16 November 2020
Laos

Land acquisition and management by foreigners and their organisations in Lao PDR have been subjected to an extensive scrutiny at both local and international levels. Although it is generally recognised by Lao regulators that the provision of land-related incentives is important in attracting off-shore investment into the country,[1] the position of the Land Law No. 04/NA dated 21 October 2003 (“2003 Land Law”) is clear in that lands in Lao PDR are assets of national community and under the centralised and uniform management system.[2]

Nonetheless, on 12 August 2020, the Amended Land Law No. 70/NA dated 21 June 2019 (“Amended Land Law”) was published on the Lao Official Gazette replacing the 2003 Land Law, effective from 27 August 2020. The Amended Land Law revises several principles in relation to foreign rights in land in Lao PDR, without altering the traditional restriction on foreign ownership. This article discusses the material changes to land rights of foreign entities in Lao PDR under the Amended Land Law.

Land rights in general

Although the Amended Land Law came into force on 27 August 2020, investor or developer who executed land-related agreement with the Government or provincial authority under the 2003 Land Law may continue to enjoy the benefits of such agreement until the end of the relevant contractual term.[3] Alternatively, the investor or developer can also adopt the principles introduced by the Amended Land Law by submitting a request to relevant authorities within 120 days.[4] Upon which, the authorities will notify the requesting party to comply.[5]

Further, the Amended Land Law provides that alien, stateless person, foreign individual, foreigner with Lao ethnicity and their incorporated entities, that have already acquired legitimate land use right, will have to comply with the law within three years from its effective day by way of entering into a lease of land from State. Upon the expiry of this grace period, the right will be terminated, except in the event where the Government has granted special treatment, or the land is a land of an embassy and international organisation as authorised by the Government.[6]

Foreign entities and land in Lao PDR

The Amended Land Law maintains that land in Lao PDR is under the ownership of national community with the State acting as the representative in the management of land in a centralised manner.[7] While the State may assign a permanent land use right to Lao citizen and Lao entities,[8] the Amended Land Law stipulates that alien, stateless person, foreign individual, and foreigner with Lao ethnicity only has right to lease, concede land from the State or Lao entities, and purchase time limited State land use right. For foreign entities, they only have the right to lease or concede State land and lease land from Lao citizens.[9] Given the aforementioned principle, it therefore appears that foreigners and foreign entities are still not able to own land in Lao PDR and only allowed to hold land use right.

In each possible form of foreign land use right acquisition, the Amended Land Law also sets limitation in which foreign entities can retain their leasehold or concession rights in land in Lao PDR. They are as follows:

 

Type of Land Use RightMaximum Duration
Lease or concession of  State land

 

50 years, extendable upon approval of the Government or National Assembly or the Provincial Lao People’s Assembly according to the proposal of the Government or provincial administration[10]
Lease of land from Lao citizens or entities30 years, extendable upon agreement between the parties at the approval of provincial administration, according to the proposal of the provincial natural resource and environment department[11]
Time limited sale-purchase of State land use right50 years, extendable upon approval of relevant State authorities[12]

 

The time limited sale-purchase of State land use right is a newly introduced form of acquisition of land use right in Lao PDR. In essence, it refers to a purchase of State land use right by way of an execution of a sale and purchase agreement between the State and buyer, who can be a Lao citizen, alien, stateless person, foreign individual, and foreigner with Lao ethnicity.[13] Although this is closely similar to lease or concession of State land, it is important to note that time limited sale-purchase of State land use right is only permitted for the purpose of urban development, construction of condominium, apartment or townhouse. Foreign incorporated bodies are not permitted to acquire land use right in Lao PDR with this method. [14] This form of land use right is thus generally suitable for investment activities of foreign entities.

Ownership in condominiums

Further to restructuring the concept of land use right of foreign entities, the Amended Land Law also introduces a number of provisions for condominiums. The development of a condominium project is opened to both domestic and foreign entities in Lao PDR. The Amended Land Law requires that a condominium developer secures the condominium business operation license according to the applicable investment promotion law and construction permit from public works and transport sector.[15] Lands for the development of condominiums shall also be registered with the provincial natural resource and environment department.[16]

With regards to the purchase of units in a condominium, the Amended Land Law permits aliens, stateless persons and foreigners to do so.[17] Nevertheless, it is important to note that unlike Lao buyer who may hold common land use right in condominium land, foreign suite owner only have ownership right in the suite. The part of their land use right still belongs to the condominium developer.[18]

Conclusion

Despite maintaining the traditional conservative approach in permitting foreign land acquisition, the Amended Land Law demonstrates an attempt to remove barriers imposed on foreigners and their entities. Nevertheless, when reviewing the revised principles, there are still certain aspects that requires further clarification. For example, in relation to the introduction of the time limited sale-purchase of State land use right, one may notice that the limitation of access to this form of land use right for foreign legal entities does not align with its intended purpose in promoting urbanisation project. This is attributed to the fact that the development of the construction project, such as condominium or apartment, needs a relative large scale of capital and it is the foreign entity that are in a better position than a foreign individual to fund such project.

Additionally, the Amended Land Law does not discuss on the right of a foreign condominium suite owner, in the event that the term of land use right of the developer has been terminated or the condominium land is otherwise transferred. This is important as there is a general legal presumption that when an asset comprising of several components mixed together, any detachment of component will result in devaluation, and all components shall be deemed as a single asset and may not be divided at the time of determining title in such asset.[19]

The Amended Land Law is a welcome change as it allows for more foreign investment in the real estate sector, albeit with restrictions.

If you have any questions or require any additional information, please contact Tuchakorn Kitcharoen or the ZICO Law Lao partner you usually deal with.

This alert is for general information only and is not a substitute for legal advice.

 

[1] See, for example, Law on Investment Promotion No. 14/NA dated 1 November 2016, Articles 8, 15 and 16.

[2] Land Law No. 04/NA dated 21 October 2003, Article 3.

[3] Amended Land Law No. 70/NA dated 21 June 2019, Article 188.

[4] Ibid; the Amended Land Law does not specify the period of the commencement of 120 days period to make this request. We understand that this means 120 days from the effective date of the Amended Land Law.

[5] Ibid.

[6] Ibid.

[7] Ibid, Article 3.

[8] Ibid.

[9] Ibid.

[10] Ibid, Article 120.

[11] Ibid, Article 117.

[12] Ibid, Article 123.

[13] Ibid.

[14] Ibid, Articles 3 and 123

[15] Ibid, Article 106.

[16] Ibid.

[17] Ibid, Article 132.

[18] Ibid.

[19] Civil Code No. 55/NA dated 6 December 2018, Article 234.