SPC Issues Judicial Interpretation of Property Law

On 23 February 2016, the Judicial Committee of the Supreme People’s Court (“SPC”) released the Interpretation concerning Several Issues on the Application of the Property Law of the People’s Republic of China (I), which took effect 1 March 2016.

The interpretation addresses six main issues:

  • Real property registration. Under the Property Law of the People’s Republic of China 2007 (“2007 Property Law”), property rights must be registered when they are created, amended, transferred or extinguished. The interpretation clarifies various issues involving disputes over real property ownership in relation to the registration requirements.
  • Pre-registration. Under the 2007 Property Law, after a pre-registration is made, the disposal of real property is invalid without the consent of the rights holder listed in the pre-registration. The interpretation further clarifies the circumstances that may constitute a disposal or invalidate a pre-registration.
  • Transfers of special types of personal property. Disputes involving special types of personal property (for example, vessels, airplanes and motor vehicles) have increased in recent years. The interpretation aims to protect consumers by excluding creditors of a transferor from the scope of protection of a “bona fide third party” (that is, a third party acting in good faith) under the 2007 Property Law.
  • Legal instruments that change property rights. Under the 2007 Property Law, People’s Court rulings, arbitration awards and so on, that create, alter, transfer or extinguish property rights take immediate effect. The interpretation limits the scope of application of this principle to cases involving the division of co-owned real property or personal property and certain enforcement proceedings.
  • Rights of first refusal of co-owners. The 2007 Property Law establishes a system for rights of first refusal for co-owners (that is, joint owners of a shared interest in property). The interpretation clarifies, among other issues, the conditions to, and the timing, scope and protection of a co-owner’s right of first refusal.
  • Good faith acquisitions of property rights. The 2007 Property Law establishes a system recognising buyers of property rights acting in good faith. The interpretation determines who bears the burden of proving good faith, when a real property transferee is acting in good faith and when it is acting with gross negligence, the timing of the effectiveness of a related transfer, the reasonableness of the transactional price and so on.

Market Reaction

Maria Wang, Partner, Morrison & Foerster, Shanghai

“The interpretation is a welcome further development on China’s property law regime. It provides much-needed clarity on a range of issues relating to property rights that are often the subject of disputes in China.”

Action Items

General Counsel for real estate developers or any organisation involved in a dispute over real property will want to study the details of the interpretation. Likewise, General Counsel for companies involved in or contemplating a transfer of a special type of personal property or an acquisition or sale of an entity that holds real property should examine the new rules closely.