Legal due diligence when leasing assets in Vietnam

In the context of economic development and increasing demand for property ownership, leasing has become an effective financial solution, especially for enterprises and individuals with limited capital. However, to ensure legal rights and minimize risks in transactions, legal due diligence plays an extremely important role. This process not only helps to check the transparency and legality of the property but also ensures that the terms of the contract are implemented under legal regulations. Therefore, understanding and applying legal due diligence systematically is a key factor in protecting the rights of the parties involved in asset leasing transactions. The following article by Viet An Law will provide the necessary information on Legal due diligence when leasing assets.

What is legal due diligence when leasing assets?

Legal due diligence when leasing assets is the process of comprehensively examining and evaluating legal aspects, including the price related to the asset and the leasing contract, to ensure that the transaction complies with legal regulations and protects the rights of the parties involved.

Under Clause 15, Article 4 of the Law on Prices 2012, it is stipulated that:

“Price appraisal means determination of value in money of types of properties by agencies, organizations having function of price appraisal as prescribed in the Civil Code that is suitable with market price at a point of time, a certain location, for a certain purpose according to standard of price appraisal.”

Legal due diligence when leasing assets

Regulations on the appraisal of asset prices requirements

Article 23 of Decree No. 89/2013/ND-CP stipulates the requirements for the appraisal of asset prices as follows:

• Competent state agencies perform appraisal of asset prices at the request in writing of competent state agencies or agencies, organizations, units which are assigned to purchase, sell, liquidate, lease, hire state assets in cases prescribed in Clause 2 Article 31 and Article 44 of the Law on Prices, specifying as follows:
• Purchase, sale, liquidation, lease state assets or hire assets to serve for operation of state agencies as prescribed by law on management and use of state assets;
• Fail to hire any enterprise to appraise prices for state assets in case where agencies, organizations, units which are assigned to purchase, sell, liquidate, lease, hire state assets have posted up publicly information over 15 (fifteen) days to invite for supplying the price appraisal service but there is no price-appraising enterprise participating in, except for bidding case which shall comply with provisions of law on bidding;
• Purchase and sell assets belonging to state secrets as prescribed by law on the list of state secrets;
• Purchase, sell state assets with big value and after having hired the price-appraising enterprise, agency or person competent to approval realize that it is necessary to have appraisal of competent state management agency according to decentralization of appraising prices of state assets specified in point n clause 2, point b clause 3 and point b Clause 4 article 5 of this Decree.

Subjects of legal due diligence when leasing assets

• A price-appraising enterprise is an enterprise established and operating under the provisions of the Law on Enterprise and is granted a Certificate of eligibility to conduct price appraisal services by the Ministry of Finance in accordance with the provisions of law.
• Price appraisal customers are organizations or individuals who hire price-appraising enterprises to provide price appraisal services according to price appraisal contracts or price appraisal requests and proposals.
• A professional organization on price appraisal is a social-professional organization established by the provisions of law based on the voluntary participation of price appraisers, price-appraising enterprises, and other organizations and individuals involved in the field of price appraisal.

The Vietnam price appraisal Criteria mean provisions on professional knowledge, skills, and ethics in practicing appraisal of prices that are used as the standards in the activities, including appraising prices of assets, assessing results, and quality of activities of appraisal of prices in Vietnam (Under Decree 89/2013/ND-CP).

In which cases is legal due diligence performed when leasing assets?

Article 44 of the Law on Prices and Decree 89/2013/ND-CP of the Government stipulate the scope of State price appraisal activities as follows:

• Purchasing, liquidation, leasing state assets or hiring assets servicing operations of state agencies as prescribed by law on management and use of state assets;
• Failing to hire price-appraising enterprise;
• Purchasing sale of assets under state secret;
• Purchasing, sale of assets with big value after having hired the price-appraising enterprise, agencies, or competent persons for approval and considering it necessary to have the appraisal opinion of competent state agencies.

Assets are appraised when leasing assets.

Pursuant to Article 31 of the Law on Prices, the assets’ appraised price includes:

• Assets of organizations and individuals having demand on price appraisal.
• Assets which the State must appraise price as prescribed by law on management, use state’s assets and other provisions of relevant law.

Pursuant to the above provisions, the Law on Prices does not specifically stipulate the type of assets that must be appraised. Asset appraisal is carried out in cases where organizations and individuals need appraisal or in cases where the State must appraise the price under the provisions of the law on management and use of state assets and other relevant provisions of law.

Jurisdiction of Appraisal

Under Point b Clause 4 Article 5 Decree 89/2013/ND-CP, the jurisdiction of appraisal of the People’s Committee of a province or centrally-run city has the following duties and powers:

• Assigning and organizing the appraisal of prices of state-owned assets specified in Clause 2 Article 31 and Article 44 of the Law on Prices, that are managed by localities in accordance with regulation on decentralization in management and use of state-owned assets; regulation on decentralization in management of state budget and regulation of relevant law.

At the same time, Clause 7, Article 1 of Circular No. 68/2022/TT-BTC amending and supplementing several articles of Circular No. 58/2016/TT-BTC (amending Clause 2, Article 11 of Circular 58/2016/TT-BTC) on bidding package prices stipulates:

• Price appraisal results of competent state agencies conducting price appraisal and price-appraising enterprises for types of assets, goods, and services subject to price appraisal under the provisions of the Law on Prices.

How are the prices of price appraisal services calculated?

The prices of price appraisal services are stipulated in Article 11 of Decree 89/2013/ND-CP, amended and supplemented in Decree 12/2021/ND-CP, specifically as follows:

• The prices of price appraisal services are implemented according to the agreement between the price-appraising enterprise and the price appraisal customer pursuant to Clauses 2 and 3 on the principle of ensuring compensation for reasonable actual production and business costs, with profits by the market price level and recorded in the valuation contract;
• In case the selection of a valuation consultancy contractor is within the scope of the Law on Bidding, it shall be implemented by the provisions of the law on bidding.
• Grounds to determine prices of price appraisal services:
• Content, volume, and nature of work and time to perform appraisal of prices;
• The actual and reasonable business expenses corresponding to the service quality, including Salaries, expenses arising in the course of survey, collection, analyzing and handling of information, financial expenses, sale expenses, expenses for enterprise administration, and other expenses as prescribed by law;
• Expenses for buying professional liability insurance or expenses for setting up the professional risk reserve fund;
• Tentative profit (if any) to ensure that prices of price appraisal services are suitable with the level of similar price appraisal services on the market;
• Financial obligations as prescribed by law.
• Under the provisions of Clause 2, the price-appraising enterprise shall issue and post the prices of price appraisal services list of its enterprise by the provisions of Clause 6, Article 4, Clause 5, Article 12 of the Law on Prices in the form of a package service price, according to the percentage (%) of the value of the asset or the value of the project to be appraised and other forms decided by the enterprise by the provisions of law.

Above is the advice of Viet An Law on the issue of legal due diligence when leasing assets. If you have any related questions or need support, please contact Viet An Law for the best support!