or directly implement the project. Thus, the legal text of the use of the name of TCKT is not really clear and uniform.

[2] Pham Thanh Tuan — Nguyen Thi Minh Hanh, Lawyer Magazine March 2024,”finalizing regulations on cancellation of successful bids under investment law and land law”.