Leasing a factory is a crucial step for many businesses looking to expand production or establish a new facility. However, without a clear understanding of the required procedures and legal regulations, companies may face significant challenges during operations. In this article, KTG Industrial provides a comprehensive A-to-Z guide on factory lease procedures and contracts—helping businesses proactively prepare, save time, and minimize legal risks.
Factory lease contract and key considerations
A factory lease contract serves as the legal foundation that defines the rights and obligations of all parties involved, while also helping to minimize potential disputes during the lease term. Below are important aspects that businesses should keep in mind when drafting a factory lease agreement:
Legal basis governing factory lease contracts
A factory lease contract is a type of civil agreement governed by various current legal regulations. Drafting and executing such contracts must adhere to the applicable legal framework to ensure that the rights and obligations of the parties are properly enforced, while also minimizing risks and future disputes. Relevant legal documents include:
- The 2015 Civil Code – General provisions on property lease contracts.
- The 2014 Law on Real Estate Business and Decree No. 02/2022/ND-CP – Detailed regulations on real estate leasing activities.
- The 2014 Law on Housing – Applicable in cases where the factory is classified as a residential property used for business purposes.
- The 2013 Land Law – Regulations on land use rights and conditions for leasing assets attached to land use rights.
Regulations on factory lease price and lease term
The rental price for a factory is determined based on mutual agreement between the involved parties. If an agreement cannot be reached, the rental price may be determined by a third party upon request. In the absence of a specific agreement, the rent shall be based on the prevailing market price at the time the contract is signed.
Regarding the lease term, the parties have the flexibility to negotiate a duration that suits their operational needs. If the contract does not clearly specify the lease term, either party has the right to unilaterally terminate the agreement, provided that reasonable prior notice is given to the other party. This ensures both parties’ interests are protected and helps avoid disruptions to production and business operations.
Leasing principles and contract effective date
The leasing of a factory and the commencement date of the lease agreement are clearly defined as follows:
- Leasing principles: The factory offered for lease must meet construction quality standards, ensure operational safety, environmental hygiene, and include supporting utilities. It must also comply with the original technical design and intended use.
- Effective date of the contract: The lease agreement becomes effective from the date agreed upon and clearly stated in the contract. If the contract is notarized, the effective date is determined based on the notarization date. If not notarized, the effective date is based on mutual agreement between the parties.
Mandatory contents in a factory lease contract
A factory lease contract is a type of property lease agreement governed by the provisions of the 2015 Civil Code, specifically Article 398. In addition, since it involves real estate business activities, the contract must also comply with the 2014 Law on Real Estate Business.
A valid and complete factory lease contract must include the following key components:
- Property information: The contract must clearly specify the details of the leased factory, including its location, area, structural specifications, and current condition. In addition, the property must be legally documented, such as having a land use rights certificate and construction ownership certificate, and must not be involved in any legal disputes.
- Rental price and payment terms: The parties must clearly agree on the rental price, payment method, and payment cycle (monthly, quarterly, or annually), along with any other associated costs if applicable. If there is a legal framework regulating rental pricing, the agreed rate must comply with such regulations.
- Rights and obligations of the parties: The contract should define the rights and responsibilities of both the lessor and the lessee, including maintenance and repair duties, proper use of the factory, and compliance with regulations on fire safety, environmental protection, and occupational safety.
- Handling of contract breaches: This section must outline specific violations and the corresponding remedies, such as penalties, compensation for damages, or unilateral termination of the contract.
- Dispute resolution mechanism: In the event of a dispute, the parties may choose one of the following resolution methods: negotiation, mediation, commercial arbitration, or litigation at a competent court.
- Additional provisions (if any): These may include agreements on contract extension, rental price adjustments over time, early termination conditions, or any other terms based on mutual agreement.
Note:
The factory lease contract must be made in writing. While notarization or authentication is not legally required, completing these steps can enhance legal validity and reduce risks during contract execution.
Common disputes in factory lease contracts
Disputes in factory lease contracts often arise when one party fails to fully or properly perform their contractual obligations, affecting the legal rights and interests of the other party.
Some common types of disputes include:
- Disputes over the legal capacity of the contracting parties: For example, the lessor does not have the legal right to lease the property or is not properly authorized to sign the contract.
- Disputes related to the leased property: The factory does not match the described specifications, such as area or condition, or lacks legal eligibility for leasing.
- Disputes over maintenance, repair, or upgrades: Unclear assignment of responsibility may lead to disagreements when issues arise.
- Disputes over rental price and lease term: These can occur due to price adjustments, late payments, or early termination of the lease.
- Disputes concerning subleasing rights: One party subleases the property to a third party without the consent of the other.
- Disputes regarding liability for damages: Especially in cases of premature or unilateral contract termination.
- Other disputes arising during the execution of the contract.
Suggested approaches to resolving factory lease contract disputes
During the execution of a factory lease contract, if a dispute arises, the resolution process must ensure the protection of the affected party’s legitimate rights and interests.
According to Clause 1, Article 39 of the 2015 Civil Procedure Code, the People’s Court at the district level where the real estate is located has jurisdiction over disputes related to factory lease contracts.
The aggrieved party may request the court to take actions such as: declaring the civil contract void, requesting compensation for damages, applying contractual penalties, or unilaterally terminating the contract in accordance with legal provisions.
Procedure for resolving factory lease disputes:
- Step 1: Submit a lawsuit petition to the competent People’s Court in accordance with legal regulations.
- Step 2: The court reviews the submitted documents and accepts the case if it meets the legal requirements for initiating a lawsuit.
- Step 3: Fulfill the obligation to pay a provisional court fee and submit the payment receipt as requested by the court.
- Step 4: The court conducts pre-trial procedures, including evidence collection, summoning involved parties, and organizing mediation if necessary.
- Step 5: Conduct the first-instance trial: After the hearing and issuance of the judgment, either party may file an appeal if they disagree with the court’s decision, in accordance with the law.
Dispute resolution must ensure the protection of legitimate rights and interests
Further reading: What is the factory span?
Factory leasing procedures in industrial parks
When leasing a factory in an industrial park, businesses must clearly understand the legal requirements and important considerations to avoid potential risks. Below are key points that both lessors and lessees should keep in mind:
Potential risks related to factory lessors
In today’s market, there are two main groups involved in factory leasing activities. The first group consists of legal owners who directly hold the rights to use and operate the factory. The second group includes parties that sublease factories after renting them from the original developer.
However, entities in the second group often do not meet the legal conditions required to sublease the property lawfully. Engaging in transactions with such parties carries significant legal and financial risks. Therefore, businesses must exercise caution and thoroughly verify legal documentation to avoid unnecessary losses.
What legal documents are required for subleasing a factory?
Prepare complete legal documents proving the right to use the factory
Businesses must ensure they possess all necessary documents proving legal ownership or usage rights of the factory intended for sublease. The documentation must clearly show that the factory is not involved in any disputes, is not subject to enforcement measures, and is not restricted from transfer under any decisions issued by competent authorities.
If the factory is currently mortgaged, a written approval from the credit institution or mortgagee must be obtained before signing the lease agreement.
Register and update business lines to include factory leasing
Before engaging in factory subleasing activities, the owner must complete procedures to register or update their business scope in accordance with the Law on Investment, the Law on Real Estate Business, and relevant regulations applicable to industrial and export processing zones. This process requires the enterprise to prepare all legally required documents.
Ensure the leased area is independent and does not affect other tenants
The leased factory area must be operationally independent to avoid interfering with neighboring businesses or the overall operation of the industrial or export processing zone. In addition, the premises must meet space requirements for supporting facilities and amenities for workers’ daily needs and work activities.
The factory for lease must be an independent and self-contained area
Notify relevant authorities and stakeholders as required
The leasing enterprise must proactively notify the Industrial Park Management Board about the leasing plan and coordinate on technical infrastructure requirements. This ensures that the tenant’s operations do not negatively impact the shared systems of the industrial zone.
Establish a clear and transparent factory lease contract
Although notarization or certification is not legally required for a factory lease contract, the contract must be drafted clearly and transparently. It should specify the responsibilities of the involved parties regarding the following matters:
- Connection to and flow capacity of the wastewater treatment system linked to the park’s shared infrastructure
- Collection and disposal of solid and hazardous waste
- Obligations to contribute to infrastructure maintenance fees and other service charges
- Commitment to maintaining the structural integrity and quality of the factory during the lease period
Important considerations for factory tenants
Registered business lines must align with factory usage
Tenants must ensure that their registered business lines are compatible with the intended use of the factory and aligned with the investment orientation of the industrial or export processing zone. These business activities should either be similar to those of the lessor or fall within the categories permitted under the area’s environmental license.
Additionally, in certain localities, further requirements may apply—such as the use of advanced or environmentally friendly technologies, limitations on wastewater discharge, and non-polluting operations. These criteria are often prerequisites for lease approval.
Production and business scale should match the leased area
Tenants should clearly define the scale and nature of their production or business activities to ensure they do not disrupt neighboring operations or interfere with the overall functioning of the industrial or export processing zone.
Fulfill all legal procedures in accordance with current regulations
After signing the lease contract, the tenant is responsible for completing all necessary legal procedures as required by law, including:
- Registering for the Investment Registration Certificate (IRC)
- Registering as a generator of hazardous solid waste
- Registering internal labor regulations and supporting the establishment of a trade union
- Drafting and registering the collective labor agreement and wage scale
- Reporting on labor usage and declarations as required by labor laws
The enterprise must complete all required legal procedures after signing the lease contract.
Frequently asked questions
Is it allowed to sublease surplus factory space in an industrial park?
Yes, businesses are allowed to sublease surplus factory space in industrial parks to optimize operating costs—as long as they comply fully with all relevant legal regulations.
Specifically, subleasing warehouse or factory space is considered a real estate business activity under the 2014 Law on Real Estate Business and the 2020 Law on Enterprises. Therefore, businesses intending to sublease factory space must:
- Register real estate business as one of their official business lines in their Enterprise Registration Certificate
- Maintain eligibility to conduct real estate business throughout their operations
- Obtain written consent from the primary lessor (typically the industrial park developer); this should be clearly stated in the original lease agreement or as an appendix
- Ensure the subleased facility has complete legal documentation, is free of disputes, and is not subject to seizure or enforcement. If the facility is mortgaged, written approval from the mortgagee is required
- Clearly define in the lease contract the responsibilities related to wastewater treatment, infrastructure maintenance, facility quality, and environmental compliance, to avoid future legal risks
- Use the leased factory in accordance with the approved purpose, as specified in legal documents related to land use rights and the original land lease agreement
Does a factory lease contract need to be notarized?
Under current regulations, a factory lease contract does not require notarization or certification unless otherwise agreed upon by the parties.
Specifically, according to Point b, Clause 3, Article 167 of the 2013 Land Law and Clause 2, Article 17 of the 2014 Law on Real Estate Business, contracts involving the lease of land use rights and assets attached to land (including factories and warehouses) are only required to be in written form. Notarization is not mandatory and depends on the mutual agreement between the parties.
If there is no request or agreement on notarization, the lease contract remains legally valid without it. However, in certain cases—such as high-value transactions, long-term leases, or to prevent future disputes—it is advisable for the parties to consider notarizing the contract to ensure greater legal clarity and protection.
Conclusion
Leasing a factory is not merely a real estate transaction—it is closely tied to a company’s long-term development strategy. Understanding the legal procedures and drafting a clear, compliant lease contract will help businesses operate with confidence and maximize investment efficiency.
Don’t overlook any step in the leasing process to ensure a safe and lawful experience for both lessors and lessees.
Thank you for following KTG Industrial’s comprehensive guide. We hope you found the information helpful and practical for your business needs.
