The Problem

Buyers who have paid the full price under a pre-sale commercial housing contract often find, when the developer enters bankruptcy reorganisation, that delivery has stopped and the administrator is inviting claims. The question is whether the buyer’s right is a contractual claim ranking with ordinary creditors, or a property right entitling the buyer to completion and transfer of title.

Analysis

Under the Enterprise Bankruptcy Law and the Supreme People’s Court guidance on priority of construction and consumer home buyers, a buyer who has paid the whole price, occupies the property for residential purposes and has no other housing is treated as a consumer purchaser whose interest in the specific property prevails over the developer’s general creditors, and over mortgage and construction priority to the extent provided. Where the contract remains performable — the building is complete and transfer is possible — the buyer may require continued performance; where it is not, the buyer’s claim converts into a monetary claim with the priority the guidance confers.

Practice Points

Declare the claim in time and in the correct category; evidence full payment, the purpose of purchase and the absence of other housing; and press for continued performance rather than accepting a cash dividend, which is usually a fraction of value. The firm handled this issue jointly with Shanghai Modern Law Firm.