Issues Concerning the Application of the Law in Trials of State-owned Leasehold Contract Disputes Interpretations

(Promulgated by the Supreme People's Court on June 18 2005 and effective as of August 1 2005.)

SPC Interpretation [2005] No.5

These Interpretations concerning the application of the law in trials of state-owned leasehold contract disputes have been formulated pursuant to such laws as the PRC Civil Law General Principles the PRC Contract Law the PRC Land Administration Law the PRC Administration of Urban Real Property Law etc. while taking into account civil trial practice.

1. LEASEHOLD GRANT CONTRACT DISPUTES

Article 1: For the purposes of these Interpretations the term 'leasehold grant contract' means an agreement under which the land administrative department of the people's government of a city or county as the grantor grants a state-owned leasehold to a grantee for a certain term and for which the grantee pays a grant fee.

Article 2: A leasehold grant contract entered into by the administrative committee of a development zone as the grantor and a grantee shall be ruled invalid.

A leasehold grant contract entered into by the administrative committee of a development zone as the grantor and a grantee prior to the implementation of these Interpretations may be ruled valid if prior to the institution of legal proceedings such contract is ratified by the land administrative department of the people's government of the city or county.

Article 3: If the land administrative department of the people's government of a city or county approves a grant of a leasehold by agreement and the grant fee for the leasehold is lower than the minimum price determined by the local government in accordance with state provisions at the time the contract was entered into the price terms specified in the leasehold grant contract shall be ruled invalid.

If a party requests that the grant fee for the leasehold be paid at the appraised market value current at the time the contract was entered into its request shall be upheld. If the grantee does not agree to make up the shortfall in accordance with the appraised market value and requests that the contract be terminated its request shall be upheld. Liability for the losses incurred as a result thereof shall be borne by the parties in proportion to their fault.

Article 4: If the grantor under a leasehold grant contract is unable to deliver the land due to its failure to carry out the approval procedures for the grant of the leasehold and the grantee requests that the contract be terminated its request shall be upheld.

Article 5: If the grantee changes the purpose of the land specified in the leasehold grant contract with the consent of the grantor and the administrative department in charge of urban planning of the people's government of the city or county and a party requests that the land grant fee be adjusted in accordance with the land grant fee rate applicable for land of the same purpose current at the time the legal proceedings were instituted its request shall be upheld.

Article 6: If a grantee changes the purpose of the land specified in a leasehold grant contract without authorization and the grantor requests that the contract be terminated its request shall be upheld.

2. LEASEHOLD ASSIGNMENT CONTRACT DISPUTES

Article 7: For the purposes of these Interpretations the term 'leasehold assignment contract' means an agreement under which the leaseholder as the assignor assigns a granted leasehold to the assignee and for which the assignee pays consideration.

Article 8: If a party to a leasehold assignment contract entered into between a leaseholder as the assignor and an assignee requests that the contract be confirmed to be invalid because the parties failed to carry out the procedures for amendment of the leasehold registration its request shall be rejected.

Article 9: If an assignor enters into a contract with an assignee for the assignment of a leasehold without its having obtained a leasehold grant certificate but before the institution of legal proceedings obtains such certificate or consent for the assignment from the people's government that has the approval authority the contract shall be ruled valid.

Article 10: If a leaseholder as the assignor enters into several assignment contracts in respect of the same granted leasehold and all of the assignees demand that the contracts be performed provided that the assignment contracts are valid matters shall be handled as follows:

(1) if an assignee has carried out the procedures for amendment of the leasehold registration and requests that the assignor perform such contractual obligations as delivering the land etc. its request shall be upheld;

(2) if none of the assignees has carried out the procedures for amendment of the leasehold registration but the assignee that first lawfully took possession of invested in and developed the land requests that the assignor perform such contractual obligations as carrying out the procedures for amendment of the leasehold registration etc. its request shall be upheld;

(3) if none of the assignees has carried out the procedures for amendment of the leasehold registration or lawfully took possession of invested in and developed the land but the assignee that first paid consideration for the land assignment requests that the assignor perform such contractual obligations as delivering the land and carrying out the procedures for amendment of the leasehold registration etc. its request shall be upheld; or

(4) if none of the contracts has been performed but the assignee under the contract which was concluded first in accordance with the law requests performance of the contract its request shall be upheld.

If the assignee(s) that failed to obtain the leaseholds request termination of its/their contract(s) and damages matters shall be handled in accordance with the relevant provisions of the PRC Contract Law.

Article 11: If a leaseholder enters into a contract with an assignee for the assignment of an allocated leasehold without having obtained the approval of the people's government that has the approval authority the contract shall be ruled invalid. However if before the institution of legal proceedings it receives the approval to carry out the procedures for the grant of leaseholds from the people's government that has the approval authority the contract shall be ruled valid.

Article 12: If a leaseholder and an assignee enter into a contract for the assignment of an allocated leasehold and if the people's government that has the approval authority consents to the assignment before the institution of legal proceedings and the assignee carries out the procedures for the grant of the leasehold the contract between the leaseholder and the assignee may be handled as a contract of a compensatory nature.

Article 13: If a leaseholder and an assignee enter into a contract for the assignment of an allocated leasehold but the people's government that has the approval authority refuses to carry out the procedures for the grant of the leasehold and directly allocates the allocated leasehold to the assignee for its use before the institution of legal proceedings the contract between the leaseholder and the assignee may be handled as a contract of a compensatory nature.

3. DISPUTES RELATING TO CONTRACTS FOR THE COOPERATIVE DEVELOPMENT OF REAL PROPERTY

Article 14: For the purposes of these Interpretations the term "contract for the cooperative development of real property" means an agreement entered into between parties under which the basic content specifies that they provide a granted leasehold, funds, etc, as a joint investment jointly share the profits and risks and cooperate in the development of a piece of real property.

Article 15: If either party to a contract for the cooperative development of real property has the qualifications to develop and deal in real property the contract shall be ruled valid.

If neither party to a contract for the cooperative development of real property has the qualifications to develop and deal in real property the contract shall be ruled invalid. However if either party obtains the qualifications to develop and deal in real property or establishes in accordance with the law a real property development enterprise with the qualifications to develop and deal in real property before the institution of legal proceedings the contract shall be ruled valid.

Article 16: If a leaseholder uses allocated leaseholds as its investment to enter into a contract for the cooperative development of real property with a third party without the approval of the people's government that has the approval authority the contract shall be ruled invalid. However if it carries out the approval procedures before the institution of legal proceedings the contract shall be ruled valid.

Article 17: If the investment amount exceeds that specified in the contract for the cooperative development of real property and the parties fail to reach agreement on the percentages of the increased investment that they will each bear the percentages shall be determined in proportion to the fault of the parties. If the amount over that specified in the contract is not due to a reason attributable to the parties or if it is impossible to determine the fault of the parties the percentages shall be determined based on the agreed upon investment percentages. If no investment percentages were agreed upon the percentages shall be determined based on the agreed upon profit allocation percentages.

Article 18: If the actual floor area of the premises is less than that specified in the contract for the cooperative development of real property and the parties fail to reach agreement on the percentage of the floor area to be allocated to each the percentages shall be determined in proportion to the fault of the parties. If the shortfall in floor area was not due to a reason attributable to the parties or if it is impossible to determine the fault of the parties the percentages shall be determined based on the agreed upon profit allocation percentages.

Article 19: Where a party to a contract for the cooperative development of real property requests that the benefits of the real property project be distributed the case shall not be accepted or if the case has already been accepted the request shall be denied if:

(1) the real property construction project was one which in accordance with the law required approval and the approval of the competent department of the people's government that has the approval authority was not obtained;

(2) no construction project planning permit was obtained for the real property construction project; or

(3) the construction project plan was modified without authorization.

Losses incurred due to the parties' concealment of the fact of the modification of the construction project plan shall be borne by the parties in proportion to their fault.

Article 20: If the actual floor area of the premises exceeds the planned floor area and after the approval of the competent department of the people's government that has the approval authority the parties fail to reach agreement on the percentage of the excess floor area to be allocated to each the percentages shall be determined based on the agreed upon profit allocation percentages. If the parties fail to reach agreement on the percentages of the increased investment that they will each bear the percentages shall be determined based on the agreed upon investment percentages. If no investment percentages were agreed upon the percentages shall be determined based on the agreed upon profit allocation percentages.

Article 21: If the parties developed and constructed premises in violation of the plan and the competent department of the people's government that has the approval authority orders the demolition of the premises after determining them to be an illegal structure and if the parties fail to agree on how they will share the losses liability shall be determined in proportion to the fault of the parties. If their fault is impossible to determine liability shall be determined based on their investment percentages. If no investment percentages were agreed upon liability shall be determined based on the agreed upon profit allocation percentages.

Article 22: If a contract for the cooperative development of real property specifies that the profit allocation percentages shall be determined solely based on the investment amount and one of the parties fails to pay its capital contribution in full the profits shall be allocated in proportion to the parties' actual investment percentages.

Article 23: If a party to a contract for the cooperative development of real property requests that the amount derived from the pre-sale of the premises be used to offset its investment so that it can then participate in the profit allocation on such basis its request shall be rejected.

Article 24: If a contract for the cooperative development of real property specifies that the party that provides the leasehold will not bear the business risks and will only receive a fixed benefit the contract shall be deemed a leasehold assignment contract.

Article 25: If a contract for the cooperative development of real property specifies that the party that provides funds will not bear the business risks and will only receive a fixed quantity of units in the premises the contract shall be deemed a premises sale contract.

Article 26: If a contract for the cooperative development of real property specifies that the party that provides funds will not bear the business risks and will only receive a fixed monetary amount the contract shall be deemed a loan contract.

Article 27: If a contract for the cooperative development of real property specifies that the party that provides funds will not bear the business risks and will only lease or otherwise use the premises the contract shall be deemed a premises lease contract.

4. MISCELLANEOUS

Article 28: These Interpretations shall be effective as of August 1 2005. These Interpretations shall apply to cases at first instance accepted after the implementation of these Interpretations.

In the event of a discrepancy between these Interpretations and judicial interpretations promulgated by the Supreme People's Court prior to the implementation of these Interpretations these Interpretations shall prevail.