FROM “WINNER” TO “VIOLATOR”: BID FORFEITURE AND ITS LEGAL CONSEQUENCES

Winning a land auction is not merely about “coming out on top”; it entails strict legal obligations regarding payment and potential sanctions for any breach. A lack of awareness or understanding of the legal regulations before, during, and after the land auction process can lead to severe consequences and damages for participants.

1. What types of land are commonly auctioned?

Land auction are typically held for various categories of land, depending on local land-use planning and market demand. Common types of land offered at auction include: plots in new residential and urban development projects; parcels in existing residential areas; land designated for office buildings, commercial centers, or supermarkets; land for hotel, restaurant and tourism development; and land for erecting factories, enterprises, industrial parks, and industrial clusters.

2. Who is eligible to participate in land auctions?

According to Clauses 3 and 4, Article 125 of Vietnam’s 2024 Land Law, both organizations and individuals are eligible to participate in land auctions if they meet the prescribed conditions.

In cases where organizations participate in land use rights auctions under Clause 1, Article 125 of Vietnam’s 2024 Land Law and Decree No. 102/2024/ND-CP, they must also fulfill the following specific requirements:

• Belong to a group of entities eligible for land allocation or land lease by the State, as stipulated in Article 119 (land allocation with payment of land use fees) and Article 120 (land lease) of Vietnam’s 2024 Land Law;
• Meet the conditions for land allocation, land lease, and land use purpose conversion as prescribed in Article 122 of Vietnam’s 2024 Land Law in cases involving land allocation or lease for investment project implementation; and demonstrate the financial capacity and relevant experience in project development;
• In the case of a group of companies classified as an economic group or as a parent company and its subsidiaries under the law on enterprises, when participating in the auction of a land plot, land area, or a project comprising one or more land plots, the group must reach an agreement to designate a single company within the group to participate in the land use rights auction;
• Must submit a deposit equivalent to 20% of the total value of the land parcel or land area, calculated based on the starting price for the land use rights auction when the State allocates land with collection of land use fees or leases land;
• Must not within the category of entities prohibited from participating in auctions under applicable laws;
• Must meet the conditions prescribed by the Law on Housing and the Law on Real Estate Business in cases where land use rights are auctioned for the development of housing projects or other real estate business projects.

3. Consequences of a Successful Bidder Forfeiting a Land Auction Deposit

In cases where a a bidder places a high bid, wins the auction for land use rights, but subsequently forfeits the deposit, legal liability may arise depending on the specific nature and severity of the conduct.

Administrative liability: if the act of forfeiting the deposit is determined to obstruct auction process (e.g., causing disorder or disruption during the auction session), the violator may be subject to an administrative fine ranging from 7.000.000 VND to 10.000.000 VND (pursuant to Point a, Clause 21, Article 1 of Decree No. 117/2024/ND-CP, amending and supplementing Decree No. 82/2020/ND-CP). Additionally, if the violator is found to have engaged in collusion to manipulate prices – either by suppressing or inflating them – during the auction, but the conduct does not constitute a criminal offense, a fine ranging from 10.000.000 VND to 20.000.000 VND may be imposed (pursuant to Clause 2, Article 23 of Decree No. 82/2020/ND-CP).

Criminal liability: the aforementioned act may also constitute a criminal offense under Article 218 of the 2015 Criminal Code ( as amended and supplemented in 2017), which pertains to violations of regulations on asset auction activities. Criminal prosecution may be pursued if it is proven that the intent behind bidding high and subsequently forfeiting the deposit was to engage in collusion aimed at suppressing or inflating prices during the auction process. Penalties for this offense include a fine of up to 1.000.000.000 VND and imprisonment for up to 5 years. Additionally, the offenders may be subject to a ban from holding certain positions, practicing certain professions, or performing specific jobs for a period of 1 to 5 years.

4. Conclusion

Forfeiting a deposit and failing to make payment after winning a land auction not only undermines the credibility of the participating organization or individual but may also lead to administrative or even criminal penalties. To protect their own rights and minimize legal risks, organizations and individuals intending to participate in land auctions are strongly advised to seek consultation and assistance from qualified lawyers or legal professionals.