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  • Risks and Prevention Actions Related to the Land Use Right

    Risks and Prevention Actions Related to the Land Use Right

    Company A participated in an investment promotion event, the township government promised to provide many preferential policies in the land price, taxation discount and etc.. Both parties reached an agreement on purchasing 500 acres of land use right, and Company A paid the price. Unexpectedly, the land was not only a collectively-owned land, but also a reclaimed land, Company A could not obtain the construction land planning permit and the state-owned land use right certificate. Company A wanted to dissolve the agreement and get back the money. The township government refused Company A’s request. Finally, Company A had to bring a lawsuit against the township government.

    In practice, there are many similar cases. In China, the nature of land and the methods to obtain the land are diversified and complex, if an enterprise would purchase or rent a land use right (Remark: in China, the land ownership could not be transferred, and only the land use right could be transferred), it shall have a comprehensive knowledge about the land use right.

    Generally speaking, an enterprise shall pay attention to the following aspects.

    Firstly, to know the nature and ownership of the land. In China, the ownership of land has 2 categories, the state-owned and the collectively-owned. According to the relevant laws and regulations, the buyer shall sign a state-owned land use right transfer contract with the land management authority of a town or city. If the buyer, like Company A, signs a contract with a government, an investment department, a development zone management committee, and etc., then such contract might be deemed as invalid according to the “Contract Law”. The collectively-owned land is more complicated. The collectively-owned land has many categories, such as the ownership-owned, village-owned, and groups of famers-owned. Due to historical reasons, some collectively-owned land has not been registered in time. Therefore, it is very complicated to deal with the ownership of a collectively-owned land. According to the relevant laws and regulations, normally, a collectively-owned land shall be expropriated as a state-owned land before it could be transferred or rented. The only exception is in the case of the establishment of a township enterprise, the collectively-owned land could be transferred to be the construction land. However, such township enterprise shall meet the requirements, such as the rural collective economic organization or farmers shall hold more than 50% of the equity, and the management staff shall have the representative of those shareholders and so on.

    Secondly, to check whether there are any planning problems related to the land, which include the overall planning of an area, the planning of the land and so on. If the overall planning of the area shows that such area might be expropriated shortly, then the buyer shall be careful on purchasing the land. In addition, the buyer shall check whether there is any unsolved historical problems, for example, it was used as a pesticide plant, or it is a reclaimed land and ect..

    Thirdly, to review the purchase procedures. According to the relevant laws and regulations, the methods to purchase a state-owned land are: a) agreement; b) bid invitations; c) auctions; and d) listing. Article 4 of the “Provisions on the Assignment of State-owned Construction Land Use Right through Bid Invitation, Auction and Quotation” stipulates that with respect to the land for industry, commerce, tourism, entertainment, commercial housing or other business operations, or on which there are two or more intended land users, the assignment thereof shall be conducted through bid invitation, auction or quotation, ……. In practice, bid invitation, auction or listing for sale are the must methods for purchasing a land use right. However, sometimes, some enterprises may believe in the promise of the local governments, and skip such methods, which may arouse many unresolved consequences. If an enterprise obtains a land use right by an agreement, then according to the relevant laws, there is limitation on the price, for example, the minimum price shall not be lower than the sum of the land use fees for newly-added construction land, compensation for land acquisition (relocation) and the tax calculated in accordance with the relevant regulations and policies.

    Fourthly, to prescribe the rights and responsibilities of both parties in the agreement, such as the payment and due date, the procedures handling party, the specific content of the support policies, the liabilities for breach of the agreement and so on. Because the unspecific agreement would become the future loss.