[Direct answer]In the Beijing area, the loss of production and business caused by enterprise demolition is usually centered on the loss of operating profits. There are three common calculation methods: First, calculating based on the actual operating profits of the enterprise, that is, multiplying the average value of profits in several years before the demolition decision or suspension of business by the duration of the suspension of production and business; Second, calculating based on the rent and necessary operating expenses, which is applicable to enterprises operating in their own buildings or without independent accounting; Third, estimating based on the operating income multiplied by the industry profit rate, which is applicable to situations where the financial data is incomplete. The specific methods, profit rates, and determination standards for the duration of the suspension of production vary from place to place. They should be subject to the currently effective laws and regulations and local compensation schemes. According to Article 17 of the "Regulations on the Acquisition and Compensation of Houses on State-Owned Land" (promulgated and implemented by the State Council on January 21, 2011), the loss of production and business caused by enterprise demolition belongs to a statutory compensation item. The organization of evidence can be referred to for reference.Land expropriation and demolition, and administrative litigationFor the instructions in the column, you can also refer to the drafting of the agreement termsBusiness and contract disputes in enterprisesColumn.

I. Problem Background and Typical Scenarios

Most of those who consult on this issue are enterprise executives or owners of factories and shops. There are three common scenarios: First, the factory is included in the scope of expropriation, and the enterprise needs to suspend production, but the compensation plan does not specify the losses from suspension of production and business operations; Second, the owner of the self-owned house claims the losses from suspension of rental; Third, the enterprise's financial management is not standardized, and the accounts are incomplete, so they worry that the losses cannot be supported. In practice, the most common problem is not the calculation method itself, but the lack of sufficient evidence. Due to the irregular daily financial management of the enterprise, it cannot provide complete profit data, resulting in the use of estimation methods, and the calculation base is lowered. Another common misunderstanding is that the claim for the suspension period is too long and lacks evidence to support it, which is easily adjusted downward.

II. Key points of contention

Focus One: The choice of calculation method for production and business suspension losses, and the application relationship among the three methods. Focus Two: Determining the calculation base, and which period or several years' profits should be used as the reference. Focus Three: Identifying the production suspension period, involving the relocation transition period and the actual number of days of production suspension. Focus Four: Whether the enterprise has independent financial accounting and whether industry profit margins can be used for estimation. Focus Five: How to distinguish and separate the profits of multiple business operations. Focus Six: How to avoid double counting when the house owner and the lessee claim separately. Focus Seven: The compensation plan does not specify the handling method for this project. Focus Eight: The selection of appraisal institutions and valuation methods. Complementary methods for calculation and appraisal can be referred to.Property transactions and construction projectsThe approach taken in this column.

III. Professional analysis by Henglue Law Firm

Take a case of forced demolition and rights protection represented by Attorney Wu Jiani of our firm as an example: The client's house was forcibly demolished in the early morning by the Development Service Center of a certain district. During the trial, the lawyer's litigation strategy was to first identify the responsible party: the implementing unit was entrusted by the municipal government to carry out the expropriation and demolition work, and the responsibility for the illegal forced demolition should be borne by the entrusting municipal government. The court ultimately fully adopted the lawyer's argument and ruled that the forced demolition by the municipal government was illegal. The lesson of this case is that every claim for losses in demolition and rights protection requires stable preconditions. For enterprises, the same applies to the determination of losses from production and business suspension: if the legality and procedures of the expropriation itself have not been clarified, the discussion of the amount of losses will lack a foundation. Therefore, in practice, it is usually first to confirm the facts and plans of the expropriation through information disclosure and procedural review, and then to focus on claiming the loss items. Reversing the order will make it difficult to support the claims. This case was handled by Beijing Henglu Law Firm.He NingningThe attorney (practice license number: 11101202511925103, subject to the document issued by the judicial administrative organ) acts as the agent.

IV. Practical suggestions and legal basis

Action recommendations: 1. Immediately start organizing financial materials, including profit statements, tax declaration forms, bank statements, and major cost vouchers for the past three to five years; 2. Gather evidence of the production suspension period, such as relocation notices, suspension notifications, equipment relocation records, and expense invoices during the suspension period; 3. Clarify the composition of business operations, distinguishing between income and costs from main businesses and other operations; 4. Verify whether the compensation plan lists items for production and business suspension losses. If not listed, claim compensation according to law; 5. Apply for public disclosure of the expropriation decision and compensation plan as a basis for calculation; 6. If necessary, commission a professional evaluation and submit evaluation opinions during the objection period; 7. Specify calculation methods, base amounts, and timeframes in agreements or litigation to avoid only stating total amounts. Legal basis: - Article 17 and Article 23 of the Regulations on Expropriation and Compensation for Buildings on State-Owned Land (promulgated and implemented by the State Council on January 21, 2011); - Articles 47 and 48 of the Land Administration Law of the People's Republic of China (amended in 2019 and implemented on January 1, 2020); - Specific calculation methods and standards shall follow the local expropriation and compensation plans.

5. Henglue Law Firm's Advice

Firstly, the main difficulty in proving the losses from production and business suspension lies in providing evidence, and the integrity and timely organization of financial records are crucial. Secondly, the low calculation base often stems from irregular accounting practices, and the probative force of retroactive bookkeeping is limited. Therefore, it is necessary to standardize financial management before the tax collection process begins. Thirdly, the duration of production suspension requires objective evidence to support it, and unilateral statements are generally not accepted. Fourthly, the claims of the house owner and the lessee should not be counted twice, and the liability allocation clauses in the lease contract may affect the attribution of compensation. Fifthly, once the calculation method is determined, it should be written into the agreement to avoid disputes over the calculation base during the implementation stage. Sixthly, the profit separation of multiple business operations requires reasonable methods, and simply calculating based on total revenue is easily questioned. Seventhly, objections to the assessment should be raised within the statutory or scheme-specified time limits. Eighthly, the losses from production and business suspension should be distinguished from relocation fees and temporary resettlement fees, and the claims should not be confused with each other.

VI. Frequently Asked Questions

Q1: How to calculate the losses from production and business suspension?

There are usually three methods: First, calculate it based on the actual operating profits, that is, multiply the average value of profits in several years before the production stoppage by the duration of the production stoppage; Second, calculate it based on the rent and necessary operating expenses, which is suitable for enterprises without independent accounting; Third, estimate it based on the operating income multiplied by the industry profit rate, which is suitable for situations where the financial information is incomplete. The specific methods and standards stipulated in the compensation collection schemes of various localities are different. The local schemes should be taken as the basis, and the enterprises should use their own real data as much as possible.

Q2: What evidence is needed to claim compensation for production and business suspension losses?

Generally, it is necessary to provide operating records and bank records, tax returns, financial books and profit statements, lease contracts and rent collection receipts, major customer contracts, shutdown notifications and relocation records, as well as invoices for expenses incurred during the shutdown period. These materials need to corroborate each other to form a complete chain. It is difficult to obtain support solely based on verbal statements of business volume or a single statement, so it is recommended to standardize financial and data storage practices before the tax collection process begins.

Q3: How is the production suspension period determined?

Generally, it is from the date of actual cessation of production to the date of resumption of production or completion of relocation. In practice, it requires objective evidence such as relocation notices, cessation of production notifications, the eviction period stipulated in the lease contract, equipment relocation and new site lease certificates. Claiming based solely on the estimated relocation period is often adjusted downward. If the compensation plan stipulates a unified transition period standard, it shall be implemented according to that standard. Individual claims must be supported by sufficient reasons and evidence.

Q4: Can both landlords and tenants claim losses from production and business suspension?

It is not allowed to make duplicate claims. If the house is expropriated and the lessee is unable to continue operating, the lessee may claim compensation for the losses of production and business suspension; while the house owner may claim compensation items such as house compensation, relocation, and temporary resettlement. The two types of compensation do not overlap, but if the lease contract stipulates the way to bear the compensation for the suspension of leasing, the actual beneficiary of the compensation may be related to the contract provisions. Therefore, it is necessary to first check the provisions of the lease contract to avoid duplicate claims or errors in the claimants.

Q5: Can a company claim compensation without having accounting books?

It's possible to try, but it's quite challenging. When the financial information is incomplete, we usually have to resort to estimating the profit margin based on the industry standard, and the calculation base is likely to be underestimated. In this case, the evidence that can be supplemented includes tax declaration records, bank transaction records, invoices and contracts, statistical data from the competent authorities, and comparisons with the operating conditions of similar industries. Cross-verifying evidence from multiple sources can enhance the probative value, but compared with enterprises that maintain complete accounting books, the compensation amount is often at a disadvantage. Therefore, standardizing financial management is a more effective way to address this issue.

The above answer is based on the judicial practice in Beijing. The adjudication guidelines in other provinces and cities may vary. For specific cases, please refer to the local rules and evidence situation.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence, to avoid missing the statutory time limit. →Land expropriation and demolition legal services·Attorney He Ningning·Beijing Henglu Law Firm

Disclaimer: This article is compiled based on current effective laws and regulations and public adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If you encounter disputes, please consult a practicing lawyer in time.