On 22 February 2016, the PRC Supreme People’s Court (“SPC”) promulgated the Interpretation of Several Issues relating to the Application of the PRC Property Law (“Interpretation”). The Interpretation took effect on 1 March 2016. The Interpretation deals with several important issues including bona fide purchase, co-ownership and immovable property ownership registration. We summarise below the key issues of the Interpretation.
- Bona Fide Purchase
According to the PRC Property Law (“PPL”), if a purchaser buys property in good faith (“bona fide”) from a seller who is not the owner and pays a reasonable price, it shall obtain the ownership of such property despite competing claims of the original owner. The Interpretation provides the criteria for recognition of “reasonable price” and “bona fide”:
- The reasonable price shall be determined on the basis of the nature and quantity of the object, the payment method as well as the market price and the trade practice of the trading place.
- As to bona fide, when a purchaser accepts immovable property or movable property, if the purchaser (i) is not aware that the seller has no right to dispose the property and (ii) has not been grossly negligent, it shall be deemed that the purchaser is a bona fide purchaser.
- A purchaser of immovable property shall be deemed to be aware that the seller has no right to dispose the immovable property, if
- a valid objection has been registered in the immovable property register;
- there are records in the immovable property register that the immovable property was seized by the court or administrative authorities;
- in case of pre-registration, no consent of the pre-registration applicant was obtained;
- the purchaser has already known that the owner registered in the immovable property register is not correct;
- the purchaser has already known that the immovable property is duly owned by other parties.
A purchaser shall be deemed to have been grossly negligent, if the real owner of an immovable property has evidence to prove that the purchaser should have known that the seller has no rights to dispose the immovable property or in case of movable property, if the trade object, location or trading time do not correspond with the trade practice.
- Pre-emptive Rights of Owners of Divided Co-ownership
According to Article 101 of the PPL, an owner of a fraction of a divided co-ownership may transfer his share. In this case, the owners of the other fractions of the co-owned property have a pre-emptive right to purchase such share under equal conditions.
- In respect of the criteria of “equal conditions”, the Interpretation clarifies that equal conditions shall be determined upon comprehensive consideration of several factors including transfer price, price payment method and payment schedule.
- If the ownership in a fraction changes due to inheritance or donation, or if the ownership in a fraction is transferred to existing owners of other fractions of the same co-owned property, unless the parties agree otherwise, the owners of the other fractions of a divided co-ownership do not have pre-emptive rights.
- The time period for exercising the pre-emptive right is subject to the agreement of the parties. In the situation where no agreement exists, if the notice (stating the sales conditions) issued by the seller to the other co-owners contains a time period, such time period shall prevail, otherwise, a time period of 15 days shall apply. If the seller fails to issue any notice and it is impossible to determine the date on which the other co-owners know or should have known the final equal conditions, the longest time period shall be 6 months from transfer of the property rights.
- Immovable Property Registration and Ownership
Article 16 of the PPL provides that the immovable property register shall be the basis for the ownership of immovable property. Such article is generally interpreted as that the party whose name is shown in the immovable property register is the actual owner of the property.
According to the Interpretation, if a concerned party can present evidence to prove that the record in the immovable property register does not correspond with the reality and applies for confirmation of its ownership, such request shall be upheld by the People’s Court.
Further, in practice, many judges hold the opinion that in case any dispute arises on the ownership of an immovable property, prior to filing a lawsuit for confirmation of ownership, the concerned party shall first file for administrative proceedings for cancellation of the immovable property registration. Such administrative proceedings are quite time-consuming.
According to the Interpretation, if a party files a lawsuit in disputes on immovable property ownership, the People’s Court shall accept and hear such case. I.e. the People’s Court cannot request the concerned party to first file an administrative proceeding for cancellation of the immovable property registration.
The Interpretation clarifies important issues which in the past lead to many disputes. It only applies to those lawsuits newly accepted by the first instance People’ Courts after 1 March 2016.