Article 3 of the “Reply of the Supreme People’s Court on Issues Concerning the Protection of Rights and Interests of Consumers of Commodity Housing” (Fa Shi [2023] No. 1) stipulates that, in cases where the housing cannot be delivered and there is no realistic possibility of delivery, if a consumer of commodity housing asserts a right to claim a refund of the purchase price that takes precedence over the priority claims for construction project payments, mortgage rights, and other creditor’s rights, the people’s court shall uphold such claim.

Article 12 of the “Interpretation by the Supreme People’s Court on Issues Concerning the Application of Law in Adjudicating Cases of Objections to Enforcement” further stipulates that if an enforcement court freezes the escrow account for pre-sale funds of a real estate development enterprise subject to enforcement, and a third party, claiming that it has already paid the purchase price into that account and that the house purchase contract has been terminated, files a lawsuit objecting to the enforcement, requesting that the corresponding purchase price be exempted from compulsory enforcement and that the funds be released to it, such claim shall be supported by the people’s court if substantiated.

If the executing court enforces, by way of compulsory execution, the buildings of a real estate development enterprise that is subject to enforcement, together with the land-use rights within the scope occupied by such buildings, and if a consumer who purchased a commercial property under the provisions of Paragraph 1, Item 1 and Item 3 of the preceding article files an objection lawsuit against the enforcement on the grounds that the property cannot be delivered and no actual delivery has taken place, thereby leading to the termination of the house purchase contract, the people’s court shall support the consumer’s request to exclude the corresponding portion of the proceeds from the sale of the buildings and land-use rights from the compulsory execution and to have such proceeds directly paid to the consumer.

As mentioned above, if a homebuyer seeks to rescind the contract, their right to recover the purchase price may also enjoy priority. It is important to note that, The scope of the priority right to claim refund of the purchase price should be limited to the principal amount of the housing payment already made. , excluding other fees such as funds occupation fees or default penalties.

According to the aforementioned provisions, the core prerequisite for a homebuyer’s request that the developer prioritize the refund of the housing payment is “ The property cannot be delivered and there is no realistic possibility of delivery. “In practice, it is relatively easy to provide evidence that a property cannot be delivered—consumers of commercial housing need only prove that the developer failed to deliver the property on the date agreed upon in the commercial housing sales contract. However, the standard and difficulty for proving that ‘the property cannot actually be delivered’ are significantly higher.”

Common factors considered by courts when making a similar determination of “inability to deliver” include: prolonged failure to deliver (typically involving delays spanning several years), no signs of resumption of construction on the project, the developer adopting a evasive and delaying attitude, the developer having already entered bankruptcy or pre-restructuring proceedings, the property already being subject to judicial enforcement procedures, the project no longer having any possibility of continued construction, and the property being unable to obtain ownership registration for an extended period. However, if a real estate project is still under construction but merely progressing slowly, claims by homebuyers seeking refunds of their purchase payments and asserting priority rights will generally find it difficult to gain court support.

When buyers sue to rescind the contract and recover the purchase price, they can... The synchronization requirement confirms that the right to claim reimbursement of the payment takes priority. with respect to the priority of payment for construction project costs, mortgage rights, and other creditor’s rights. Of course, homebuyers may also file two separate lawsuits: first, they can demand a refund of the purchase price, and then, in subsequent proceedings, seek confirmation that their purchase funds should be repaid with priority.

For example, in case No. (2024) Xin 01 Min Zhong 3233, the homebuyer filed a lawsuit seeking to rescind the purchase contract, citing the fact that the property had not been completed and the developer had engaged in fraudulent practices. In the same case, the claim was made to confirm the priority of refunding the purchase price. However, in case (2023) Hu 03 Min Zhong No. 39, the homebuyer first filed a lawsuit seeking to rescind the housing purchase contract and then—during bankruptcy proceedings—filed another lawsuit seeking to have their rights recognized as having priority.

The claims based on both of the aforementioned approaches were upheld by the court; of course, resolving the issue through a single lawsuit is undoubtedly more economical and convenient.

Enforcement objection procedure Article 28 of the “Provisions of the Supreme People’s Court on Several Issues Concerning the Handling of Execution Objections and Review Cases by People’s Courts” stipulates that consumers of commercial housing may file execution objections. In case No. (2024) Ji 0211 Zhi Yi 156, after the property involved had already been subject to enforcement measures in another case, the buyer, as a third party not involved in that case, filed an execution objection. Ultimately, the court recognized that the buyer enjoyed priority rights.

Proceedings for an Action on Objection to Enforcement Article 12, paragraph 2 of the “Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law in the Trial of Cases Involving Objections to Enforcement” provides that if a consumer purchasing commercial housing is unable to take possession of the property and there is no actual delivery possible, thereby leading to the termination of the contract, such consumer may, in an action challenging enforcement, claim exclusion from compulsory enforcement and priority in receiving payment.

Based on this, if a consumer of commercial housing fails to request confirmation of their priority right to the return of the purchase price when filing a lawsuit seeking contract termination, they can still raise an objection or file an action for objection to enforcement during the enforcement proceedings, requesting that the corresponding compulsory execution be excluded from the proceeds of asset disposal and that they be given priority in receiving payment.

Zhang Bingxu

Han Meijun

Beijing Headquarters Address: Floor 17, China Resources Building, No. 8 Beidajie, Jianguomen, Dongcheng District, Beijing

Wuhan Branch Office Address: Room 1001, Floor 10, Huangpu International Center, Jiang'an District, Wuhan City, Hubei Province