SPECIALIZED LEGAL ARTICLES SERIES:
ANALYSIS AND EVALUATION OF DIFFERENCES ON SPECIFIC ISSUES BETWEEN THE LAW ON LAND 2013 AND THE LAW ON LAND 2024
TOPIC 2: LAND USE RIGHTS AUCTION AND INVESTOR SELECTION BIDDING - NOTABLE POINTS
In Topic 1, ATA presented to our clients and readers the differences in land transfer forms, including land leasing, with a focus on analyzing and clarifying the forms of auctioning land use rights and bidding to select investors. Following Specialization 1, Specialization 2, compiled by ATA, focuses on elucidating the conditions, procedures, and other related issues concerning auctioning land use rights and bidding to select investors.
First and foremost, it must be noted that auctioning land use rights and bidding to select investors are two widely used and popular approaches to access land for projects involving land use. They also serve as crucial bases to ensure fairness and transparency in land access among various stakeholders and economic components in society. However, in the practical implementation of the 2013 Land Law, auctioning land use rights and bidding to select investors have encountered several challenges, such as the auction starting price not being "close" to the market price, and issues where investors withdraw their deposits or bids after winning auctions or bids. Therefore, the 2024 Land Law adjusts towards tightening auctioning and bidding to address these practical shortcomings.
At the time of drafting this specialization, the decrees guiding the implementation of the 2024 Land Law had not been officially issued. Therefore, the issues addressed and evaluated in this specialization by ATA will primarily rely on the provisions of the Law and be extrapolated based on the latest draft content of the decrees guiding the implementation of the 2024 Land Law, including:
+ Draft Decree detailing the implementation guidance of some provisions of the 2024 Land Law ("Draft Decree on Land Law").
+ Draft Decree detailing certain provisions and measures for the implementation of the Bidding Law regarding the selection of investors for investment projects involving land use ("Draft Decree on Bidding Law").
1. Auctioning land use rights
1.1. Conditions for parcels of land/land areas to be auctioned for land use rights
As presented in Specialization 1, compared to the 2013 Land Law, the 2024 Land Law provides stricter conditions for parcels of land/land areas to be auctioned for land use rights, including:
- Land that has been reclaimed and has completed compensation, support, resettlement.
- Land located within project areas with connected transportation infrastructure.
- Land in the annual land use plan approved by the district level for the purpose of auctioning land use rights.
- Detailed planning at a 1/500 scale organized and approved by competent state authorities for housing construction investment projects.
Thus, the provisions of the 2024 Land Law aim to achieve the following objectives:
- Ensure that parcels of land/land areas auctioned for land use rights are entirely "clean," with no disputes likely to arise from those parcels of land/land areas (as they have completed land clearance or are managed by state authorities).
- Ensure that the auction of land use rights is prepared and implemented in accordance with the local land use planning and plans. This also contributes to reducing administrative procedures related to adjusting or supplementing land use plans after auctions for organizations and individuals.
- Ensure that real estate projects can quickly proceed with design, evaluation, and approval of construction permits immediately after the investor wins the auction for land use rights.
1.2. Conditions for organizations and individuals participating in land use rights auctions
a. Conditions for organizations
The Land Law of 2024 stipulates the basic conditions for organizations participating in land use rights auctions as follows:
- Belonging to entities allocated land by the State with land use fees or leased land as regulated. Accordingly, economic organizations allocated land for commercial housing construction projects, social housing, also fall within this scope.
- Ensuring the conditions stipulated in Article 122 of the Land Law for cases of land allocation or lease for investment projects:
+ Signing deposits or other forms of security as prescribed by investment laws;
+ Having financial capacity to ensure land use according to the project schedule and other conditions as stipulated by related laws;
+ Not violating land laws or having violated them but have complied with the decisions, judgments legally effective by competent authorities at the time of land allocation, lease, or land use purpose change approval. Identifying land users violating land laws applies to all land parcels being used nationwide.
- Having the capacity and experience in project development.
- Other conditions as prescribed by property auction laws.
Thus, the conditions regarding capacity and experience in project development are new requirements added by the Land Law of 2024 to ensure that auction winners have genuine needs and capabilities to implement projects, avoiding situations where winning bids are solely for the purpose of "flipping" without actual project implementation needs, thus reducing wastage of land resources.
However, at the time of implementing this study, there were no legal regulations enacted as a basis for determining the capacity and experience of organizations participating in land use rights auctions. Additionally, the regulations in the Land Law of 2024 do not refer to any legal documents regulating this issue. Meanwhile, according to the regulations in the Asset Auction Law, apart from the registration conditions for participating in auctions stipulated in this law and related laws, individuals or organizations auctioning assets are not subject to additional requirements or conditions for auction participants. Therefore, ATA only provides forecasts and analyses on legal trends regarding the capacity and experience conditions of organizations participating in land use rights auctions.
Initially understanding the spirit and goals of lawmakers, ATA understands that this regulation aims to assess and evaluate the capacity of organizations as project investors. Accordingly, determining capacity and experience factors will be placed in correlation with the type, nature, and scale of projects similar to the investor selection bidding process. Capacity factors will mainly be demonstrated through financial capacity, while experience factors will be shown through the organization's experience in implementing similar projects.
Currently, the criteria for evaluating the capacity and experience of investors participating in bidding for projects with land use are specifically stipulated in Decree No. 23/2024/ND-CP, as follows:
- Regarding financial capacity evaluation standards, capital mobilization ability:
+ Requirements for owner's capital are determined based on the total investment capital of the project:
For projects specified in Article 4, Article 1 of Decree No. 23/2024 and involving land use, the minimum owner's capital requirement is determined according to land law regulations. For other projects, the minimum owner's capital requirement is determined according to the regulations of sectoral laws. If sectoral laws do not stipulate, the minimum owner's capital requirement shall not be less than 15% of the total investment capital.
In the case of consortiums, the owner's capital of the consortium is equal to the total owner's capital of the consortium members, each consortium member must meet the corresponding capital contribution requirement according to the consortium agreement. The head of the consortium must have a minimum owner's capital contribution ratio of 30%, and each consortium member must have a minimum owner's capital contribution ratio of 15%.
+ Requirements for the ability to mobilize investment capital for investors; in the case of consortiums, the loan capital of the consortium is equal to the total loan capital of the consortium members.
- Criteria for evaluating the experience in implementing projects of investors
Based on Article 45(2) of Decree No. 23/2024, criteria for evaluating the experience in implementing similar projects are based on the sector, investment scale, project completion time and extent, the owner's capital ratio that investors have participated in similar projects, including the following criteria:
+ Experience in investing, constructing similar projects (for projects with construction components); experience in investing in similar projects (for projects without construction components);
+ Experience in operating, business management of similar projects;
+ Requirements for the experience of key personnel, specialized equipment (if any);
+ Investors must declare the history of disputes, complaints related to ongoing and completed projects; evaluations of the competent authorities on the investor's operating process in the province, centrally-run cities where the project is implemented (if any).
It can be seen that the criteria for evaluating the capacity, financial, and experience of investors according to Decree No. 23/2024 are quite comprehensive, rigorous, and reasonable when considering the application to organizations participating in land use rights auctions, especially for entities like economic organizations allocated land for commercial housing construction projects, social housing; Projects to renovate, rebuild apartment buildings as regulated by housing laws.
By referring to cross-referenced bidding regulations for selecting investors to implement investment projects involving land use, real estate businesses, professional real estate project investors regularly participating in or planning to participate in land use rights auctions in the future can proactively prepare to meet conditions, standards even when there are no legal regulations guiding, to increase competitiveness in the market.
In the Draft Decree on Land Law, some other conditions are imposed on organizations participating in land use rights auctions such as:
- In case of auctioning a parcel of land or a project consisting of one or more land parcels, if two (02) companies or more have cross-ownership as prescribed by enterprise laws, only one company is allowed to participate in land use rights auctions;
- Must deposit 20% of the total land value, land area based on the starting price for land use rights auctions.
These are provisions inherited entirely from Decree No. 10/2023/ND-CP supplementing Article 17b of Decree No. 43/2014/ND-CP dated May 15, 2014, regulating land use rights auctions when the State allocates land with land use fees or leases land ("Decree 10"). These conditions aim to prevent the creation of multiple subsidiary companies participating in auctions for the purpose of gaining unfair competitive advantage against other bidding organizations and ensure the financial commitment of investors with successfully auctioned land use rights. The guiding decree is still in draft form, so the real estate business community still needs to follow up to update conditions for participating in land use rights auctions.
b) Conditions for individuals
The conditions for individuals participating in land use rights auctions are also stipulated by the Land Law of 2024 based on the principles of the basic conditions for organizations participating in land use rights auctions, inheriting provisions from the Land Law of 2013.
However, according to the new regulations in the Land Law of 2024, individuals are only allowed to participate in land use rights auctions for residential land; therefore, the previous provisions regarding conditions for individuals auctioning land use rights for investment projects have been repealed. The conditions for individuals participating in land use rights auctions for residential land are also streamlined, specifically:
- Belonging to entities allocated land, leased land; and
- Meeting the conditions as prescribed by property auction laws (not being one of the 5 entities not eligible to register for auctions as stipulated in Article 38 of the Asset
1.3. Regarding the procedure for land use rights auctions:
The sequence and procedures for land allocation and leasing through land use rights auctions are fundamentally regulated in Article 229 of the 2024 Land Law. At the time of drafting this specialization, there are no specific guidance regulations according to the provisions of the 2024 Land Law, but compliance is still maintained with Joint Circular No. 14/2015/TTLT-BTNMT-BTP on organizing land use rights auctions for land allocation with land use fees or land leasing.
In general assessment, the steps, procedures, and basic task resolution deadlines of the auction process stipulated in the 2024 Land Law and in the Draft Decree guiding the 2024 Land Law are almost unchanged compared to the 2013 Land Law and related guiding documents. However, the content of the Draft Decree guiding the 2024 Land Law supplements provisions regarding the deadline for land use fee/rent payment within 60 days from receiving the payment notice from the winning organization or individual; at the same time, it clearly stipulates sanctions for canceling the auction result recognition decision and non-refund of the deposit in cases where the winning bidder fails to fulfill the payment obligation. These are new, clearer provisions compared to those in Joint Circular No. 14/2015/TTLT-BTNMT-BTP, emphasizing measures to enhance the responsibility and commitment of individuals/organizations winning the auction and prevent "deposit forfeit" behaviors causing losses to the state budget.
2. Investor Selection Tender
2.1. Conditions for Investor Selection Tender for Projects Involving Land Use
Similar to the issue of land use rights auctions, the 2024 Land Law tightens the conditions for investor selection tenders. As previously presented in Specialization 1, the matter of investor selection tenders is currently regulated by the 2013 Bidding Law and guidance in Decree 25/2020/NĐ-CP ("Decree 25"). Compared to Decree 25/2020/NĐ-CP, the 2024 Land Law stipulates stricter conditions for investor selection tenders in various aspects as follows:
- Firstly, the land fund for investor selection tenders to carry out land-use investment projects includes the portion of land area subject to state land recovery as prescribed in Article 79 of the 2024 Land Law. In cases where within the project area there is land managed by state agencies or organizations (land not allocated, not leased, or already allocated for management), the state recovers and allocates or leases the land through investor selection tenders for the entire project area.
- Secondly, the land parcels intended for tendering must be within the list of land parcels designated for tendering for land-use investment projects as decided by the provincial People's Council.
- Thirdly, within 36 months from the date of issuance of the tender result recognition decision or another deadline as stipulated in the contract signed with the competent state authority, the provincial People's Committee must complete compensation, support, resettlement for land allocation or leasing.
- Fourthly, the winning bidder or the economic organization established by the winning bidder is responsible for providing capital to carry out compensation, support, resettlement as requested by the competent state authority based on approved compensation, support, and resettlement plans. If within 06 months from the date of receiving the request from the competent state authority, there is insufficient capital to carry out compensation, support, and resettlement, the competent state authority decides to cancel the tender result.
Based on the aforementioned bases, draft documents guiding the 2023 Bidding Law and the 2024 Land Law propose detailed regulations for implementation as follows:
- Article 123 of the Draft Decree on Land Law explains that the land fund for investor selection tenders for land-use investment projects includes land areas that have been allocated, leased, or recognized for land use rights by the state. Additionally, in cases where within the project area there is land managed by state agencies or organizations and constitutes over 50% of the project area, the state recovers and allocates or leases the land through investor selection tenders for the entire project area.
- Article 122 of the Draft Decree on Land Law stipulates that provincial People's Councils determine the criteria for deciding on investor selection tenders for urban and rural residential area projects (such as project scale, project area; ability to allocate capital for compensation, support, resettlement; financial capacity requirements to implement the project; technical, ecological environment requirements; requirements for land users to participate in investor selection tenders for land-use projects; requirements for project planning, architecture; other factors...). Accordingly, based on the criteria set by the People's Council, provincial People's Committees compile approved investment projects or land parcels with development potential along with project proposal explanations for submission to the People's Council for consideration and decision on investor selection tenders for land-use projects or other forms of investor selection.
- Article 124 of the Draft Decree on Land Law requires projects or land parcels decided by provincial People's Councils to be compiled into a list and publicly announced on the provincial electronic information portal, national bidding information portal.
- Article 125 of the Draft Decree on Land Law empowers the Chairperson of the provincial People's Committee to issue a decision to cancel the tender result and re-conduct the bidding based on a report from the district-level People's Committee if within 06 months from the date of receiving the request, the winning bidder or the economic organization established by the winning bidder fails to provide a response or demonstrate the ability to arrange capital. Additionally, the winning bidder in the bidding re-conducting process is responsible for reimbursing the canceled bidder for the compensation, support, resettlement costs already incurred and the financial obligations already paid to the budget.
Accordingly, based on the aforementioned grounds, it can be assessed that the 2024 Land Law has fundamentally adjusted crucial issues as follows:
- Firstly, the 2024 Land Law manages more tightly the origin of land for areas intended for investor selection tenders. Thus, while Decree 25 stipulates a direction where all areas have the capability to conduct investor selection tenders, the 2024 Land Law limits it to only areas with land subject to new state land recovery regulations. Clarifying the origin of land for tendering is the basis for the state to manage, tightly control, and harmonize activities related to investor selection tenders for land-use investment projects and land allocation or leasing activities for these types of projects.
- Secondly, the 2024 Land Law establishes a new, more open-minded approach in proposing/approving investment projects involving land use. Although the 2024 Land Law stipulates that provincial People's Councils approve the list of land parcels for tendering for land-use investment projects, the Draft Decree on Land Law allows for a process of approval through the list not following the common/typical procedure like other procedures (typically, it would be the provincial People's Committee determining the project and presenting it to the People's Council for approval). Accordingly, first, the provincial People's Council must approve criteria to identify land-use investment projects requiring tendering; based on these criteria, the provincial People's Committee proposes suitable projects. ATA evaluates that this regulation enhances the "proactive" nature of the provincial People's Committee and businesses in seeking, proposing projects that meet local needs. This process also ensures that: all land-use investment projects in the same locality are carried out, organized based on a common reference system/a common evaluation basis, thus contributing to ensuring fairness, transparency for investors participating in tenders; also ensuring uniformity in tendering activities, avoiding arbitrary application or "discrimination" between projects within the same locality.
- Thirdly, the 2024 Land Law tightens the schedule for land clearance and disbursement of funds after the investor has won the tender, thereby binding the higher obligations and responsibilities of the People's Committees at all levels when organizing land clearance; minimizing the maximum delay in project implementation causing loss, significant waste of land resources.
2.2. Conditions regarding the eligibility of investors
Article 5 of the 2024 Land Law stipulates the participation of organizations in investor selection tenders for land-use investment projects, in addition to meeting the conditions for entities assigned land by the State, leasing land, and meeting the conditions for land allocation for lease to implement investment projects, they must also meet the conditions stipulated by the law on bidding. The 2023 Bidding Law and the Draft Decree on Bidding Law do not specifically regulate the conditions that organizations participating in bidding must meet. However, the 2023 Bidding Law stipulates the eligibility of investors participating in bidding for land-use investment projects. Accordingly, the conditions for organizations participating in bidding can be based on Article 5.1 of the 2023 Bidding Law, specifically:
- For domestic contractors, domestic investors: are enterprises, cooperatives, cooperative unions, joint ventures, public service units, economic organizations with foreign investment capital registered and operating in accordance with Vietnamese law. For foreign contractors, foreign investors: are registered and operating in accordance with foreign laws;
- Independent financial accounting;
- Not undergoing dissolution procedures or having their business registration certificate, cooperative registration certificate, joint venture registration certificate, or cooperative union registration certificate revoked; not falling into the category of being unable to pay as regulated by bankruptcy laws;
- Listed on the national bidding network system before the approval of the contractor selection results, investors;
- Ensuring competitiveness in bidding as prescribed;
- Not being prohibited from participating in tenders within the time frame specified by the competent authority, the Minister, the Head of a Ministry-level agency, a Government-affiliated agency, another Central agency, the Chairman of the provincial People's Committee as prescribed;
- Not being prosecuted for criminal liability;
- Listed in the shortlist for cases that have been shortlisted;
- For foreign contractors, must form a joint venture with domestic contractors or use domestic subcontractors, except when domestic contractors are not competent to participate in any part of the package.
Thus, the provisions of the 2023 Land Law are more tightly binding than previous regulations regarding the eligibility of entities when participating in investor selection tenders.
2.3. Process and procedures for selecting investors for land-use projects
The issue of the process for selecting investors for land-use projects is not specifically regulated in the Land Law but is clarified in the Bidding Law and related guiding documents. In the near future, the process of selecting investors will be adjusted according to the new spirit of the 2024 Land Law. Therefore, in this section, ATA will assess the new points regarding the process and procedures for selecting investors based on a comparison between the Draft Decree on Bidding Law and Decree No. 25/2020/ND-CP, as follows:
a) The step of "preliminary assessment of capacity, experience" of investors is no longer a mandatory step for all cases of investor selection tenders.
In practice, the "preliminary assessment of capacity, experience" step, although defined as "preliminary," plays a significant role, even decisively, in the investor selection process just before the bidding. As a result, in many cases, the objective of the "bidding" process is almost unattainable, and some applications are "eliminated right from the start" without demonstrating suitability and the ability to meet important future conditions and standards.
Furthermore, the requirement to maintain a "selection round" for all projects regardless of scale or nature would be unnecessary, wasteful, and time-consuming for agencies and units.
To address this situation, the Draft Decree on Bidding Law stipulates in the direction of not requiring all bidding projects to undergo the "preliminary assessment of capacity, experience" step. Specifically:
- For ordinary projects: the "preliminary assessment of capacity, experience" step for investors is not required; proceed directly to open bidding procedures, limited bidding procedures.
- For special projects requiring identification of the number of interested investors: implement procedures for inviting interest, similar to the "preliminary assessment of capacity, experience" step for investors.
The above provisions of the Draft Decree on Bidding Law are consistent with the provisions of the 2023 Bidding Law, while also ensuring that the process of selecting investors is fundamentally faster and more focused on the quality of the bidding activities. Such adjustments are entirely reasonable because the essence of bidding activities is to select investors with genuine professional competence, experience, and a commitment to project implementation.
b) Strengthening commitment and responsibility for project implementation by investors after winning bids
The Draft Decree on Bidding Law stipulates in the direction of tightening and enhancing the management of project implementation by investors after winning bids.
Currently, Decree No. 25 does not clearly define the rights, responsibilities, and obligations of investors when establishing project enterprises after winning bids. This has led to the practical situation where many entities "bypass the law," and after winning bids, they quietly conduct "equity transfers" in project enterprises to other organizations or individuals. Although superficially, this may appear as a form of transferring capital/shares within the enterprise, in reality, it is an "selling project" activity without meeting the necessary conditions as stipulated.
For this reason, Decree No. 25 strengthens management and tightens the establishment of project enterprises by winning bidders as follows:
- In cases where the establishment of an enterprise is planned to carry out investment projects, the investor must propose this in the bidding documents.
- Project enterprises must have 100% charter capital held by the winning bidder.
- Transferring investment projects for business purposes is not permitted until the conditions stipulated are met.
c) Detailed guidance on tender document evaluation
Decree No. 25 allows the evaluation of tender documents to be based on criteria and standards specified in the bidding documents, while there are no detailed guidelines on specific evaluation criteria or common evaluation standards. Consequently, many bidding documents still exhibit elements of "prioritization" or regional favoritism towards one or more subjects. This indirectly affects the fairness and transparency of bidding activities.
To address this issue, the Draft Decree on Bidding Law provides clear criteria and standards for evaluating tender documents, as follows:
(i) Tender documents must be evaluated on a 100 or 1,000-point scale, where experience capability accounts for 20% – 30% of the total score, investment business plan scores range from 20% – 50% of the total score, and the remaining score relates to the effectiveness of investment in industry development, sector, and locality. Investors must meet a minimum comprehensive score condition of not less than 70% of the total points.
(ii) For experience evaluation criteria: experience in similar projects based on field, investment scale, completion time, and project completion level (including operational experience, business operation of similar projects).
(iii) For evaluation criteria regarding investor's investment business plan: technical criteria (requirements for the suitability of the investment plan, construction in accordance with approved plans, architectural design suitability, technical infrastructure, social infrastructure compatibility, feasibility of technology application solutions, suitability for business investment conditions, etc.); social criteria (requirements for compensation plans, resettlement support costs, social welfare contributions for workers, healthcare needs, education and training benefits, etc.); environmental criteria.
(iv) For criteria on the effectiveness of industry, sector, and local development investment: minimum value of social assistance activities and other criteria.
(v) For criteria on land use efficiency: including minimum land price increase ratio, land use fees, estimated land rental fees, and land use and rental fees to be paid by investors.
Clear specification of evaluation criteria and standards for tender documents not only facilitates bidding activities but also helps reduce negative practices and manipulation in bid preparation as seen currently.
d) Tendering process for regular projects
The Draft Decree on Bidding Law stipulates some notable issues as follows:
(i) Elimination of the step of preparing and assessing the investor selection plan; instead, the drafting and approval of the progress monitoring table for investor selection activities will be implemented.
(ii) Clearly defining specific grounds for preparing tender invitations. In addition to the investment decision approval and investor selection plan (replaced by the progress monitoring table for investor selection activities) approval, the Draft Decree on Bidding Law supplements the bases for preparing tender invitations, including:
+ Relevant planning and plans;
+ Construction planning suitable for the project scale and nature;
+ Housing development programs and plans;
+ List of land lots for bidding on investment projects using land approved by the Provincial People's Committee; decisions on reclaiming state assets.
These specific guidelines will facilitate the preparation of tender invitations and ensure the rigor and compliance of tender invitations with current regulations.
(iii) Supplementing bidding methods
The Bidding Law 2013 and Decree No. 25 stipulate that bidding for investor selection can only be conducted using the one-stage two-envelope method; however, the Draft Decree on Bidding Law adds another bidding method, which is the one-stage one-envelope method. The one-stage one-envelope bidding method saves time in the bidding process compared to the one-stage two-envelope method. This provision also creates a mechanism allowing state agencies to choose bidding methods appropriate for the scale, nature, and financial and technical requirements of projects.
e) Tendering process for projects requiring determination of the number of interested investors
Projects requiring determination of the number of interested investors include those in the fields of education, vocational training, healthcare, culture, sports, and the environment as regulated by the laws on socialization encouragement (except for waste treatment facility construction projects, water supply system construction projects, and housing projects for armed forces). Essentially, these are projects enjoying special, separate incentive policies (at a higher level than those for regular investment projects) under specialized legal provisions; therefore, determining the number of interested investors is necessary to ensure competition and fairness in bidding activities.
For these types of projects, before proceeding with evaluation and selection steps for investors as outlined above, agencies and units will have to additionally implement a step of "Determining the number of interested investors". The process for this step is specified based on inheriting the basic principles and regulations of the preliminary evaluation of investor capabilities and experiences as stipulated in Decree No. 25.
With the above contents, it can be seen that the spirit and principles throughout the Draft Decree on Bidding Law are "restricting, streamlining implementation procedures," instead emphasizing "enhancing, tightening conditions, evaluation criteria for investors and binding responsibilities, mandatory project implementation requirements for investors". Moreover, the Draft Decree on Bidding Law clearly stipulates the criteria, grounds for evaluating tender invitations, tender documents to ensure fairness and transparency in the selection of investors for land-use projects.
Land use rights auctions and investor selection tendering for projects are two land access methods that will be of primary interest and application to enterprises and investors in the near future. With stricter and more stringent evaluation conditions and criteria, enterprises and investors will need to prepare a "stronger" financial capacity, richer experience in project execution, and a team of personnel with more experienced, specialized knowledge, who have a better understanding of legal regulations to actively participate in auctioning, tendering, and implementing projects after auctioning, tendering in a smooth and effective manner.
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