The question “when the land lease expires, who owns the factory?” sounds simple, but its answer shapes project finance from day one: if extension is refused, the enterprise has a statutory window to dispose of its own assets on the land — after that window, the State recovers the land and assets still on it are not compensated. This article presents the mechanism in Article 172 of the Land Law No. 31/2024/QH15 and the difference where land is subleased in an industrial park, where the contract rather than the statute plays the main role.
1. Before expiry: extension is a right that must be actively exercised
Clause 1, Article 172 of the 2024 Land Law sets land allocation/lease terms for organisations implementing investment projects at no more than 50 years (special cases no more than 70 years; diplomatic land no more than 99 years), running from the allocation/lease decision date. At term end, the land user is considered by the State for extension if it needs continued use — but applying for extension is proactive: the extension dossier must be filed at least 06 months before the land use term expires. The point many enterprises miss: extension does not happen automatically and is not an unconditional entitlement — if the land is planned for another use or the project no longer meets conditions, the State may refuse extension. The right strategy is starting the extension process (with a project compliance review: progress, land financial obligations) at least 12–18 months before expiry, because compliance is the practical condition for a favourable extension consideration.
2. Where extension is refused: the asset-disposal mechanism in clause 2 of Article 172
Where the term ends without extension, clause 2 of Article 172 sets a clear mechanism: the land user must dispose of its own assets on the land (sell or transfer them to a party continued on the land, or dismantle and remove them) within the statutory period; if more than 24 months pass from the term-expiry date without the land user completing asset disposal, the State recovers the land with no compensation for the land or assets attached to it, save force majeure. Three consequences to understand correctly: first, within the disposal window the assets remain the enterprise’s and selling them to a third party continued on the land is possible — this is the moment of highest recovery value and must be used proactively rather than waited out; second, the 24-month mark is a hard limit — all asset-sale/dismantling negotiations must complete within this window; third, dismantling and site-restoration costs belong to the former land user, and if not self-performed, State bodies organise disposal with costs recovered as prescribed. For projects with large assets, an exit plan for the non-extension scenario should exist from mid-project life, not when the refusal notice arrives.
3. Industrial-park subleases: the contract is the main law
For land subleased from an IP infrastructure investor, the asset outcome at expiry is decided first by the sublease contract, within the park’s own term frame (a sublease cannot exceed the park infrastructure project’s remaining term). Disposal models commonly written into contracts: the infrastructure investor buys back the factory at residual/appraised value at expiry; the tenant may sell assets to a new park tenant approved by the investor; or the tenant dismantles and returns vacant land. The biggest risk sits in older contracts silent on this point: at expiry without an agreement, the tenant is in a wholly weak position because site use rights have ended while undepreciated assets still stand on park land. Prevention at signing/renewal of the sublease: an end-of-term asset clause with a valuation mechanism if the investor buys back (independent appraisal, not fully-depreciated book value as the sole basis), a right to sell assets to an approved third party, and a minimum post-expiry dismantling period with symmetric sanctions. Do not forget a factory’s horizon in a park is also capped by the whole park’s remaining term — a park with 20 years left cannot give any sublease a longer horizon.
4. Financial planning for the expiry scenario from the start
Three principles connect this article to the initial investment decision. First, the factory’s depreciation period must match the remaining land term (as analysed separately in the depreciation article) so book residual value approaches a disposable level at expiry, avoiding a one-off write-off shock. Second, every extension assumption in the financial model must be labelled a conditional assumption — valuing a project/enterprise on the assumption of “certainly another 50 years’ extension” without basis is a material diligence misstatement. Third, the best time to negotiate end-of-term matters is while the enterprise still has value to the locality: lease extension, upgrade investment commitments, asset disposal — all should be fixed in writing years before expiry, while the enterprise holds negotiating leverage, rather than passively inside the final 24-month window.
Frequently asked questions
If the State refuses lease extension, is the undepreciated factory value compensated?
Not under a compensation mechanism: at term expiry, recovery in this case carries no compensation for the land and — after the 24-month asset-disposal period under clause 2 of Article 172 — no compensation for attached assets remaining on the land either. The enterprise protects value by proactively disposing of assets within the statutory window (selling to a party continued on the land, or dismantling and removing valuable parts), not by claiming compensation.
During the 24-month disposal window, may the enterprise keep producing on the land?
The land use term has ended, so land use rights for the project’s activities no longer exist; the post-expiry phase is for asset disposal and land return, not for continued lawful operation as within the lease term. Any production after the expiry date without extension stands outside the land-use-right frame — the enterprise must complete extension before expiry for legally uninterrupted operation.
Does selling the factory to another enterprise just before expiry avoid the risk?
Only if the buyer is accepted by the State (or the IP investor) to continue using the land for the remaining term or is granted extension under their own project — an asset buyer on leased land is continued as lessee under the Article 46 Land Law mechanism for the remaining term; if the remainder is too short or the buyer unqualified, the sale price will reflect exactly that risk. Selling assets does not “reset” the land clock.
What clauses should a land lease/sublease contain to protect end-of-term assets?
At minimum four points: extension support commitments and roadmap from the lessor side (for State land, procedural support mechanisms; for IPs, a commitment not to reclaim the site before the park project’s term); an asset-disposal mechanism if extension fails (right to sell to third parties, lessor buyback at independent appraisal); a minimum post-expiry dismantling/site-return period; and allocation of dismantling and restoration costs. All four are cheapest when negotiated at initial signing.
This article has been quality-reviewed by the FLAW AI Legal Council
