A Brief Analysis On the Judicial Interpretation Concerning the Disputes On Purchase Contract of Real Property


-----Jonathan You

On March 24th, 2003, the Supreme People's Court issued the Judicial Interpretation Concerning the Disputes on Purchase Contract of Real Property, (Abbreviated to Interpretation hereinafter), which will come into force on June,1st this year.
It's known that the 1997 South Asia financial crisis has inflicted heavy losses on China's real property market. However, great changes have taken place in recent real property disputes. With the recovered market and soaring prices, the developers of real property would rather refund when problems such as unlicensed pre-sale or deficient buildings occur. Having had such experience in dealing with real property disputes, the writer is well aware of the current variation between supply and demand in real estate market. After studying the Interpretation carefully, the author suggests the following points to consider:

Ⅰ.The Validity of Licensed Pre-sale Contract
The unlicensed pre-sale contract used to be considered as invalid in accordance with the rules and regulations in Contract Law and Management Law of City’s Real Property。 The Interpretation still adopts the aboved principle with the first article stipulated "If the developers fail to get the pre-sale license, the pre-sale contract shall be viewed as invalid."
Nevertheless, taking advantage of the ever-growing prices of real property, the developers tend to ask the purchase contract to be judged as invalid so that they may resell the flats with much higher prices, which obviously violates the equity rule and brings illegal profits to developers. Therefore, the first article of the Interpretation goes step further saying" But if the developers get the pre-sale license before lawsuit, the contract shall be viewed effective." On the contrary, what if the prices decline and the buyer ask the contract to be judged as invalid, shall the buyer's request be supported? There are no such details in the Interpretation, however, reviewing the former cases, the contracts are generally considered as effective with the aim of sustaining the stability of the whole market.
Weighing all the positive and negative aspects, I think the supreme People's Court is still inclined to judge the purchase contract as valid provided the developers get the pre-sale license before litigation.

Ⅱ.The Binding Force of Advertisements and Propaganda Materials
The third article of the Interpretation stipulates," The advertisements and propaganda materials of the real property shall be invitation for offer,” which is in accordance with the Management Measures for the Sale of Real Property. Unlike the offer, the invitation for offer wouldn't come into force immediately after the other party's commitment and naturally has no binding force. Yet the Interpretation has made a breakthrough referring to the second article,"...... while the detailed explanations and commitments concerning the housing and relevant facilities have great impact on the establishment of the purchase contract and settlement of the prices, they shall be viewed as offer. Even though the explanations and commitments haven't been added into the purchase contract, they shall still be considered as the contents of the contract. And both parties who go against the rule shall assume the liability."
As far as I am concerned, the "housing" in the second article indicates real property in the extension of real property layout fixed by the Construction Land Layout License. The so-called "housing and relevant facilities" infer architectures and other functional machines, equipments, wires, pipelines, decorations. In short, this article has tremendously restrained developers from making arbitrary promises in sales advertisements as well as in propaganda materials. Moreover, once the promises fail to be fulfilled, the buyer may ask the developer to assume the responsibility of breaching the contract.

Ⅲ.The Legal Nature of the Real Property Subscription
The real property subscription used to be considered as an agreement to sign a contract under certain circumstances in the future. And it tend to be very simple and rough, thus leaving many loopholes with which some consumers even pretend not to reach an agreement on important items of pre-sale contract so that they can get full refund. In order to prevent this kind of situation, developers have changed their policy to draft very detailed subscription. According to the fifth article of the Interpretation, "If the subscription includes all the contents of real property purchase contract, and the seller has already got the money, this subscription shall be viewed as the real property purchase contract."(i.e. this kind of subscription is equal to a pre-sale contract that has a binding force on developers.) Of course, the courts or the arbitration organizations shall be the final judge in procedures.

Ⅳ The Refund Issue of the Real Property
The concerned judicial interpretation of Supreme Court once indicated, the real estate as staple commodities shall not be applied to the refund items in the Protection Law of Consumer Rights. However, in some arbitration cases, there are consumers who get twice refund of their payments.
Therefore, the Interpretation has been improved with the acceptance of new ways dealing with the disputes in arbitration practice. The eighth article stipulates, " after both parties signing the purchase contract of real property, if the seller resell or mortgage the unit to the third party, which make the buyer unable to get the property, the buyer may ask to be refunded with no more than twice of his payment. " Also, in the ninth article, saying "When both parties enter into a purchase contract of real property, the seller shall not conceal the fact of unlicensed pre-sale, mortgage, selling out; otherwise, the seller should assume the liability of invalid contract and compensation."
The Interpretation has been promulgated for the purpose of handling new changes in the real property market. The Interpretation will not only better protect the interests of buyers, but it will also penalize those developers who have cheated in the contract.

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