B'Family Advocates

What the Regulation Says

In China, neither home companies nor Foreign Invested
Enterprises may own land outright; as an alternative they personal Land Use
Rights. There are two kinds of Land Use Rights – Allotted and
Granted. Compared with Western common law concepts,
Allocated Land Use Rights are in some way similar to
leaseholds, and Granted Land Use Rights are in some ways
similar to life estates.

Allocated Land Use Rights are typically supplied by the
authorities for an indefinite interval (usually to state-owned
entities) and cannot be pledged, mortgaged, leased, or
transferred by the user. Moreover, Allocated land might be
reclaimed by the government at any time.

Granted Land Use Rights are provided by the federal government in
trade for a grant fee, and carry the rights to pledge,
mortgage, lease, and switch inside the term of the grant.
Land is granted for a set term – generally 70 years for
residential use, 50 years for industrial use, and forty years for
business and different use. The term is renewable in concept
(although no international investor has been in China lengthy enough to
learn how this works in practice). Not like the same old case in
Western nations, Granted land should be used for the precise
function for which it was granted.

Allocated Land Use Rights could also be transformed into Granted Land
Use Rights upon the cost of a grant payment to the government.
Even Granted Land Use Rights are subject to expropriation by
the federal government beneath uncommon circumstances (in trade for
fair compensation much like the eminent area power within the
US). This state of affairs tends to work in favor of the
foreign investor – land granted to Foreign Invested Enterprises
is seldom expropriated, but agricultural land is usually
expropriated to be able to make room for foreign invested
projects.

How the Law Applies to Foreign Invested Enterprises

Most overseas invested Joint Ventures obtain Land Use Rights
from the Chinese language party. A standard drawback is that the Chinese
get together holds only Allocated Land Use Rights for the land it
occupies (be on the lookout for this if the Chinese party is a
state-owned entity). On this case, the authority to switch
the Land Use Rights is vested in the native Land Administration
Bureau, and the Chinese language get together won’t have the precise to
transfer it to the Joint Venture.

Nevertheless, if the Joint Venture should buy lengthy-term
Granted Land Use Rights from the Land Administration Bureau
via a land use grant contract, the Joint Venture will then
be capable of mortgage the land or transfer it to a third party.
Take note, however, that vacant land must be 25% developed
before Granted Land Use Rights could be acquired. Do not attempt
to acquire Granted Land Use Rights if you don’t intend to
develop it inside a short time, as a result of even if the land
qualifies as 25% developed and thus eligible for a grant, it
can still be classified as “vacant”, and vacant land may be
reclaimed if improvement just isn’t begun inside 2 years of
transfer.

A second choice could be for one of many buyers to acquire
Granted Land Use Rights and then lease the land to the Joint
Venture. However, vacant land cannot be leased to a 3rd social gathering
(corresponding to a Joint Venture or different Foreign Invested Enterprise)
by the grantee. Additionally it is worth noting that a lease must
be registered in order to shield the leasehold towards
potential competing claims.

Thirdly, if you are keen to accept Allotted Land Use
Rights, the Overseas Invested Enterprise may simply have the
land allotted to it by the local Land Administration Bureau.

In the case of a Joint Enterprise, a fourth choice would be to
have the Chinese language get together contribute its Allotted Land Use Rights
to the Joint Enterprise as a part of its capital contribution, in
which case the Chinese language get together could be accountable for annual land
use fees.

Another common problem is that the land and the constructing(s) on
it are owned by totally different events, making a potentially messy
authorized situation if all parties aren’t keen to cooperate.

Most importantly, it will be a good idea to require the
Chinese language party to prove the status of its Land Use Rights with
documentary proof before making use of for mission approval.
Additional, pre-switch due diligence ought to include an intensive
environmental affect self-evaluation (see the Glossary for
details). Finally, remember that fee and transfer of
‘title’ via public registration with the Land
Administration Bureau cannot happen simultaneously -
registration of land transfers will not be allowed unless a
receipt for fee is submitted with the registration transfer
application.

David Carnes is licensed to practice law in California. He speaks and reads Mandarin Chinese and has a number of years experience working with Chinese law companies and Sino-American joint ventures.

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