The factory on leased land is usually the largest asset of a small-to-mid FDI enterprise — and its most natural loan collateral. But mortgage rights over leased land split into two entirely different regimes by rent-payment form: pay once and you can mortgage the land use rights themselves; pay annually and only the attached assets are mortgageable. Misreading your own regime is the most common reason banks reject loan files at the collateral-diligence stage. This article presents both regimes, the registration procedure and banks’ enforcement reality.
1. Two mortgage regimes by land rent-payment form
Under Article 33 of the Land Law No. 31/2024/QH15, an organisation leasing land with one-off payment for the whole term may mortgage the land use rights and its own assets attached to the land at credit institutions licensed to operate in Vietnam — “full” collateral including the land right for the remaining term. Under Article 34, an annual-payment lessee may mortgage only its own assets attached to the leased land at credit institutions — the factory and works on the land are the collateral, while the annual land lease right itself is not a mortgage object. For enterprises subleasing land in an industrial park, the regime follows the relation’s substance: a one-off-payment sublease from the infrastructure investor carries a position corresponding to the Article 33 group within what the sublease contract permits, while an annual-payment sublease sits in the Article 34 group; some subleases also restrict mortgaging without the infrastructure investor’s consent — reading the sublease is an unskippable step before promising collateral to a bank.
2. Asset conditions and mortgage registration procedure
Attached assets to be mortgaged must meet foundation conditions: lawful ownership by the mortgagor with ownership recorded on the Certificate of land use rights and ownership of assets attached to land (a factory without registered ownership is the most common snag — banks refuse or require registration completion first); the asset not under seizure or dispute; and remaining land term long enough against the loan tenor under the bank’s credit policy. The procedure comprises: signing the mortgage contract (documents on security transactions over LUR/attached assets are in the must-notarise-or-certify group as prescribed) and registering the security measure at the land registration office under Decree No. 99/2022/ND-CP on security registration — registration is the condition for the bank’s payment priority to be established and opposable to third parties. Banks additionally appraise: asset value by independent valuation (loan-to-value per each bank’s policy), the factory’s fire insurance status (usually a disbursement condition with the bank as beneficiary), and the asset’s real liquidity if enforcement is needed.
3. On borrower default: how banks enforce over assets on leased land
The fundamental difference from mortgaging long-term owned land: the bank enforces by selling the assets attached to the land — and the asset buyer is continued by the State as land lessee under Article 46 of the 2024 Land Law for the remaining term (for directly leased land) or accepted by the IP investor to continue the sublease (for in-park land). The valuation consequence: the factory’s enforcement value is bounded by the remaining lease term and lease conditions — a factory on land with 30 lease years left has entirely different collateral value from an identical factory on land with 7 years left. Banks therefore usually require: loan tenor materially shorter than the remaining lease term; borrower covenants to maintain the land lease (not letting it terminate for land financial-obligation breaches — losing the land destroys the collateral’s foundation); and, in large deals, an acknowledgement/consent letter from the IP investor recognising the bank’s rights on enforcement. Borrowers should also know: when leased land falls into State recovery for violations (e.g., failing financial obligations, leaving land unused beyond statutory periods under Article 81 of the Land Law), the bank’s rights over attached assets are directly affected — maintaining land compliance is part of the duty to preserve collateral.
4. Capital planning: correct expectations for assets on leased land
Three planning principles for FDI enterprises. First, do not build financial models assuming high loan-to-value on a factory’s construction cost if the land is annual-payment leased — the value banks recognise is only the attached assets’ value after liquidity discounts, usually far below initial investment cost. Second, the decision on rent-payment form (one-off or annual) made at initial leasing directly affects capital-raising capacity for years — if the capital strategy rests on secured bank loans, this is a strong argument for one-off payment where finances allow. Third, keep the asset file continuously clean: registered factory ownership, in-force insurance, complete acceptance minutes — this file decides appraisal speed no less than financial statements, and cannot be “rushed” once funding needs are urgent.
Frequently asked questions
An annual-payment lessee mortgages its factory — will the bank demand additional collateral?
Usually yes. Because the enforcement value of a factory on annual-leased land is bounded by the remaining term and the ability to find a buyer who continues the lease, banks commonly combine further security per the credit file (parent guarantee, machinery mortgages, project cash-flow blocking). The extent depends on the borrower’s financial health and the factory location’s quality.
While the factory is mortgaged, may it be expanded or renovated?
Yes, if the mortgage and credit contracts allow — normally the borrower must notify and obtain bank approval for major changes altering collateral value, and new construction must be additionally registered into the secured assets and mortgage. Unpermitted or unnotified renovation breaches credit covenants and can trigger early repayment demands.
Can a one-off-payment IP sublease be mortgaged to a foreign bank?
Land law prescribes mortgaging LUR/attached assets at credit institutions licensed to operate in Vietnam. Lending from a foreign bank without a Vietnam presence falls under the enterprise foreign-borrowing regime (the loan must be registered with the State Bank under foreign borrowing/repayment rules) and security over Vietnam assets has its own limits on the secured party — a structure needing bespoke legal design from the start, not a default application of domestic bank lending.
Can a factory without registered ownership be mortgaged?
In practice, ineffectively: security registration over assets attached to land ties to the asset’s ownership being recorded in the land file; a factory with incomplete ownership registration (no as-built completion, no Certificate update) leaves the bank unable to establish safe security, and banks usually require registration completion before disbursement. Perfecting factory ownership documents is therefore a capital-preparation step to complete as soon as the factory is accepted.
This article has been quality-reviewed by the FLAW AI Legal Council