FANGDA LEGAL BRIEF NEW REGULATION ON THE EXPROPRIATION OF AND COMPENSATION FOR PREMISES ON STATE-OWNED LAND

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1 FANGDA LEGAL BRIEF April 2011 NEW REGULATION ON THE EXPROPRIATION OF AND COMPENSATION FOR PREMISES ON STATE-OWNED LAND On 21 January 2011, the PRC State Council promulgated the Regulation on Expropriation of and Compensation for Premises on State-owned Land ( 国 有 土 地 上 房 屋 征 收 与 补 偿 条 例 ) (the New Expropriation Regulation ), which became effective on the date of issuance. The New Expropriation Regulation, as from its effective date, took the place of the former one entitled Regulation on Administration of Demolition and Relocation of Urban Premises ( 城 市 房 屋 拆 迁 管 理 条 例 ) (the Former Regulation ), which was issued on 13 June 2001 and effective from 1 November of the same year. The New Expropriation Regulation is formulated for the purposes of regulating the expropriation of and compensation for premises constructed on State-owned land, protecting public interests and legitimate rights and interests of owners of the premises to be expropriated (the Owners ). The New Expropriation Regulation specifies, among others, the entity responsible for executing the expropriation and compensation work, general procedures for making an expropriation decision, general principles for compensation and relevant legal liabilities. Set forth below is a highlight of certain important features of the New Expropriation Regulation, which features make the New Expropriation Regulation very different from the Former Regulation: 1. Entity Responsible for Executing Expropriation Work Having formally abolished the old regulatory framework under the Former Regulation where a private entity obtaining the demolition and relocation permit ( 房 屋 拆 迁 许 可 证 ) can execute the relocation and compensation work, the New Expropriation Regulation explicitly requires that an expropriation department ( 房 屋 征 收 部 门, the Expropriation Department ) designated by the people s government at city or county level (the Competent Government ) is responsible for executing the expropriation and compensation work within the relevant administrative region. The Expropriation Department may elect to authorize an entity to execute the detailed expropriation and compensation work, however, (i) such entity thus authorized shall not work for any profit-making 1

2 purposes; and (ii) the Expropriation Department should supervise the detailed expropriation and compensation work executed by the authorized entity within the scope of authorization, and assume the legal liabilities for the consequences of such authorized entity s work. There is no existing Expropriation Departments under the current organization chart of Chinese government authorities, the Competent Government will establish such Expropriation Departments to execute the expropriation and compensation work when issuing implementing rules in accordance with the New Expropriation Regulation. 2. Expropriation Decision It is clearly stated in the New Expropriation Regulation that an expropriation decision should be made for the needs of public interests such as protection of national security and promotion of national economy and social development. In accordance with Article 8 of the New Expropriation Regulation, a decision of expropriation shall be made by the Competent Government where expropriation of premises is necessitated by the following needs: (i) national defense and diplomacy; (ii) construction of infrastructure (such as energy, transportation and water conservancy) to be executed by government; (iii) public undertakings (such as science and technology, education, culture, public health, sports, environment and resources protection, precautions against natural disasters, historic relics preservation, social welfare and municipal public works) to be executed by government; (iv) social security housing projects to be executed by government; (v) redevelopment of old urban areas to be executed by government in accordance with relevant laws and regulations; and (vi) other public interests specified under laws and administrative regulations. All the construction works requiring expropriation of premises (as aforesaid) should comply with national economic and social development plans, land use general plans, urban and rural plans and special-purpose plans. An expropriation decision should be made in accordance with the following general procedures, which to be further detailed in the local implementing rules: (i) The Expropriation Department will prepare an expropriation and compensation plan and submit the same to the Competent Government; (ii) The Competent Government will organize the relevant departments to review the compensation plan and publish the plan to seek public opinions. Particularly in old urban areas redevelopment projects, if the majority of the relevant Owners holds the view that the compensation plan does not comply with the New Expropriation Regulation, the Competent Government should organize a hearing attended by the Owners and representatives of the public, and revise the compensation plan according to the results of the hearing; (iii) The Competent Government will make a social stability risk assessment ( 社 会 稳 定 风 险 评 估 ) before making the expropriation decision; 2

3 (iv) Before the expropriation decision is made, the funds for compensation should be sufficiently ready and deposited in an independent account for the specific purpose; and (v) The Competent Government will make a public announcement of the expropriation decision (together with the compensation plan). If any Owner has objection to the expropriation decision, he/she has the right to initiate administrative review or litigation proceedings. When the premises are expropriated by law, the underlying State-owned land use right is repossessed simultaneously. 3. Compensation The compensation payable to the Owners includes: (1) compensation for the value of the premises to be expropriated; (2) compensation for the relocation or temporary settlement resulting from the expropriation; and (3) compensation for the production or business interruption losses resulting from the expropriation. The compensation for the value of the premises to be expropriated should be no less than the market price of similar premises on the date of announcement of the expropriation decision. The value of the premises to be expropriated will be appraised by a qualified real property appraisal institution. Such appraisal institution should be selected by the Owners through consultations, and where the consultations come to no avail, the appraisal institution will be determined through majority decision or random selection or other ways, subject to the detailed implementation rules to be promulgated by provincial governments. The New Expropriation Regulation allows the Owners to choose either monetary compensation or exchange of ownership of premises. If an Owner chooses the latter, the Competent Government should provide the premises for exchange, and calculate and settle with the Owner any difference between the value of the premises to be expropriated and the value of the premises provided for exchange. No compensation will be paid for the premises illegally constructed or the temporary premises existing in excess of the approved time limits. The Expropriation Department will enter into a compensation agreement with each Owner, which agreement should cover, inter alia, compensation amount, payment schedule, location and area of the premises provided for exchange, relocation costs and compensation for business interruption losses and schedule for relocation. Compensation should be paid before relocation. 3

4 Any illegal manner to force the relocation, such as by violence or threat or by cutting off the supply of water, heating, gas or electricity or road passage, is strictly forbidden by the New Expropriation Regulation. By providing that the expropriation should only be enforced by the people s court upon application by the Competent Government having made the expropriation decision, the New Expropriation Regulation has brought an end to enforced demolition by administrative authorities as permitted under the Former Regulation. The New Expropriation Regulation further expressly prohibits any real estate developer from participation in relocation activities. 4. Legal Liabilities The New Expropriation Regulation has also strengthened legal liabilities for certain violations of the New Expropriation Regulation and explicitly provides for different level of liabilities for various violations, including illegally forcing the relocation, and property appraisal institution s issuance of any false appraisal report or any report containing significant mistakes. * * * In sum, the New Expropriation Regulation stipulates in general the regulatory structure of expropriation of and compensation for premises on State-owned land, following the principle of legitimate expropriation and fair compensation adopted by PRC Law of Property Rights. The New Expropriation Regulation leaves room for the local governments to formulate detailed provisions on a number of substantial issues. So far, only Fujian Province and a few local cities (such as Fuzhou, Suzhou, Ji nan) have promulgated local detailed rules to implement the New Expropriation Regulation. We expect more detailed implementation rules or interpretations will come out in the near future. In practice, how to carry out new development projects on State-owned land involving existing premises will largely depend on the detailed implementing protocol on the local level. Also worthy of note, the New Expropriation Regulation only applies to the expropriation of and compensation for premises on State-owned land. National government authorities are drafting new rules in relation to expropriation of collectively owned land and properties, although no clear timeline for the promulgation of such regulation is known to the public yet. - End - This publication is intended merely to highlight issues and not to provide legal advice. Should you have any inquiry on specific issues, please contact your regular contacts at Fangda Partners. 本 文 的 目 的 只 是 总 结 相 关 事 项, 并 非 提 供 法 律 意 见 如 果 您 需 咨 询 任 何 特 定 的 事 项, 请 与 您 在 方 达 律 师 事 务 所 的 日 常 联 系 人 联 系 4

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