New SPC interpretation illuminates the PRC Property Law

Matters subject to joint decision

According to Article 76 of the Property Law, the following matters should be jointly decided by the owners (rather than the owners' committee): (i) adopting and amending the rules of procedure for the owners' general meeting; (ii) adopting and amending the management rules for the building(s) and its/their affiliated facilities; (iii) electing or changing the members of owners' committee; (iv) engaging and dismissing the property management company or other managers; (v) collecting and using the housing maintenance fund for the building(s) and its/their affiliated facilities; (vi) re-constructing or re-building the building(s) and its/their affiliated facilities; and (vii) other important matters regarding joint ownership and joint management rights (the Joint Approval Matters).

The Interpretation further specifies that the following matters should be recognised as “other material matters” as mentioned in item (vii) above: (i) changing the usage of common area; (ii) using the common area to conduct business activities; (iii) disposing of common area; and (iv) those matters that should be jointly decided by the owners as specified by the owners' general meeting or under the management rules.

Calculating the number of owners

According to Article 76 of the Property Law, in respect of a Joint Approval Matter, a decision should be made with affirmative votes of (i) more than half (or at least two-thirds in respect of items (v) and (vi) of the Joint Approval Matters above) of the total number of owners; and (ii) the owners who collectively own more than half (or at least two-thirds in respect of items (v) and (vi) of the Joint Approval Matters above) of the total construction area of the exclusive areas.

In practice, however, is not unusual for a developer to own lots of apartments in one or more buildings within one planned premises before completion of its property sale while some purchasers have already moved into some of the remaining apartments; it is also common that one person may own several apartments in one or more buildings within the same planned premises. The Property Law fails to further clarify how to calculate the number of owners under such circumstances.

The Interpretation stipulates (in Article 9) that, the number of owners should be calculated in accordance with the following rule: (i) first, one exclusive area should correspond to one owner; and (ii) for those exclusive areas that have not been sold out by the developer or that have been sold out by the developer but not yet delivered to the purchasers or those exclusive areas that are owned by the same owner, such developer or owner will only be deemed as one owner.

This rule means that, for example, even if a developer or a person owns more than half (or two-thirds) of the exclusive areas in one or more building(s) within one planned premises, it cannot adopt decisions regarding any Joint Approval Matter unilaterally without obtaining requisite consent from other owners in the same premises. However, this rule does not deprive the joint management rights of such developer or person. As mentioned above, the Joint Approval Matters also require the consent of those owners who own more than half (or at least two-thirds) of the total construction area of the exclusive areas. Such developer or owner will have veto right against the proposals made by other owners.

Parking spaces

Article 74 of the Property Law provides that the planned parking spaces in the premises of the building(s) should be used to satisfy the need of the owners first. The Interpretation further clarifies (in Article 5) that, by sale, lease or giving of the parking spaces to the owners in accordance with the planned parking space “allocation ratio” (i.e., the ratio of the number of parking spaces to the number of total apartments), the developer should be deemed to have complied with the provision on “satisfying the requirements of the owners on a priority basis”.

The Interpretation also stipulates that, other than the planned parking spaces, any additional parking space which occupies the road or other common area in the planned premise of the building(s) should be jointly owned by all owners.

Change of usage from residential to commercial

Article 77 of the Property Law stipulates that no owner may violate any laws, regulations or management rules to change the usage of his/her residence to commercial use. If an owner intends to so change the usage, it should obtain consent from the “materially interested owners” as well as comply with all applicable laws, regulations and the management rules. But no definition is given under the Property Law of the term “materially interested owners”.

The Interpretation clarifies this issue. It says (in Article 11) that the term “materially interested owners” refers to (i) all other owners in the building where the residence in question is located; and (ii) any other owner in any other block(s) within the same developed site who can demonstrate that the value of his/her premises or his/her quality of life is or may be adversely impacted by such change of usage. The Interpretation further emphasises that such owner needs to obtain unanimous consent (rather than majority consent) from all interested owners for change of usage from residential to commercial.

Other issues

The Interpretation also specifically defines the “exclusive area” and the “common area”, which gives a clearer guidance to the justice and practice.

In addition, the Interpretation stipulates the scheduled period for an owner to go to court for revocation of any decision made by the owners' general meeting or owners' committee which such owner believes infringes his/her legitimate right or violates legal procedures. Article 12 states that such scheduled period is one year from the date when such owner learns or should have learnt about the relevant decision.

Lin Zhang, Allbright Law Offices