In a dispute over a credit contract, where the collateral is the right to use agricultural land that has expired as recorded in the Land Use Right Certificate, how does the Court handle the collateral?

In credit activities, land use rights are the most common form of collateral. However, agricultural land has a limited term of use (20 years, 50 years depending on purpose). As a result, many disputes arise regarding cases where the collateral is agricultural land whose term of use has expired as stated in the Land Use Right Certificate.

1. Legal Basis

1.1. Land Law 2013
Clause 1, Article 188 stipulates:
“Land users may exercise the rights to exchange, transfer, lease, sublease, inherit, donate, mortgage land use rights… when the following conditions are met: … (d) Within the land use term.”

→ Thus, expired land use rights do not qualify as an object of a mortgage contract.

1.2. Civil Code 2015

• Article 117: A civil transaction is valid only if its object is permitted to be transacted.
• Article 123: A civil transaction is void if it violates a legal prohibition.
• Clause 5, Article 422: A contract terminates when its object no longer exists.
• Article 131: Legal consequences of a void contract (the parties must return to each other what they have received).

1.3. Decree 43/2014/ND-CP guiding the Land Law
Clause 2, Article 74:
“Where households or individuals directly engaged in agricultural production are allocated land or recognized land use rights by the State, upon expiry of the land use term, they may continue using the land for a new term without having to carry out procedures to adjust the land use term on the Land Use Right Certificate.”

→ This provides the basis that, if the land is subject to automatic extension, the land use right continues to exist and the collateral may still be enforced.

2. Legal Analysis

Case 1: Land use term had already expired at the time of mortgage contract conclusion

• Characteristics: The Certificate records that the agricultural land had expired, with no extension decision yet.
• Analysis:
  • The land user no longer has the right to dispose (transfer, mortgage, etc.).
  • The mortgage contract violates Article 188 of the Land Law 2013.
• Legal consequence:
  • The mortgage contract is declared absolutely void (Article 123, Civil Code 2015).
  • The Court applies Article 131, Civil Code 2015: restore the original state, return what has been received.
  • The loan remains valid, but without collateral.
• Remark: This is a major risk for banks if they fail to properly assess the land use term.

Case 2: Land use term valid at contract conclusion, but expired when dispute arises

• Characteristics: The mortgage contract was signed when the land use term was valid; however, by the time of the Court’s adjudication, it had expired.
• Analysis:
  • At the time of contract conclusion, the mortgage was valid.
  • Upon expiry, the Court must determine whether the land use term can be extended.
• Court’s handling:
  • Request land administration authorities to confirm the possibility of extension.
  • If extension is granted (per Clause 2, Article 74, Decree 43/2014/ND-CP): the land use right continues, the mortgage remains valid, and the bank may enforce the collateral.
  • If extension is denied: the land use right no longer exists, and the contract terminates under Clause 5, Article 422, Civil Code 2015.
• Consequence: The bank loses the collateral but retains the right to sue the borrower for repayment with other assets.

3. Practical Realities and Shortcomings

• Many credit disputes show that banks often accept mortgages of agricultural land close to expiry without proper risk assessment, leading to void or terminated contracts.
• The law lacks clear provisions on the legal effect of mortgage contracts during the “pending extension” period, resulting in inconsistent rulings.
• Some banks require borrowers to commit to renewal, but if borrowers fail to do so, banks remain passive and exposed to risk.

4. Recommendations for Legal Improvement

1. Add explicit provisions on the validity of mortgage contracts during the “expired–pending extension” period.
2. Increase credit institutions’ due diligence obligations: verifying land use terms and extension prospects.
3. The Supreme People’s Court should issue unified guidance to avoid inconsistent judgments among courts.

5. Conclusion

In summary, where collateral is agricultural land whose use term has expired, the mortgage contract will be declared void if concluded after expiry; if expiry occurs during litigation, the Court must assess extension eligibility to decide whether to uphold or terminate the contract.

This underscores the necessity of rigorous due diligence on land use terms before entering into mortgage contracts, while also highlighting the need for legislative refinement and uniform judicial guidance to ensure the legitimate interests of borrowers, banks, and the State are safeguarded.

📞 CONTACT LEGAL CONSULTANT:

TLA Law is a leading law firm with a team of highly experienced lawyers specializing in criminal, civil, corporate, marriage and family law, and more. We are committed to providing comprehensive legal support and answering all your legal questions. If you have any further questions, please do not hesitate to contact us.

1. Lawyer Vu Thi Phuong Thanh, Ha Noi Bar Association

Email: vtpthanh@tlalaw.vn

2. Lawyer Tran My Le, Ha Noi Bar Association

Email: tmle@tlalaw.vn

Khuong Ngoc Lan