INTERNATIONAL REAL ESTATE BRIEFING consultations with the - PDF document

September 2004 a. 6 projects estate development Land use rights for real b. 5 real estate developers for foreign invested Business vehicles c. 5 Projects Real Estate Development II.3 5 Overview Business Vehicles— II.2 4 II.1 Introduction 4 Transfer of real estate FOREIGN INVESTMENT IN b. d. Lease term 7 rights of tenants Pre-emptive c. 7 property Lease of mortgaged development projects 7 a. Registration requirement 6 Occupy Space Commercial Leases to II.4 6 d. Pre-sale of real estate 6 REAL ESTATE 4 INTERNATIONAL REAL ESTATE BRIEFING consultations with the government. Introduction I.1 1 LAND USE RIGHTS IN CHINA CONTENTS then amended on a piecemeal basis over the years, most recently in late 1998 when PRC Land Administration Law. This law was originally promulgated in 1986 and was The primary national legislation for the management and use of land in China is the I.1 INTRODUCTION ■ LAND USE RIGHTS IN CHINA careful structural consideration of the projects and often, not surprisingly, significant I.2 developed cities and rural areas. As such, investment in real estate in China requires and policies and individual governmental officials’ discretion, particularly in less transparency, land matters are often still subject to non-public, internal notices It should be noted that despite China’s progress towards enhanced legislative in China to support their operations in the manufacturing or service sectors. also relevant to businesses planning to construct or lease buildings and improvements in real estate in the People’s Republic of China (“PRC” or “China”). This overview is This article describes the basic features of the laws applicable to foreign investment ■ INTRODUCTION REAL ESTATE PRACTICE IN CHINA 1 State-owned and I.4 Documents of Title land use rights 4 f. Interim use of land 4 e. Easements 4 d. Lease of land use rights 4 Transfer of granted Collectively-owned Land c. 3 b. Allocated land use rights 2 a. Granted land use rights 2 I.3 Land Use Rights 2 7

2 grants in China are carried out via negotiated agreement, PRC law requires that the land If land use rights are granted by means of mutual Land grant premium • istrative authorities and the relevant land user. agreements concluded between the land admin- In practice, the vast majority of land use rights as determined by the State. If the land grant mutual agreement, invitation of tender or auction. Land use rights may be granted by means of Method of grant • purpose of land use. from the local planning bureau in respect of the premium be not lower than the minimum premium the contract and claim compensation for breach places, for example, the annual land use fee is the payment of an annual land use fee. In many vant land administration bureau usually requires In addition to the land grant premium, the rele- Land use fee and other fees • of contract. contract, failing which the grantor may terminate premium under a land use rights grant contract sixty days of the execution of the land grant A land user must pay the land premium within held invalid. which, the land use right grant contract will be rectification within a limited period of time, failing the supervising land authority would order a is lower than the applicable minimum premium, of land, a private land user must obtain an approval to application to the land administration authority for use an amended version of the law, along with implementing uals other than the collectives without first being converted or develop the land, the PRC Constitution adopted in 1982 business entities or individuals continue to be able to use the country and nationwide economic growth. While private rural areas for the benefit of the overall development of the control over private-owned real property in cities and ago, the Chinese government took the approach to enhance Following China’s socialist transformation several decades into State-owned land. be transferred, leased or mortgaged to companies or individ- ownership either in the State or in the collectives for the approved otherwise by the government, and generally cannot cannot be used for non-agricultural purposes, unless is particularly important. Collectively-owned land generally Whether or not land is State-owned or collectively-owned rural and suburban areas is generally owned by collectives. Land in urban areas is owned by the State, while land in I.2 STATE-OWNED AND COLLECTIVELY-OWNED LAND ment legislation. regulations, essentially overhauled then existing land manage- ended private ownership of land in China and vested land enacted by the people’s government at various levels. Prior for “granted” land use rights and “allocated” land use rights. land must conform to the comprehensive land use plans sideration of payment of a land grant premium. Use of Land Use Rights” for a definite period of time and in con- fixed purposes under a “Contract for Grant of State-owned The State may grant land use rights to a land user for to transfer, lease or mortgage the land use rights. holder of granted land use rights generally has the right in land which a private land user may have in China. The Granted land use rights are at present the fullest interest a. Granted land use rights for designated purposes. Current PRC law generally provides benefit of the whole people. to construct and maintain buildings and other improvements Use rights afford the holder the ability to occupy the land and some significant restrictions. owned land through very specific means and subject to entities are only permitted to acquire “use rights” in State- and the right to use such land. Individuals and business PRC law distinguishes between the ownership of land I.3 LAND USE RIGHTS charged at approximately the equivalent of one

3 services; land used for energy, communication, water However, if the land to be allocated is occupied, the land regulations. No land premium is payable by the land user. where it may be specifically prescribed by the laws and Generally, there is no definite period of allocation except projects supported by the State. reservation and other key infrastructure construction purposes; land used for urban infrastructure or public relocation and resettlement costs. ing: land used by a government agency or for military land use rights to land users for specific purposes includ- ment at or above the county level may allocate In limited circumstances, the local people’s govern- b. Allocated land use rights to relevant statutory provisions. land for a certain specified period of time, subject recovered if the relevant land is deemed as “idle” the land. Granted land use rights may also be user may be responsible for compensation for required period of time for which a land user has used feror submits the land related portion in the real allocated land are leased, the land related portion of the premium has been paid to the State. Where buildings on the foreclosure proceeds only after the land grant are mortgaged, the mortgagee will be entitled to is not permitted. Where buildings on allocated land estate transfer proceeds to the State if conversion land and pay the land grant premium, or the trans- Land use rights obtained by way of allocation cannot dures for converting the allocated land into granted either the transferee has to go through the proce- Where buildings on allocated land are transferred, and leased, subject to approval by competent authorities. ings on allocated land can be transferred, mortgaged land use right, PRC laws appear to recognize that build- buildings are viewed as a separate legal interest from the to revocation by the State at any time. Nevertheless, as be transferred, mortgaged or leased, and are subject the land and the actual stage of development of sation will be provided on the basis of the actual U.S. cent per square feet. However, rates can of the land use rights grant upon expiration of A land user may apply for renewal of the term can be for a maximum of 40 years. of 50 years; and land used for commercial purpose rights for industrial purpose can be for a maximum a maximum term of 70 years; granted land use land used for residential purpose is subject to purpose for which the land will be used. Typically, be granted is determined by reference to the the original term of use subject to payment The maximum term for which land use rights may Term of granted land use rights • charges upon the land user. land management fee and other miscellaneous land administration bureaus may also impose a vary significantly depending on the locale. Local “public interest”. In this case, appropriate compen- relatively new and no 40-year or 50-year terms recover the granted land use rights for reasons of a very few special circumstances the State may to expiration of the land use term. However, under generally may not be recovered by the State prior Granted land use rights acquired by a land user Recovery of granted land use rights • have yet come up to renewal. of a new premium and execution of a new fees since the relevant laws and regulations are with the renewal process and typical renewal compensation. In practice, there is no experience other improvements will revert to the State without land use rights, together with any buildings and cation for renewal has not been approved, the has not applied for renewal or where an appli- land administration bureau. Where a land user land use rights grant contract with the relevant rent must be submitted to the State.