| Land Use Right Key Issues
By Song Chongyu
Land use right is a key issue in the process of real estate development. All land in China is either owned by the state or by collectives (usually organizations of farmers). Only state owned land can be used for real estate development. In accordance with relative laws and regulations, state owned land use rights can only be "allocated" or "granted" by Resource Bureaus, and allocated land is not available to foreign investors. It is to say that for the development of a new commercial real estate project, the developer must first obtain granted land use rights.
Regarding the method of being granted land use rights, a rule known as No.11 Decree shall be introduced. According to the No. 11 Decree issued by the Ministry of Land and Resources, Land use rights can only be granted through bidding, auction, and listing if the land will be used for commercial development. Actually, the No.11 Decree defines a standard process for public bidding for land rights and purposes to require fair play in real estate reform and to help reduce the current inequalities caused by corruption.
Only after bidding, auction or listing, the recipient can enter into a land use right grant contract ("Grant Contract") with the relevant government authority. Generally speaking, there are three points shall be paid attention to. One is that a Grant Contract will typically restrict the grantee's use of the land to certain purposes. These restrictions are usually in accordance with the local urban construction plan. If the land users do not comply with the terms and conditions set forth in the Grant Contract, the government at the municipal or county level may rectify the noncompliance and issue a warning, impose a fine, or even retake the land in certain circumstances. For instance, in April, 2006, the Beijing Government Authority retook the land use rights of so-called ¡°Morgan Center ¡± project. Additionally, the Grant Contract normally includes some terms about conditions under which the use rights can be assigned. It is important to note that the land use right may not be assigned if the land has not been developed in accordance with the relative terms. Thirdly, the Grant Contract normally stipulates a deadline, before which construction must commence, particularly for housing or infrastructure projects. The land use right holder is required to take active efforts to use the land. If the grantee does not commence construction within one year after the deadline, the State Land and Resources Bureau is entitled to collect an ¡°idleness fee¡± of up to 20% of the land grant fee. If the construction is not started within two years of the deadline, the State Land and Resources Bureau is entitled to retake the land without compensation, unless the delay is due to force majeure events, which refer to government action or necessary pre-construction preparatory work.
The other issue about land use rights is that the granted land use right can be transferred, leased or mortgaged. The transferor and transferee must enter into a land use right transfer contract and file the executed contract with the bureau, which will then issue a new land use certificate in the name of the transferee. In addition, as a general rule, any land use right must be transferred concurrently with the ownership of the building thereon, and vice versa.
Lastly, the term of land use right should also be noted. A granted land use right has a term of 40, 50 or 70 years
depending on its proposed purpose. After a transfer, the term enjoyed by the transferee is the remaining time of the original term. Upon the expiration of the land use right, in order to continuously have a valid right, the right holder needs to apply to renew the term.
If you may have any comments or qestions regarding this article, please contact Mr. Congyu Song by,
Tel: 86 10 59051098 Mobile: 86 13911525071 Email: cy_song@sina.com |
