Signing a lease agreement for office/warehouse premises owned by relatives at above-market rates: applicable legal framework and risks enterprises should be aware of

Signing a lease agreement for office or warehouse premises owned by relatives at a rental rate higher than prevailing market levels is a fairly common practice among enterprises, particularly family-run businesses. However, such transactions entail numerous legal risks relating to the validity of the contract, the duty of care in managing corporate assets, and tax compliance obligations. The following article analyzes the current legal framework and main issues that enterprises should pay close attention to.

I. Current practice concerning the signing of lease agreements for office/warehouse premises owned by relatives at above-market rates

At present, many enterprises choose to lease office or warehouse premises from relatives at above-market rates in order to utilize readily available premises, save time on searching for suitable locations, and facilitate management and operations. In not a few cases, the agreed lease fee is significantly higher than the general market level.

In practice, such a situation may stem from the intention to allocate financial benefits within the family or to increase deductible expenses of the enterprise. Although the law does not prohibit transactions with related persons, if the lease fee does not reflect market value, tax authorities may scrutinize the transaction, disallow the expense for tax purposes, and it may lead to legal and financial risks for the enterprise.

II. Concept of the signing of lease agreements for office/warehouse premises from relatives at above-market rates

1. What is meant by the signing of lease agreements for office/warehouse premises from relatives at above-market rates?

The signing of lease agreements for office/warehouse premises from relatives at above-market rates refers to a transaction whereby an enterprise enters into a lease agreement for assets used in its business operations with individuals or organizations having interests connected with the enterprise owner, managers, or shareholders, in which the agreed lease fee is higher than the commonly prevailing level for similar assets in the same area, at the same time and under comparable conditions of use.

Such a transaction may still be conducted provided that it satisfies the principles of voluntariness, transparency, proper authority, and does not cause damage to the enterprise, and that it complies with legal provisions on related-party transactions and tax obligations.

2. Criteria for determining the lease fee of office/warehouse premises in the market

The market fee of office or warehouse premises is usually determined based on multiple objective criteria in order to accurately reflect the actual commercial value of the asset at the time of the transaction. First, geographical location plays a crucial role, including whether the property is in a central or suburban area, transport connectivity, surrounding infrastructure, and the level of convenience for business operations. In addition, the area, structure, construction quality, and current condition of the property directly affect the lease fee.

Moreover, lease fee is determined by reference to levels of comparable properties in the same area, at the same time and under similar conditions of use. Factors such as lease term, payment conditions, management fees, accompanying utilities and amenities, and intended use of the property are also considered when determining the rental. In many cases, enterprises may rely on quotations from brokerage firms, valuation organizations, or actual market transaction data as a basis for determining an appropriate rental level, thereby ensuring transparency and mitigating legal risks.

3. How does leasing from relatives differ from leasing from an independent third party?

From a legal perspective, whether leasing office/warehouse premises from relatives or from an independent third party, the transaction must comply with the general rules governing lease contracts. Pursuant to Article 472 of the 2015 Civil Code, a lease agreement is an agreement whereby the lessor delivers the property to the lessee for use for a specified period, and the lessee pays rent as agreed. In addition, with respect to housing, Article 174 of the Law on Housing 2023 provides that leasing or lease-purchase must be made in the form of a contract, clearly stipulating the rights, obligations, and liabilities of the parties.

However, the main difference lies in the relationship between the contracting parties. Where the property is leased from relatives, the transaction may be regarded as a related-party transaction, which entails a higher risk of conflicts of interest, lack of transparency in pricing, and potential scrutiny by tax authorities or other regulatory bodies as to the reasonableness of the expense. By contrast, leasing from an independent third party is generally viewed as more objective, since the parties do not share special interests and the lease fee is more likely to reflect market value.

III. Legal provisions applicable to the signing of lease agreements for office/warehouse premises from relatives at above-market rates

The current legal framework establishes principles to ensure transparency and good faith, prevent conflicts of interest, and prevent abuse of transactions to shift profits or cause damage to enterprises. Accordingly, enterprises should pay particular attention to the relevant legal provisions before entering into such transactions.

1. Does Vietnamese law permit enterprises to lease office/warehouse premises from relatives?

Vietnamese law does not prohibit enterprises from leasing office/warehouse premises from relatives; however, such transactions must comply with the rules on related-party transactions under the Law on Enterprise 2020 (as amended in 2025).

Specifically, pursuant to Article 167 of the Law on Enterprise 2020 (as amended in 2025), a company may enter into contracts and transactions with related persons (including relatives of members, shareholders, and enterprise managers), provided that such transactions are approved by the competent authority such as the Members’ Council, the General Meeting of Shareholders, or the Board of Directors, depending on the type of enterprise; and that the transactions are transparent and do not cause damage to the enterprise. Failure to follow the approval procedures or causing damage to the company may result in the contract being declared invalid and the related persons being liable for compensation.

2. In what cases may leasing from relatives at above-market rates still be considered lawful?

Pursuant to Article 167 of the Law on Enterprise 2020 (as amended in 2025), contracts and transactions between an enterprise and related persons (including relatives of managers, members, or shareholders) are permissible where such transactions are duly approved by the competent authority in accordance with law and the company charter. Accordingly, leasing office or warehouse premises from relatives at above-market rates may still be lawful if the transaction is disclosed and transparent, approved by the competent corporate body, and the related person does not participate in voting.

In addition, pursuant to Article 472 of the Civil Code 2015, a lease agreement is an agreement under which the lessor delivers property to the lessee for use for a specified term and the lessee pays lease fee. Therefore, a lease between an enterprise and a relative remains legally valid where the parties have full legal capacity and capacity for civil acts, the contract is entered into voluntarily, and its contents do not violate prohibitions of law or social morals.

Moreover, although the law does not require the lease fee to be equal to market price, the enterprise should have reasonable grounds to justify that a higher fee is consistent with actual business conditions. Such grounds may include advantageous location, superior facilities, higher actual commercial value, or the inclusion of additional services or economic benefits. It helps mitigate the risk that the transaction may be regarded as a means of transferring benefits or causing damage to the enterprise.

3. Who takes legal liability when leasing from relatives at above-market rates?

Pursuant to Article 165 of the Law on Enterprise 2020 (as amended in 2025), enterprise managers (including the legal representative, Chairperson of the Board of Directors, members of the Board of Directors, Director/General Director, and other managerial positions) have the obligation to act honestly and prudently and to ensure the lawful interests of the enterprise. Where entering into a lease with relatives at above-market rates causes damage to the enterprise, the manager who decided on or approved such a transaction takes personal liability for the consequences.

Furthermore, under Article 167 of the Law on Enterprise 2020 (as amended in 2025), related-party transactions must be reviewed and approved by the competent corporate body (such as the Members’ Council, Board of Directors, or General Meeting of Shareholders) in accordance with statutory procedures. If a transaction is not duly approved or causes damage to the enterprise, the proposer, signatory, and approving persons may be required to compensate for losses, return benefits obtained, and take legal liability.

In summary, legal liability primarily rests with enterprise managers or the legal representative those who directly decide on, approve, or execute the contract if a transaction with relatives results in damage or violates the rules on related-party transactions.

IV. Questions regarding the signing of lease agreements for office/warehouse premises from relatives at above-market rates

1. Does agreeing on a lease fee higher than market price always reflect the parties’ voluntary intent?

An agreement on a lease fee higher than market price is not always deemed to fully reflect the voluntary intent of the parties. According to Article 117 of the Civil Code 2015, a civil transaction is valid only where the parties enter into it voluntarily, possess appropriate legal capacity and capacity for civil acts, and where the purpose and contents of the transaction do not violate prohibitions of law or social morals.

2. Can a lease agreement of office/warehouse premises from relatives at above-market rates be declared invalid?

Pursuant to Article 122 of the Civil Code 2015 a civil transaction is invalid if it fails to satisfy the validity conditions under Article 117 thereof. Accordingly, a lease of office/warehouse premises from relatives at above-market rates may be declared invalid if it is intended to conceal another transaction, evade tax, cause damage to the enterprise, or is not entered into in a voluntary, transparent manner or in the required form prescribed by law. Conversely, if the contract is lawfully concluded, transparent, duly approved, and does not violate prohibitions of law, it remains legally valid.

3.  Can leasing at above-market rates be considered an act causing damage to the enterprise?

Pursuant to Article 165 of the Law on Enterprise 2020 (as amended in 2025), enterprise managers must exercise their rights and perform their obligations honestly and prudently in the best interests of the enterprise and must not abuse their positions for personal gain. If leasing from relatives at above-market rates results in unreasonable expenses or confers benefits on related persons, the signatory may be deemed to have breached managerial duties.

Additionally, under Article 167 of the Law on Enterprise 2020 (as amended in 2025), related-party transactions must be duly approved; if damage is caused, the related persons may be required to compensate and return benefits received.

4. Does an enterprise have the right to cancel a lease agreement entered into with relatives at above-market rates?

Pursuant to Article 423 of the Civil Code 2015, a party has the right to cancel an agreement where the other party commits a serious breach of obligations or in other cases prescribed by law or agreed by the parties. Cancellation terminates the contract’s effect from the time of conclusion, and the parties must return what they have received, unless otherwise agreed.

In addition, under Article 428 of the Civil Code 2015, a party may unilaterally terminate performance of a contract where the other party breaches its obligations or in accordance with agreed conditions. Where the enterprise can demonstrate that leasing from relatives at an unreasonably high fee causes damage or breaches the duty of honesty and prudence in managing corporate assets, it may rely on the above provisions to consider cancellation or termination of the contract in accordance with law.

5. Is written approval by the owner/shareholders mandatory for leasing from relatives?

Under the Law on Enterprise 2020, leasing office/warehouse premises from related persons (such as relatives of owners, shareholders, or enterprise managers) must, in many cases, be approved in writing by the owner, Members’ Council, Board of Directors, or General Meeting of Shareholders, depending on the type of enterprise.

Specifically, pursuant to Articles 67, 86, and 167 of the Law on Enterprise2020, contracts and transactions between an enterprise and related persons of the owner, members, shareholders, or managers must be reviewed and approved by the competent corporate body prior to implementation. If not duly approved, the contract may be declared invalid and the signatory or related persons may be liable to compensate the enterprise for losses.

Accordingly, leasing assets from relatives is not always subject to mandatory written approval; however, such approval is required where the transaction qualifies as a related-party transaction under the Law on Enterprises, particularly where the transaction value is substantial or may affect the interests of the enterprise.

V. Why seek legal advice from NPLaw when facing issues relating to leasing office/warehouse premises from relatives at above-market rates

With a team of experienced lawyers in corporate and tax matters, NPLaw assists in reviewing the legality of contracts, assessing legal risks, advising on compliant approval mechanisms, and building documentation to substantiate the reasonableness of rental pricing. NPLaw also supports enterprises in dispute resolution and in working with competent authorities where issues arise, helping to safeguard enterprises’ lawful rights and interests in an effective and sustainable manner.

The above information is for reference purposes only. For case-specific advice, clients are encouraged to contact NPLaw for prompt consultation.