China Practice Research Exercise 1

MEMO

To:                Partner

From:                ME (UID: 3035103590)

Date:                3 February 2018

Re:                 Land issues in “greenfield” investment and investment through acquisition in China

General introduction of the land legal system in China

According to Article 10 of the Constitution of the People’s Republic of China, urban land in China is owned by the state, while rural and suburban land is owned by collectives. The state may, however, act in the public interest to expropriate or make use of land while paying compensation.

Land use right refers to usufruct rights where holder of such right is entitled to the possession, utilization and benefit of the immovable or movable owned by others in accordance with the law (Article 117 of Real Right Law). The maximum term of land use right for industrial use land is 50 years (see: Article 12(2) of Interim Regulations of the People’s Republic of China on Assigning and Transferring the Urban State-owned Land-use Right 1990).

There are 3 types of land use in China, namely ‘agricultural land’, ‘construction land’ and ‘unused land’. "Agricultural land" refers to land directly used for agricultural production, including cultivated land, forest land, grassland, land used for irrigation, and bodies of water used for breeding purposes. "Construction land" refers to land on which buildings or other structures are built, including land for urban and rural housing and for the public facilities thereof, land for industrial and mining use, land for the construction of transportation and irrigation facilities, land used for tourism, and land for the construction of military installations; while "unused land" refers to any land other than land used for agriculture or construction. (See Article 4 of Land Administration Law 2004).

Requirements for the acquisition of land use right for the granted land

Prerequisites for transfer of the granted land:

In relation to the ‘greenfield’ approach, the grant of land use rights must be consistent with the general plans for land utilisation, urban plans and annual plans for land for construction (see Article 10 of Administration of Urban Real Estate). In addition, a written grant contract must be concluded between the land administration department of the local government and the client, pursuant to which the client shall pay the fee for the grant of land (see Article 15 and 16).

In relation to the acquiring land and building approach, the ownership of the structure and the land use right will transfer at the same time, under Article 5 of Provision on the Administration of Urban Real Estate Transfer 2001 (“PAURET”). Under Article 10 of PAURET, prerequisites to the transfer include the full payment of the grant of land and the Seller obtaining the Land Use Right Certificate, as well as carrying out investment and development under the Land Use Right Contract.

Documents required and the key terms for the land transfer:

For the ‘greenfield’ investment approach, Article 138 of Real Rights Law provides that a written contract regarding the transfer of such rights must be entered into. In addition to that, the following terms are mandatory for the contract:

1. Name and address of the parties concerned;
2. Boundaries and area, etc. of the land
3. Area to be occupied by buildings, constructions and auxiliary facilities therefor;
4. Purpose of use
5. Period of use
6. Amount of transfer fees and other fees and the payment methods; and
7. Dispute settlement method

For the acquisition of land and buildings approach, Article 7 of the Provision on the Administration of Urban Real Estate Transfer 2001 provides that the parties to the real estate transfer must sign the written transfer contract. Article 8 provides that the following terms should be included in the contract: