Scenario: a large land sub-lease is signed, and the park developer demands “a bank guarantee letter for the payment instalments within 30 days” — and the company hears for the first time that it must obtain a guarantee for its own obligations. Bank guarantees in land deals are not complicated, but the wrong guarantee type, the wrong expiry or the wrong demand conditions turn one into expensive useless paper. This article maps when guarantees are needed, what they cost, and how to govern their terms.
The legal framework of bank guarantees
Guarantee is among the obligation-security measures in Article 292 of the Civil Code 91/2015/QH13; at the banking level, bank guarantees are governed by the Law on Credit Institutions 32/2024/QH15 and Circular 11/2022/TT-NHNN of the State Bank on bank guarantees. In substance, a bank guarantee is a credit institution’s written commitment to the beneficiary that it will perform the financial obligation in place of its guaranteed customer if that customer fails to perform, or performs incompletely, the committed obligation. Three parties must be kept distinct in every document: the guaranteed party (whose obligation it is), the issuing credit institution, and the beneficiary (who may demand payment). In park land deals, guarantees run in both directions: developers require tenants to guarantee rent payments; and a wise tenant requires the developer to guarantee advance refunds/delivery in return when paying for unfinished infrastructure.
The guarantee types found in land deals
Payment guarantee: secures the tenant’s staged sub-lease payments, most common where a lump sum is split into progress instalments. Advance-payment refund guarantee: protects the tenant prepaying a developer to build infrastructure or a bespoke factory — the developer’s bank refunds the advance if the developer does not perform. Performance guarantee: secures quantified non-financial duties (timely land handover, completing infrastructure as committed), paying a fixed sum when the duty is unperformed. Warranty guarantee: appears at the factory construction-contract layer, substituting for retention money under Decree 207/2026/ND-CP. Each type carries different demand conditions — the guarantee type must match the exact obligation being protected, avoiding the situation of holding a “performance guarantee” letter to claim a purely monetary rent debt.
Cost, term and expiry-risk governance
Cost comprises the guarantee fee paid to the bank (a rate on the guaranteed value and term, priced on the guaranteed party’s credit risk) plus the opportunity cost of the cash margin or collateral the bank requires. On term, the design rule is: the guarantee’s expiry must fall after the secured obligation ends, by a buffer sufficient for the demand procedure (weeks to a few months by obligation type), and the land contract must oblige the guaranteed party to extend or re-issue the guarantee a fixed number of days before expiry — with failure to extend itself a contractual breach the beneficiary can act on. Forgotten roll-overs are the number one operational risk of cyclical guarantees: a 12-month letter behind a 10-year obligation is only as good as its gap-free renewal mechanism. Finally, on receiving any guarantee letter, check three things immediately: the issuing bank’s authority and whether the letter’s demand conditions are workable; that the guaranteed amount matches the obligation; and that the expiry date is entered into the company’s contract-governance reminder system.
Frequently Asked Questions
When should a company seek, or expect to provide, a bank guarantee for a land lease?
Three typical situations: (1) a large lump-sum land sub-lease where the park developer requires a payment guarantee from the tenant’s bank for staged payments; (2) conversely, the tenant prepays a large sum to a developer still building infrastructure — the tenant should require an advance-payment refund guarantee from the developer’s bank; (3) a performance guarantee for a ready-built factory lease at the lessor’s request. A bank guarantee is the credit institution’s independent commitment: the bank pays when the guaranteed party defaults and the beneficiary satisfies the guarantee letter’s conditions — under the Law on Credit Institutions 32/2024/QH15 and Circular 11/2022/TT-NHNN on bank guarantees.
How does a performance guarantee for a land lease differ from a deposit?
Three fundamental differences. On the subject: a guarantee is issued by a bank or third party committing to pay in the tenant’s place on breach (Article 335 of the Civil Code 91/2015/QH13 and the guarantee rules in the Law on Credit Institutions 32/2024/QH15 and Circular 11/2022/TT-NHNN); a deposit is the tenant’s own money handed to the developer to hold (Article 328 of the Civil Code). On cash flow: a deposit locks the tenant’s cash from day one; a bank guarantee keeps money in the tenant’s accounts — the bank pays only on a conforming demand and then seeks recourse from the tenant. On breach consequences: a depositor forfeits the deposit under clause 2, Article 328 if it refuses to perform (unless otherwise agreed); a guaranteed tenant does not ‘lose’ money that way — the bank pays and recovers, converting the obligation into a bank debt. Guarantees therefore suit large long-term obligations; deposits suit short reservation phases.
What is the annual guarantee issuance fee, and which banks are fast for FDI clients?
There is no statutory fee for bank guarantees — the fee is a commercial agreement between the enterprise and the bank. A market reference range in Vietnam (indicative figures, not a regulation): issuance fees commonly run around 0.5% to 2% per year on the guaranteed amount, lower for enterprises with good credit standing, collateral or partial cash margin, and higher for unsecured guarantees to new clients. On processing speed for FDI: banks with strong foreign-corporate franchises (foreign bank branches in Vietnam and large commercial banks with dedicated FDI desks) usually process faster because they know cross-border parent guarantee structures and bilingual files. The real speed factor is not the bank’s name but whether the group’s credit line has been pre-approved — enterprises should set up the guarantee line together with the loan line from the project setup phase.
When is the guarantee released, and can it step down over time?
The guarantee is released when the secured obligations have ended: the lease terminates and both parties sign a completion confirmation (no outstanding rent or fees, premises handed back) — the beneficiary then returns the original guarantee letter or signs a release so the issuing bank can close the file. Stepping down is entirely possible if agreed and written into both the guarantee letter and the lease from the start — for example the guaranteed amount reduces with each elapsed rental period or with the outstanding obligation balance, since performed portions no longer need security. One point to know: for an unconditional on-demand guarantee, a mid-term reduction requires amendment consent from both the issuing bank and the beneficiary — the tenant cannot reduce it unilaterally; the step-down schedule must therefore be designed at issuance, with periodic review points and the developer’s duty to sign reduction confirmations when each point is reached.
