[Direct answer]In the process of enterprise demolition, the loss of production and business suspension is a statutory compensation item. According to Article 17 of the "Regulations on the Acquisition and Compensation of Houses on State-Owned Land", the compensation includes the value of the acquired houses, relocation and temporary resettlement, and the loss of production and business suspension; Article 23 specifies that the loss of production and business suspension shall be determined according to the benefits of the house before the acquisition and the duration of the suspension of production and business, etc. The specific measures shall be formulated by the provincial government. In practice, it is often calculated by assessing the profits, monthly rent, or packaged on a pro rata basis. For factories on collective land, the compensation shall refer to the local compensation and resettlement schemes. Enterprise owners should keep the business licenses, tax payments, social insurance, utility bills, contracts, and other evidence of benefits, and verify the qualifications of the acquisition subject before signing the contract. If the compensation is obviously too low, they can apply for a review within 60 days or file a lawsuit within 6 months.

I. Legal basis and interpretation of provisions

1. Articles 17 and 23 of the Regulations on the Acquisition and Compensation of Houses on State-Owned Land (effective as of January 21, 2011)

Article XVII lists the loss of production and business caused by the expropriation of houses, the compensation for the value of the house, and the compensation for temporary relocation as statutory compensation items. Enterprises claiming for the loss of production and business do not need to find additional basis. They have the right to claim compensation immediately after the expropriation decision is made. Article XXIII stipulates that the loss of production and business shall be determined according to the benefits of the house before the expropriation and the duration of the suspension of production and business, and the specific measures shall be formulated by the provinces, autonomous regions, and municipalities directly under the Central Government. Accordingly, the better the benefits were before the expropriation and the longer the suspension period, the greater the loss that can be claimed. In practice, the compensation amount is often quantified by appraisal, and the completeness of the evidence of benefits directly determines the amount of compensation.

2. Article 47 of the Land Administration Law of the People's Republic of China (amended on August 26, 2019)

After the land expropriation is approved through legal procedures, the local people's governments at or above the county level shall announce it and organize its implementation. This confirms that the implementing subject of the expropriation is the government at or above the county level, and the village committees and developers have no right to sign compensation agreements in the name of expropriation. Many enterprise factories involve collective land. Before signing the agreement, it is necessary to verify the expropriation approval, announcement, and the qualifications of the signing parties to avoid signing agreements with unqualified parties and losing rights. If it is found that the expropriation is actually a disguised demolition and the factory is not within the scope of expropriation, the validity of the agreement can be denied according to law and compensation for losses can be claimed.

3. Practical adjudication guidelines (calculation and determination of losses from production and business suspension)

There are significant differences in the calculation methods for production and business suspension losses across different regions. Some calculate them by multiplying the monthly average profit determined by the appraisal agency by the number of months of suspension, while others refer to the average rent of similar properties in the same area, or package them according to the proportion of the total compensation amount. Courts and arbitration institutions focus on reviewing whether the profit evidence is true and continuous. Those who only have a business license but no tax payment or transaction records are often subject to a reduction in compensation. The most common pitfalls include failing to claim losses promptly after relocation, loss of documentary evidence, and confusing production and business suspension losses with employee resettlement costs. Lease-operating enterprises should also note that the attribution of decoration, equipment relocation, and production suspension losses should be separately defined in writing with the lessor to prevent the compensation funds from being unilaterally collected by the landlord.

II. Henglue Law Firm's Real Cases (Detailed Review)

Review of the case:On May 19, 2022, a company signed a "Non-Residential Building Demolition Compensation Agreement" (for collective land) with the villagers' committee of a certain village, agreeing to demolish the company's buildings with a total floor area of 4,945.24 square meters, and the villagers' committee would pay a total of 2,599,039 yuan in various compensation fees. The non-residential buildings would be compensated in cash. After the agreement was signed and 50% of the funds were in place, the buildings would be vacated for inspection, and the remaining balance would be paid. However, the villagers' committee has failed to fulfill its obligations since the agreement was signed. Whether the factory buildings would be demolished or not, whether the company could continue its operations, and whether the company could receive compensation for production losses as agreed if the buildings were demolished remain uncertain. The company has entrusted Beijing Henglu Law Firm to handle the case.Zhai Chao LiThe lawyer defended the client's rights, applied for government information disclosure, and found that the client's factory location had not actually been expropriated.

The focus of the controversy:First, the village committee signed the contract in the name of expropriation, but the factory building was not included in the scope of expropriation. Does this constitute fraud, and how should the validity of the agreement be determined? Second, does the village committee have the qualification to sign the demolition compensation agreement? Third, after the agreement is invalidated, how can the enterprise's losses from production suspension and relocation be compensated for?

Our position and that of the other party are as follows:The company claimed that it signed the agreement under the guise of expropriation and against its true intention with the village committee, and requested the arbitral tribunal to rule that the agreement is invalid and that the village committee shall bear the arbitration fees; the village committee insisted that the agreement signed under the guise of expropriation is valid and should be performed in accordance with the agreement.

Attorney's Strategy and Legal Opinions:Attorney Xi Chao Li used the disclosure of government information as a breakthrough to find out that the factory building had not been expropriated. He then argued that the respondent signed a compensation agreement with the applicant under the guise of expropriation, which constituted fraud, making the company sign the agreement against its true will. According to Article 148 of the Civil Code, the party deceived has the right to request the rescission of the agreement. Moreover, according to Article 47 of the Land Management Law amended in 2020, expropriation shall be announced and implemented by local governments at or above the county level, and the village committee does not have the qualification to be a contracting party. Therefore, the signed agreement should be invalid. The expropriator intentionally concealed the scope of the demolition and intended to carry out the demolition. Therefore, it should bear the liability for compensation for the losses caused by the suspension of production and relocation of the enterprise.

The court's reasoning and the outcome of the case:The arbitration tribunal held that, according to Article 47 of the Land Administration Law, after the state's land expropriation is approved through legal procedures, the local governments at or above the county level shall announce it and organize its implementation. The defendant, the villagers' committee of a certain village, does not have the subject qualification to sign the "Non-Residential House Demolition and Compensation Agreement" with the applicant. The signed agreement should be an invalid contract, and the invalid legal act shall not be legally binding from the outset. The arbitration award confirmed the invalidity of the agreement and pointed out that the expropriator intentionally concealed the scope of the demolition and intended to implement the demolition, and should bear the compensation liability for the losses of the expropriated persons. On this basis, the enterprise was able to free itself from the constraints of the invalid agreement and clear the obstacles to reclaiming full compensation, including the losses of production and business suspension.

This case is handled by Beijing Henglu Law FirmZhi Chao LiThe attorney (practice license number: 11101202311629788, subject to the document issued by the judicial administrative organ) acts as the agent.

III. Frequently Asked Questions

Q1: What is the general standard for calculating the losses from production and business suspension?

On state-owned land, the compensation for houses is determined according to their pre-expropriation benefits and the duration of production and business suspension, as stipulated in Article 23 of the "Regulations on the Expropriation and Compensation of Houses on State-Owned Land". The specific methods shall be formulated by provincial-level governments. In practice, there are three common calculation methods: the evaluation agency multiplies the average monthly profit by the number of months of production suspension; references the monthly rent of similar houses in the same area; or packages it according to a certain percentage of the total compensation amount. For factories on collective land, the compensation and resettlement plans of the local government are usually implemented. Regardless of the calculation method, taxation, cash flow, and other evidence of benefits are the basis for calculation, and it is necessary to systematically fix these before relocation.

Q2: If the rented factory building is expropriated, can the lessee company claim compensation for the losses caused by the suspension of production and business operations?

Yes. The leasing enterprise enjoys actual benefits from the additions to the decoration, the relocation of equipment, and the losses from suspension of production and business. Although it is not the owner of the house, the compensation plan and practice recognize its share of compensation. It is recommended to negotiate the distribution with the leasing contract and the acquisition department and the landlord; if no agreement can be reached, the enterprise can claim compensation for the relocation of equipment and the losses from suspension of production separately. Be vigilant against the landlord unilaterally receiving all the compensation and refusing to distribute it. The ownership can be confirmed through litigation, and the leasing contract and the payment records of the rent are key evidence.

Q3: What evidence should be prepared for the losses caused by production and business suspension?

The key is to prove that the business is "operational, profitable, and has suffered losses": the business license and the operation permit certificate demonstrate the legal qualification for operation; the tax declaration and bank transaction records of the past two to three years prove the operating efficiency; the social insurance payment records and payrolls demonstrate the scale of employment; the lease contracts and utility bills prove the continuity of operation; and the order contracts and financial statements prove the expected benefits. The more continuous and complete the evidence is, the more favorable the evaluation and determination will be. Before relocation, the evidence should be archived and backed up. Once the factory building is demolished, it will be almost impossible to replenish the original documents.

Q4: If the compensation payment is delayed, can the company stop work to protest?

It is not recommended to resort to a work stoppage to resist, but to follow legal procedures. If the compensation funds are not fully in place or the procedures are illegal, the enterprise can apply for information disclosure verification and file a request for reconsideration within 60 days or file a lawsuit within six months to demand compensation before relocation. The determination of the duration of the production and business suspension is directly related to the compensation. If the acquisition party delays for any reason, the enterprise should promptly claim in writing and keep the work stoppage notice and the layoff records of employees to fix the period of losses and use them as the basis for claiming compensation for the expanded losses, which is more effective than suspending work on its own.

Q5: What should I do if I find out I've been cheated after signing a compensation agreement?

According to Article 148 of the Civil Code, if a party uses fraudulent means to make the other party perform a civil legal act against their true intention, the party who has been deceived has the right to request the people's court or arbitration institution to revoke it. The right of revocation shall be exercised within one year from the date when the party knows the grounds for revocation. In the case described in this article, the enterprise discovered through information disclosure that the factory building had not been expropriated at all. The arbitration tribunal confirmed the invalidity of the agreement because the village committee lacked the qualification to sign the contract, and ordered the expropriating party to compensate for the losses. If any abnormalities are found, the party should apply for information disclosure to fix the evidence as soon as possible, exercise the right of revocation within one year, and calculate the losses caused by the suspension of production and relocation to claim compensation together.

IV. Advice on Protecting Rights and Interests

  • Before signing the contract, verify the approval of the expropriation, the scope of the four sides, and the qualifications of the contracting parties. Make sure that the factory building is indeed within the scope of the expropriation and that the other party has the right to sign the contract before discussing the compensation.
  • The system archives the business licenses, tax payments, transaction records, social insurance information, contracts, and other evidence of economic benefits. The amount of losses from production and business suspension depends on the quality of the evidence.
  • The lessee enterprise shall divide the compensation for the decoration additions, equipment relocation, and production suspension with the landlord in writing, to prevent the compensation from being unilaterally collected.
  • For obviously low compensation decisions or illegal expropriation documents, applicants may file for reconsideration within 60 days or initiate litigation within six months.
  • For enterprises with complex loss structures, it is advisable to entrust a professional appraisal institution to conduct a comprehensive appraisal of the losses.Administrative litigation over land expropriation and demolitionThe lawyer gets involved and coordinates the assessment, negotiation, and litigation process.

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