The Contracts

Signing a Rental Agreement

The Rental Agreement

In China, rental agreements are governed primarily by the following laws:

The Contract Law of the People’s Republic of China (1999): This law provides a general framework for contracts, including lease agreements.
The Civil Code of the People’s Republic of China (2021): Enacted on January 1, 2021, this code integrates many laws, including those on property leasing.
Local regulations: Each city and province in China may have its own supplementary rules and administrative policies related to housing rental.

Key Rules of Rental Agreements in China

1. Written Agreement Requirement

A rental agreement in China must be in writing. Oral agreements, though potentially valid, are difficult to enforce legally. A standard lease agreement should include the following key details:

Parties involved: Names and identification details of both the landlord and the tenant.
Rental property details: Address and description of the property.
Rental period: Start and end dates of the tenancy.
Rent amount and payment terms: Monthly rent, due date, and payment methods.
Security deposit: Typically, landlords require a deposit (usually one to three months' rent) to cover potential damages.
Rights and obligations: Clear definitions of the responsibilities of both landlord and tenant.
Conditions for renewal and termination: Any specific clauses related to lease extension or termination should be clearly stated.
Maintenance and repairs: Clear distribution of maintenance responsibilities between the landlord and tenant.
Penalties for breach: Details about the penalties for non-compliance with the terms of the agreement.

2. Registration Requirement

In many cities, rental agreements must be registered with the local housing authority. This requirement is not always strictly enforced, but registration can offer both parties legal protection. Some cities, like Beijing and Shanghai, have stricter rules regarding rental registration to prevent disputes and ensure housing safety standards.

3. Rent Control and Limits

Local governments in China often regulate rental prices in specific areas. Lessees should check whether the property they intend to rent is subject to any price caps or rent controls.

4. Security Deposits

In most cases, the security deposit is equal to one or two months' rent. By law, landlords are not allowed to ask for more than three months’ rent as a deposit. Upon termination of the lease, the landlord must return the deposit unless it is used to cover unpaid rent or damages.

5. Termination of Lease

A landlord can only terminate the lease under specific conditions, such as:

The tenant fails to pay rent.
The tenant sublets the property without permission.
The property is used for illegal activities.
The property is damaged significantly by the tenant.

The tenant has the right to terminate the lease early if the landlord fails to fulfill their obligations, such as not maintaining the property or violating terms of the agreement.

6. Maintenance and Repairs

According to Chinese law, the landlord is generally responsible for structural repairs, while the tenant is responsible for minor repairs arising from daily use. A clear division of responsibilities should be outlined in the contract to avoid disputes.

7. Subletting

In most cases, tenants are not allowed to sublet the rental property without the landlord’s consent. Any subletting must be done in accordance with the rental agreement and local regulations.

3. Legal Suggestions for Lessees

1. Carefully Review the Rental Agreement

Before signing, lessees should thoroughly read and understand all clauses in the lease agreement. It’s important to ensure the following:

The rental agreement is clear about the rent, duration, and conditions for termination.
The lease does not contain any ambiguous or one-sided terms that could disadvantage the lessee.
If the lease is in Chinese, lessees should seek translation assistance if necessary.

2. Conduct a Thorough Property Inspection

Before moving in, lessees should conduct a comprehensive inspection of the property and document any pre-existing damages. This will help avoid disputes when it comes to the return of the security deposit.

3. Ensure Legitimacy of the Landlord

Lessees should verify the identity of the landlord and their legal ownership of the property. This can be done by checking the property ownership certificate or confirming the landlord’s legal status through local real estate registration departments.

4. Insist on Rent Receipts

To avoid disputes, lessees should ask for receipts for every rent payment. Rent receipts serve as proof of payment in case of future disagreements.

5. Avoid Unauthorized Subletting

Lessees should not sublet the property without obtaining written permission from the landlord. Unauthorized subletting can result in the termination of the lease and legal consequences.

Common Disputes and How to Avoid Them

Rent Increases: Ensure that the rental agreement specifies whether rent can be increased during the lease term and by how much.
Unjust Withholding of Deposit: To avoid disputes over the return of the security deposit, ensure that an inventory of the property and any damages are documented in writing before moving in.
Early Termination Penalties: The lessee should clarify under what circumstances they can terminate the agreement early without incurring penalties.

In case of disputes, the lessee can report the issue to the local housing authority or file a lawsuit in the appropriate court.

READ THE GUIDES IN THIS PAGE: Signing a Rental Agreement - Standard Contractual Clauses - The insurance Contracts - The Consumer Rights - Property purchase agreement - Governing law and Dispute resolution - GO TO THE TOP OF THIS PAGE - GO TO THE INDEX OF THIS SECTION - GO TO THE HOMEPAGE

Standard Contractual Clauses

The use of standard clauses in China is regulated by various laws and regulations that aim to protect consumers from unfair terms and ensure a balanced contractual relationship. Key pieces of legislation include:

- The Consumer Rights Protection Law of the People’s Republic of China (2013). This law is the cornerstone of consumer protection in China. It outlines the rights of consumers, obligations of businesses, and the requirements for fair contractual terms. It includes several provisions that restrict the use of unfair standard clauses in consumer contracts

-The Contract Law of the People’s Republic of China (1999). The Contract Law provides a general framework for contracts, including consumer contracts.

-The Civil Code of the People’s Republic of China (2021). The Civil Code, which became effective in 2021, incorporates many aspects of the previous Contract Law and expands protections for consumers.

- The Measures for Administrative Supervision and Administration of Contracts (the “New Measures”), that took effect on 1 July 2023 and replaced the previous Measures on Supervision of and Dealing with Contract-related Violations (revised in 2020). The New Measures’ main purpose is to prevent unfair standard clauses used by businesses to reduce responsibilities, increase consumer obligations, or restrict consumer rights. While the PRC Civil Code and the PRC Consumer Rights Protection Law prohibit unfair standard clauses in general, the New Measures provide more detailed guidance for businesses.

Requirements for Standard Clauses in Consumer Contracts

1. Transparency and Disclosure

Businesses must ensure that standard clauses are clear, understandable, and transparent. The Consumer Rights Protection Law mandates that businesses clearly disclose clauses that could affect the rights of consumers, particularly those related to price, quality, and service conditions. Hidden or ambiguous clauses can be invalidated by the courts.

2. No Unilateral Changes

Standard clauses must not grant businesses the right to unilaterally alter key terms of the contract, such as price or delivery conditions. Any changes must be mutually agreed upon, and consumers must be informed in advance of any modifications to the terms.

3. No Exclusion of Key Consumer Rights

Businesses are prohibited from using standard clauses to exclude or limit the following rights of consumers:

Right to safety: Consumers have the right to expect that products and services will not harm their personal safety or property.
Right to information: Consumers must receive clear and accurate information about the product or service they are purchasing.
Right to compensation: In the event of defective goods or services, consumers are entitled to compensation or repairs.

4. Fairness and Reasonableness

Clauses that are deemed unfair, unreasonable, or overly one-sided in favor of the business can be invalidated by courts. This includes clauses that impose disproportionate penalties on consumers for breach of contract or limit the liability of the business for its own misconduct.

Consumer Protection Mechanisms for Standard Clauses

Consumers who sign contracts containing standard clauses have several forms of protection under Chinese law. These protections are designed to ensure that consumers are not unfairly disadvantaged by pre-drafted terms.

1. Right to Challenge Unfair Clauses

Consumers have the right to challenge any standard clause that they believe is unfair, ambiguous, or not in line with their rights under the Consumer Rights Protection Law. If a consumer brings a legal claim, courts can review the standard clauses and invalidate any terms that are found to be:

Contrary to public policy.
Unfairly prejudicial to the consumer.
Exempting the business from liability for serious misconduct or negligence.

2. Obligation to Provide Full Disclosure

Businesses are required to ensure that consumers are fully informed about the terms of the contract, especially clauses that impose significant obligations or limit their rights. Failure to adequately explain these clauses can result in the terms being invalidated.

3. Role of Consumer Protection Agencies

In cases where consumers feel that they have been wronged by unfair standard clauses, they can seek help from consumer protection agencies such as the China Consumers Association (CCA) or local consumer rights bureaus. These organizations can help mediate disputes and provide legal advice to consumers.

4. Legal Recourse in Courts

If a consumer is dissatisfied with a standard clause in their contract, they can seek recourse through the legal system. Chinese courts are empowered to review contracts and strike down any terms that violate consumer protection laws. Courts will generally side with the consumer if the standard clause was not clearly disclosed or is deemed overly one-sided in favor of the business.

Common Issues in Standard Clauses and How Consumers Can Be Protected

1. Limitation of Liability

Some standard clauses may attempt to limit the business’s liability for damages or poor service. Consumers should be aware that any clause that limits liability for personal injury, loss of property, or other serious issues is likely to be considered invalid by Chinese courts. Consumers can challenge such clauses if they believe that their rights are being unfairly limited.

2. Unilateral Amendment Clauses

Clauses that allow businesses to unilaterally change the terms of the contract, such as increasing prices or altering the service provided, are often found in telecommunications or subscription-based services. Consumers should be vigilant about such clauses and seek legal advice if they believe the business is making changes without proper notification or consent.

3. Automatic Renewal Clauses

Many service contracts in China contain automatic renewal clauses, which can trap consumers into continuing contracts they no longer want. Consumers must ensure they understand the renewal process and the notice period required to terminate the contract before it renews. The Consumer Rights Protection Law requires that businesses inform consumers about the renewal terms in a clear and transparent manner.

4. Disproportionate Penalties

Some standard clauses impose disproportionate penalties on consumers for breaching the contract, such as high fees for early termination. If a penalty clause is deemed excessive, courts in China can adjust or invalidate it. Consumers should carefully review penalty clauses and challenge any that seem unreasonable.

Legal Suggestions for Consumers Signing Standard Clauses

1. Review Contracts Carefully

Consumers should carefully review all standard clauses before signing a contract. Pay particular attention to clauses related to price, liability, termination, and dispute resolution. If any clause seems unfair or overly complex, it’s advisable to seek legal advice before signing.

2. Request Clarification

If any clause is unclear, consumers should ask the business for a full explanation. Under the Consumer Rights Protection Law, businesses are required to ensure that consumers fully understand the terms of the contract, especially key clauses that affect their rights.

3. Keep Records

Consumers should keep a copy of the signed contract and any communications with the business. This can serve as evidence if a dispute arises later regarding the terms of the contract or the business’s conduct.

The insurance Contracts

The Insurance Contracts

The legal framework for insurance contract

The legal environment for insurance contracts in China is primarily governed by several key laws and regulations:

1. The Insurance Law of the People’s Republic of China (2009)

The Insurance Law of China is the most comprehensive legal framework regulating insurance activities in the country. It defines the obligations of insurance companies, sets standards for contract formulation, and protects the rights of insured parties. Key provisions include:

Contractual clarity: Insurers are required to issue clear and detailed insurance policies.
Good faith principle: Both the insurer and the insured are expected to act in good faith, providing accurate information during the application process.
Rights of insured: The law establishes the insured's rights to claim compensation in the event of an insured loss.
Prohibition on unfair contract terms: Insurance contracts cannot contain provisions that unreasonably exclude or limit the insurer's liability.

2. The Civil Code of the People’s Republic of China (2021)

The Civil Code reinforces many of the principles found in the Insurance Law and provides a broader framework for contract law in China. It covers issues related to the formation, performance, modification, and termination of insurance contracts. The Civil Code emphasizes the duty of both the insurer and the insured to act in good faith, provides for the insured’s right to receive insurance compensation as agreed in the contract, prohibits insurers from including unreasonable clauses in insurance contracts, especially those that limit liability for negligence or breach of duty by the insurer.

3. The Regulation on the Administration of Insurance Contracts (2015)

This regulation provides detailed guidance on how insurance contracts should be formulated and executed in China. It focuses on ensuring transparency and fairness in insurance dealings and establishes rules for contract administration, including:

Disclosures by insurers: Insurers must explain the coverage, exclusions, and limitations of the insurance policy in clear terms.
Standard clauses: Insurers are required to highlight key clauses that may affect the rights of the insured, especially those that limit coverage or impose conditions for compensation.

4. Supervision by the China Banking and Insurance Regulatory Commission (CBIRC)

The CBIRC is the main regulator for the insurance industry in China. It ensures that insurance companies operate legally and ethically, and it has the power to investigate and impose penalties for violations of insurance regulations.

Requirements for Insurance Contracts

1. Good Faith and Disclosure Requirements

The principle of utmost good faith (known as bona fides) is a critical element of insurance contracts in China. Both the insured and the insurer have a duty to provide accurate and complete information before the contract is formed. This applies particularly to the insured, who must disclose all material facts that could affect the risk being insured.

For the insured: Full disclosure of relevant information, such as medical history in life insurance or the value of property in property insurance, is mandatory. Any intentional withholding of information or providing false information can lead to the voiding of the contract or denial of claims.
For the insurer: Insurance companies are required to clearly inform the insured about all key terms, including the coverage, exclusions, premium rates, and payment schedules. If the insurer fails to disclose critical information, the contract may be considered invalid, and the insured could be entitled to compensation.

2. Policy Clarity and Transparency

Insurance contracts must be written clearly to ensure the insured fully understands the coverage, exclusions, and conditions of the policy. Key points that must be communicated include:

Scope of coverage: Insurers are required to explicitly define what risks are covered.
Exclusions and limitations: Any exclusions or limitations to the coverage must be stated clearly and highlighted. This is especially important in health and life insurance policies, where pre-existing conditions may not be covered.
Premium payment terms: Insurers must provide clear information about how and when premiums are to be paid, as well as the consequences of late or non-payment.

3. Contract Interpretation in Favor of the Insured

Under Chinese law, if an insurance contract contains ambiguous or unclear clauses, the principle of contra proferentem applies. This means that the contract should be interpreted in favor of the insured, as they are generally considered the weaker party in the transaction.

4. Claim Settlement

The insurer is required to settle claims in a timely manner, as outlined in the policy. The Insurance Law sets clear guidelines for the claim process, including:

Time limits for claim submissions: The insured must file a claim within a specified period after the occurrence of the insured event.
Obligation to investigate: Once a claim is filed, the insurer must promptly investigate the incident and determine whether compensation is owed.
Timely payments: Once the claim is approved, the insurer must pay the insured within a reasonable period.

Consumer Protections for the Insured

Consumers who sign insurance contracts are afforded several protections under Chinese law. These protections are designed to ensure that the insured is not disadvantaged by unfair practices, unclear terms, or delayed compensation.

1. Right to Full Information and Disclosure

Consumers have the right to be fully informed about the terms and conditions of the insurance policy. This includes not only the benefits but also the exclusions, limitations, and conditions under which compensation may be denied. Insurers are legally required to provide this information in writing and ensure that the insured understands it.

2. Right to Fair Compensation

Once an insured event occurs, the insured has the right to claim compensation as outlined in the policy. If the insurer unreasonably delays or denies a valid claim, the insured can file a complaint with the China Banking and Insurance Regulatory Commission (CBIRC) or take legal action. Courts in China typically rule in favor of the insured in cases of unjustified claim denials or unreasonable delays.

3. Right to Challenge Unfair Clauses

If an insured person believes that a clause in the insurance contract is unfair, unreasonable, or contrary to public policy, they can challenge it in court. The Chinese Civil Code prohibits insurers from including clauses that unreasonably limit their liability or impose excessive conditions on the insured. Courts may invalidate such clauses if they are found to violate consumer protection laws.

4. Right to Timely Contract Cancellation

Insured individuals have the right to cancel their insurance policy under certain conditions. For example:

Cooling-off period: Many insurance contracts in China include a "cooling-off period" during which the insured can cancel the contract without penalties.
Breach of duty by the insurer: If the insurer fails to fulfill its obligations, such as by providing inaccurate information or delaying payments, the insured can cancel the contract and may be entitled to compensation.

5. Recourse through the China Insurance Consumer Protection Bureau

The China Insurance Consumer Protection Bureau is a specialized agency designed to assist consumers with complaints and disputes related to insurance. Insured individuals can file complaints with this agency if they believe their rights have been violated, and the Bureau may mediate or investigate the issue.

6. Legal Recourse in the Courts

If a dispute arises between the insured and the insurer, the insured can pursue legal recourse in Chinese courts. The courts can review the insurance contract and determine whether the terms are fair, whether the insurer has acted in good faith, and whether the insured is entitled to compensation.

Common Issues in Insurance Contracts and How the Insured Can Be Protected

1. Denial of Claims Due to Non-Disclosure

One common issue is the denial of claims based on alleged non-disclosure of material facts by the insured. To protect themselves, insured individuals should ensure that they fully disclose all relevant information when applying for the insurance policy. This includes medical history, property valuations, and other material information.

2. Ambiguous Contract Clauses

Ambiguities in insurance contracts can lead to disputes. If the insured feels that the contract contains unclear terms, they should seek clarification from the insurer before signing. In case of ambiguity, Chinese courts will typically interpret the contract in favor of the insured.

3. Delays in Claim Settlement

Insurance companies may sometimes delay the settlement of claims. If an insurer unreasonably delays payment after a valid claim, the insured can file a complaint with the CBIRC or take legal action to enforce their rights.

4. Unilateral Changes to the Contract

Insurance companies may try to unilaterally change the terms of the contract, such as increasing premiums or reducing coverage. The insured should know that unilateral changes are typically prohibited, and any such change must be mutually agreed upon. If a change is made without consent, the insured can challenge it in court or through regulatory agencies.

The Consumer Rights

In China, consumer protection laws ensure that sellers provide necessary guarantees when selling products to consumers. These guarantees protect consumers from defective, unsafe, or falsely advertised products. The legal framework includes requirements on warranties, product quality, after-sales service, and consumer rights to return or exchange defective products.

Legal Framework Governing Seller's Obligations

Several laws regulate seller's obligations regarding product guarantees in China. The key laws include the Consumer Rights Protection Law (2013), the Product Quality Law (1993, amended 2018), and various regulations issued by the government. These laws are designed to protect consumers from fraudulent practices, poor-quality products, and inadequate post-sale support.

1. Consumer Rights Protection Law of the People's Republic of China (2013)

The Consumer Rights Protection Law is the primary legislation that outlines the rights of consumers and obligations of sellers. It provides comprehensive consumer protections regarding product quality, safety, and the legal guarantees that sellers must offer.

The Consumer Rights Protection Law guarantees consumers the right to return or replace goods within seven days for any reason (cooling-off period) when purchased online or via distance sales; requires sellers to provide repair, replacement, or refund (known as the "Three Guarantees") if products are found to be defective within a specified warranty period; establishes the right of consumers to full information about the products they are purchasing, including their functions, quality, and use.

2. Product Quality Law of the People's Republic of China (1993, amended 2018)

The Product Quality Law outlines the responsibility of manufacturers and sellers to ensure that their products meet national quality standards. It defines the requirements for product safety, labeling, and the consequences of selling defective goods.

The Product Quality Law prohibits the production or sale of products that do not meet mandatory safety standards, requires that products carry labels with accurate information about the product’s quality, use, and safety, holds sellers accountable for selling substandard or counterfeit goods, and provides consumers with the right to claim compensation for losses caused by defective products.

3. Regulation on the "Three Guarantees" for Major Durable Consumer Goods (2012)

This regulation provides specific guidelines on the Three Guarantees (repair, replacement, and refund) system for durable consumer goods, such as electronics, home appliances, and vehicles. It establishes the obligations of sellers regarding after-sales service and warranty periods.

Key elements include:

Warranty period: Sellers must offer a minimum warranty period, during which they are responsible for repairs, replacements, or refunds if the product is defective.
Repair obligations: If a product is faulty, the seller must repair it within a reasonable timeframe.
Replacement and refund: If a product cannot be repaired after a certain number of attempts, or if it has serious defects, consumers are entitled to a replacement or refund.

Types of Guarantees Sellers Must Provide

Chinese law mandates various types of guarantees that sellers must offer to consumers when selling products. These include the Three Guarantees, warranties, and safety guarantees.

1. The "Three Guarantees" System

The Three Guarantees system (repair, replacement, refund) is one of the most important consumer protection mechanisms in China. It applies primarily to durable consumer goods, including electronics, household appliances, and vehicles.

Repair Guarantee: During the warranty period, if the product becomes defective, the seller is responsible for repairing it free of charge.
Replacement Guarantee: If a product is defective and cannot be repaired after multiple attempts, or if the defect is severe, the consumer is entitled to a replacement of the product.
Refund Guarantee: If a product is defective and cannot be repaired or replaced, the consumer has the right to a refund.

The warranty period varies by product category, but sellers are required to clearly disclose the terms of the warranty in the contract or on the product label.

2. Product Quality Guarantees

Under the Product Quality Law, sellers must ensure that the products they sell meet national safety and quality standards. They must provide guarantees that products are free from defects that would render them unsafe or unusable. If a product is found to be non-compliant with these standards, the seller is responsible for compensation, repairs, or replacement.

3. Safety Guarantees

Chinese law emphasizes the importance of safety, particularly for products that could pose risks to consumers, such as electronics, food, and children’s products. Sellers are required to ensure that:

Products meet all relevant safety regulations and certification standards (e.g., China Compulsory Certification or CCC mark for certain goods).
The product label clearly indicates how to use the product safely, and includes any warnings about risks.

Failure to comply with safety standards can result in penalties, product recalls, and compensation for consumers who suffer harm due to unsafe products.

4. Guarantees for Online and Distance Sales

In online or distance sales, additional guarantees are provided to consumers under the Consumer Rights Protection Law. Specifically, consumers have the right to return goods within seven days of purchase without providing a reason (cooling-off period). However, this does not apply to certain categories of goods, such as customized products or perishable items.

Consumer Protection Mechanisms

Consumers in China are protected by several mechanisms to ensure that sellers comply with their legal obligations and provide the necessary guarantees.

1. Right to Return, Replace, or Repair Defective Products

Under the Three Guarantees system, consumers have the right to return, replace, or repair defective goods within the warranty period. If the seller fails to fulfill these obligations, the consumer can file a complaint with local consumer protection agencies or the market regulation authorities.

2. Right to Compensation for Defective or Harmful Products

If a product causes harm due to defects, the seller may be liable to compensate the consumer for their losses. This includes compensation for personal injury, damage to property, or other related expenses. Consumers can seek compensation through mediation or legal action.

3. Right to Information

Consumers have the right to receive accurate and clear information about the products they are purchasing, including their features, quality, and safety. If the seller provides false or misleading information, the consumer may have the right to return the product or claim compensation.

4. Right to File Complaints

Consumers can file complaints with the China Consumers Association (CCA) or other local consumer protection bureaus if they believe their rights have been violated. These organizations can mediate disputes between consumers and sellers, investigate complaints, and impose penalties on non-compliant sellers.

5. Legal Recourse through Courts

If a seller refuses to comply with their obligations or if the consumer is dissatisfied with the resolution offered by a consumer protection agency, they can seek legal recourse. Chinese courts have the authority to enforce consumer rights, invalidate unfair terms in sales contracts, and award compensation to consumers for losses caused by defective products.

Common Issues in Seller Guarantees and Consumer Protection

1. Defective Products and Non-Compliance with Guarantees

One common issue faced by consumers is that sellers may refuse to repair or replace defective products during the warranty period, or they may delay providing repairs or replacements. To protect themselves, consumers should retain all receipts, warranties, and communications with the seller as proof of purchase and guarantee entitlement.

2. Misleading or False Product Information

Sellers may provide inaccurate or misleading information about a product’s features, quality, or safety. If this occurs, the consumer has the right to return the product and claim compensation for any losses incurred as a result of the misinformation.

3. Unfair Contract Terms

Some sellers may include unfair terms in sales contracts, such as clauses that limit their liability for defective goods or reduce the consumer’s right to a refund. Such clauses are generally unenforceable under Chinese law, and consumers can challenge them in court.

Legal Suggestions for Consumers

1. Understand Your Rights

Consumers should familiarize themselves with the Three Guarantees system and the specific warranties offered for the products they purchase. They should be aware of their rights to repair, replacement, or refund if a product is defective.

2. Keep Records

It is important to retain proof of purchase, warranty cards, and any documentation related to the product, including communication with the seller. These records are essential if a dispute arises regarding the product's quality or warranty.

3. Act Within the Warranty Period

Consumers should act promptly if they discover a defect in a product. Reporting the issue within the warranty period ensures that they can take advantage of the legal guarantees for repair, replacement, or refund.

Property purchase agreement

The Property Purchase Agreement

Purchasing real estate in China, especially by foreign individuals, is governed by a set of complex laws and regulations. While domestic buyers have relatively straightforward processes, foreign buyers face specific restrictions and conditions when purchasing property in China.

General Rules Governing Real Estate Purchase Agreements in China

Several laws and regulations govern the purchase of real estate in China, ensuring that the transaction is legally valid and protects the rights of buyers and sellers. The key regulations include the Property Law (2007), Urban Real Estate Administration Law (1994, amended in 2007), and various administrative measures.

1. Property Law of the People’s Republic of China (2007)

The Property Law outlines the rights, obligations, and legal procedures related to property ownership. Key provisions include:

Property Ownership: Article 39 establishes that individuals and companies, both domestic and foreign, can own real estate, including buildings, homes, and apartments.
Land Use Rights: In China, all land is state-owned or collectively owned. Buyers only purchase land use rights for a certain period (e.g., 70 years for residential properties, 40-50 years for commercial or industrial properties).

2. Urban Real Estate Administration Law (1994, amended in 2007)

This law governs the transfer of urban real estate and land use rights. It sets out provisions for real estate transactions, land use, and development. Key elements include:

Transfer of Land Use Rights: Buyers can transfer, mortgage, or lease land use rights according to the terms of their agreement with the government.
Real Estate Contracts: Contracts for the sale and purchase of real estate must be in writing and include detailed information on the property, price, terms, and obligations of both parties.

3. Real Estate Contract Regulations

The contract regulations require that real estate purchase agreements include specific clauses such as:

The location and description of the property.
The agreed-upon price and payment terms.
Terms regarding property delivery, land use rights, and the legal status of the property.
Penalties for breach of contract.

Regulations for Foreigners Purchasing Real Estate in China

Foreigners face additional legal restrictions when purchasing property in China. The regulations are intended to limit speculative buying and ensure that foreign purchasers comply with national policies related to property ownership.

1. Eligibility for Foreign Buyers

Under Chinese law, foreign individuals are allowed to purchase real estate in China, but they must meet certain requirements:

Residency Requirements: Foreigners must have lived and worked or studied in China for at least one year to be eligible to buy real estate. This residency requirement must be proven through a valid visa and residency permit.
Purpose of Purchase: Foreigners are generally only allowed to purchase one residential property for self-use. Purchasing commercial property or industrial land may be allowed under different conditions, but foreign nationals are restricted from buying multiple residential properties.
Legal Status: Foreign companies or foreign-invested enterprises (FIEs) registered in China can purchase commercial or industrial property, but they must follow the investment and land-use policies specific to their business sector.

2. Restrictions on Property Ownership for Foreigners

Foreign buyers are subject to several restrictions:

One Property Rule: Foreign individuals are generally limited to purchasing one residential property for personal use. This rule is designed to prevent speculation by foreign investors in China’s housing market.
Foreign Companies: Foreign businesses must set up a Wholly Foreign-Owned Enterprise (WFOE) or a Joint Venture (JV) in China to buy commercial property, and their purchases must align with their business needs.

3. Land Use Rights

All real estate purchases in China involve the purchase of land use rights rather than land ownership itself. The terms of these land use rights vary by type of property:

Residential Property: The land use rights for residential property are typically granted for a period of 70 years.
Commercial Property: Commercial land use rights are generally granted for a period of 40 to 50 years.
Upon the expiration of land use rights, there is currently no automatic renewal, and owners may have to apply for an extension.

4. Taxes and Fees for Foreign Buyers

Foreigners purchasing real estate in China are subject to several taxes and fees:

Deed Tax: Ranges from 3% to 5% of the property’s purchase price, depending on the local tax policies.
Maintenance Fund: A one-time payment for communal property maintenance.
Property Tax: Foreigners may be subject to property taxes depending on the region, especially for rental properties.
Capital Gains Tax: If the property is sold, the foreigner is subject to a 20% capital gains tax on any profit made from the sale.

Key Steps in the Real Estate Purchase Process

Foreigners must follow a specific process when purchasing real estate in China:

1. Proof of Residency and Eligibility

Foreigners must prove they have lived in China for at least one year. Proof of employment, business registration, or study records must be provided to local authorities.

2. Finding a Property and Signing a Preliminary Agreement

Once a suitable property is identified, both parties typically sign a preliminary agreement to lock in the sale. This agreement usually includes:

The property’s price and details.
The amount of deposit required (usually around 10-30% of the purchase price).

3. Signing a Formal Purchase Agreement

After paying the deposit, the buyer and seller sign a formal purchase contract, which should include details such as:

The property’s legal status (e.g., clear title, no liens).
Payment schedule.
Property handover date.
Penalties for breach of contract.

4. Registering the Property

Once the purchase agreement is signed, the buyer must:

Pay all necessary taxes (deed tax, etc.).
Register the property with the local Real Estate Registration Center to officially transfer ownership.
Ensure the land use rights are transferred as part of the property registration.

5. Obtaining a Property Certificate

After the registration is completed and all taxes are paid, the buyer will receive a Property Ownership Certificate, which confirms their legal ownership of the property.

Suggestions for Foreign Buyers

Foreigners interested in purchasing real estate in China should consider the following recommendations to ensure compliance with the law and protect their investment:

1. Ensure Compliance with Residency Requirements

Before attempting to purchase real estate, make sure that you meet the one-year residency requirement. Keep all documents that can verify your legal stay in China, such as visas, work permits, and rental agreements.

2. Hire a Local Real Estate Agent and Lawyer

It is advisable to engage both a local real estate agent and a lawyer familiar with Chinese property law. They can:

Help navigate the legal and regulatory landscape.
Review contracts to ensure they are valid and protect your interests.
Assist with negotiations and ensure compliance with local laws.

3. Conduct Due Diligence

Before making any payments, conduct thorough due diligence:

Confirm the legal status of the property (no outstanding debts or liens).
Verify that the seller has the legal right to transfer ownership.
Check the terms of the land use rights, particularly the remaining duration.

4. Understand the Implications of Land Use Rights

Foreign buyers must understand that they are purchasing land use rights, not the land itself. It’s important to understand:

The duration of the land use rights.
The renewal process and potential fees when the land use rights expire.
Any restrictions or obligations imposed on land use.

5. Budget for Taxes and Additional Costs

When calculating your property purchase budget, account for the taxes and fees associated with real estate transactions in China, such as the deed tax, maintenance fund, and capital gains tax.

6. Plan for the Long-Term

Since foreigners are generally restricted to purchasing only one residential property for self-use, foreign buyers should ensure that the property will meet their long-term needs. Additionally, consider the long-term implications of property resale, as foreign owners may face challenges when selling their property in the future.

7. Be Aware of Capital Controls

China has strict capital controls, which may complicate the transfer of funds into or out of the country. Ensure that you understand how to legally transfer funds for the property purchase and seek advice on repatriating funds if you plan to sell the property in the future.

8. Understand the Rules for Selling Property

If you plan to sell the property in the future, understand the tax implications and restrictions for foreign sellers. Work with legal and tax professionals to ensure compliance with Chinese laws on capital gains and property sales.

Dispute Resolution Clauses

Governing Law and Dispute Resolution

When entering into an agreement between a foreign party and a Chinese party, the governing law clause and the dispute resolution clause are critical components that influence how disputes will be resolved, what legal principles will apply, and the enforceability of any court decisions or arbitration awards. Foreign parties, in particular, should carefully consider the choice of forum for dispute resolution.

Governing Law Clause

The governing law clause specifies which legal system will apply to interpret and enforce the terms of the agreement. In international agreements involving Chinese and foreign parties, the choice of governing law is critical because it affects:

Interpretation of contract terms.
Determination of rights and obligations.
Remedies available in case of breach.

Under Chinese law, parties to a contract involving foreign elements are generally free to choose the governing law, as long as it does not violate public policy or mandatory provisions of Chinese law. The Law of the People's Republic of China on the Application of Laws to Foreign-related Civil Relations permits parties to select a foreign law as the governing law for the contract. However, if the parties do not make an explicit choice of law, the following principles apply:

Place of performance or habitual residence of the party providing the characteristic service is considered.
In the absence of an applicable foreign law, Chinese law may apply by default.

For certain types of contracts, such as real estate transactions or labor agreements within China, Chinese law is mandatory and cannot be replaced by foreign law.

Advantages of Choosing Chinese Law

Choosing Chinese law as the governing law can offer practical advantages for foreign parties:

It can lead to a smoother dispute resolution process, especially if Chinese courts are chosen as the forum, as they are more familiar with Chinese legal principles.
Enforcement of a contract governed by Chinese law in China is generally more straightforward, especially if the contract involves Chinese assets or operations.
Local lawyers and courts can more easily assess contract terms based on domestic legal precedents, avoiding complications of interpreting foreign law.

Dispute Resolution Clause

The dispute resolution clause determines how disputes between the parties will be handled, including whether they will be resolved through litigation or arbitration and which forum will handle the case. For foreign parties, this clause is crucial because it impacts the ease of enforcing decisions and the time frame for resolving disputes.

There are two main forms of dispute resolution commonly used in contracts between foreign and Chinese parties: litigation in Chinese courts and arbitration at recognized arbitration bodies.

A. Litigation

Foreign parties can choose to resolve disputes in Chinese courts, particularly if the assets or business operations of the Chinese party are located in China. China has a three-tier court system: Basic People’s Courts, Intermediate People’s Courts, and Higher People’s Courts.

Advantages of choosing Chinese courts include:

Enforceability: Chinese court decisions are directly enforceable within China, making it easier to seize assets, enforce judgments, or freeze accounts in cases involving Chinese parties.
Familiarity with Local Law: Chinese courts are naturally more familiar with Chinese law and have better access to local resources and expertise.

B. Arbitration

Arbitration is often favored for resolving international commercial disputes because of its neutrality, confidentiality, and relative speed. In China, arbitration is governed by the Arbitration Law of the People’s Republic of China and foreign-related arbitration is commonly handled by arbitration institutions such as:

China International Economic and Trade Arbitration Commission (CIETAC)
Shanghai International Arbitration Center (SHIAC)
Beijing Arbitration Commission (BAC)

Key points about arbitration:

Enforceability of Arbitration Awards: China is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Arbitration awards granted by Chinese arbitration bodies are enforceable in over 160 countries. Similarly, foreign arbitration awards can be enforced in China under the New York Convention.
Neutral Venue: Arbitration can take place in a neutral venue, either within or outside China, depending on the terms of the arbitration agreement.

The Importance of Choosing China as the Forum for Dispute Resolution

One of the most critical considerations for foreign parties entering into contracts with Chinese counterparts is the ability to enforce judgments or arbitral awards. Since most of the Chinese party’s assets are likely to be located in China, enforcing a foreign judgment in China can be complex and time-consuming due to China’s restrictive recognition of foreign court judgments.

China is not a party to treaties allowing for the automatic recognition and enforcement of foreign court judgments, except in very limited cases under bilateral agreements or reciprocity (where a Chinese court has recognized a foreign court’s judgment and the foreign country reciprocates). This can make enforcing a foreign court’s decision against a Chinese party difficult.

By choosing China as the forum for dispute resolution:

Chinese Court Judgments: Judgments issued by Chinese courts are easier to enforce within China, leading to a faster recovery of assets or damages.
Arbitration in China: If the foreign party opts for Chinese arbitration institutions such as CIETAC, the resulting arbitration award is enforceable in China without the need for lengthy legal battles over recognition.

Handling disputes in China can lead to quicker and less expensive resolutions. If a foreign party chooses to litigate or arbitrate in a foreign jurisdiction, the enforcement process in China could involve additional legal hurdles, such as recognition of the foreign judgment or award. Opting for Chinese courts or arbitration within China avoids this step.

Since the Chinese party’s assets are likely to be in China, choosing a Chinese forum allows the foreign party to:

Directly enforce court or arbitral awards against local assets, including bank accounts, real estate, or shares.
Request prejudgment remedies such as asset freezes or injunctions more effectively, which is particularly valuable when there is a risk of asset dissipation.

While Chinese courts may not recognize foreign court judgments, they do recognize foreign arbitral awards under the New York Convention. However, to avoid potential complications related to enforcement, choosing Chinese arbitration institutions can eliminate uncertainties related to enforcing an international award within China.