[Direct answer]There are four main paths for owners of unfinished buildings to protect their rights: urging the developer to rescind the purchase contract, claiming the priority of returning the purchase price, collectively suing to protect their rights, and legally handling the mortgage. According to Article 563 of the Civil Code (effective from January 1, 2021), if the developer fails to deliver the property within a reasonable time after being urged, the owner may rescind the contract. According to the Interpretation of the Supreme People's Court on the Application of the Civil Code (No. 1 of 2023, effective from April 20, 2023), the right to claim the return of the purchase price paid by the owner takes precedence over the mortgage and other creditor's rights, and the repayment of the purchase price enjoys a higher priority in the repayment sequence. Collective litigation (representative litigation) can consolidate the disputes of many owners for trial, reduce costs and unify opinions, which is indeed effective. It is recommended to first assess the current status of the project and the developer's repayment ability before choosing a path, and relevant reference materials can be consulted.Specialised legal services，详见Beijing Henglu Law Firm.

I. Legal basis and interpretation of provisions

1. Article 563 of the Civil Code of the People's Republic of China (effective as of January 1, 2021)

If a party fails to perform its main obligation within a reasonable period of time after being urged to do so, the other party may rescind the contract. According to Article 11 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trials of Disputes over Commercial Housing Sales Contracts (amended on December 29, 2020 and implemented on January 1, 2021), if the seller fails to deliver the house within a reasonable period of three months after being urged by the buyer, the buyer may request to rescind the contract. If the other party fails to urge the seller to perform, the right to rescind the contract shall be exercised within one year from the date on which the right to rescind the contract arises. If the right to rescind the contract is not exercised within the time limit, it shall be extinguished. The procedural key points are to send a written notice and keep the relevant evidence. If the right to rescind the contract expires and is not exercised, it will be lost.

2. Article 20 and Article 21 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trials of Disputes over the Sale of Commercial Housing Contracts (amended on December 29, 2020 and implemented on January 1, 2021)

Where the contract for the sale of commercial housing is confirmed to be invalid, revoked, or rescinded, and the purpose of the commercial housing guarantee loan contract cannot be achieved, the party's request to rescind the loan contract shall be supported; the seller shall return the purchase loan received and the principal and interest of the purchase price to the guarantor (bank) and the buyer respectively. In other words, after the purchase contract and the loan contract are rescinded together, the remaining mortgage shall be repaid by the developer, and the owner does not have to fall into the situation of "not getting the house but still having to pay the monthly mortgage". This is one of the most important weapons in protecting the rights and interests of unfinished buildings.

3. Practical adjudication guidelines (priorities and class actions)

The "Reply of the Supreme People's Court on the Protection of Consumer Rights in Commercial Housing" (Legal Interpretation [2023] No.1, implemented on April 20, 2023) clearly stipulates that consumers who purchase housing for residential purposes and have paid the full price shall have priority in their right to receive the delivery of the house over the right to priority compensation for the construction project price, mortgage rights, and other creditor's rights; when delivery is impossible, the right to request the return of the paid purchase price shall also have priority. Regarding collective litigation, Articles 56 and 57 of the Civil Procedure Law (amended on September 1, 2023) stipulate that in cases of mass joint litigation, two to five representatives may be elected, and the litigation acts of the representatives shall be effective for the parties they represent. In disputes over large-scale commercial housing, the courts generally tend to prioritize the "ensuring the delivery of buildings and protecting people's livelihood", and handle the issues of dissolving contracts, returning money, and promoting the resumption of work in a coordinated manner.

II. Practical experience of Henglue Law Firm

Common forms of disputes:Firstly, if the project is suspended but the main structure is basically completed, it is more cost-effective to preserve the value of the house and promote the resumption of construction. Secondly, if the project is completely stalled and the developer is insolvent, the main approach at this time is to terminate the contract, declare the creditor's rights and strive for priority compensation. Thirdly, if the developer has entered the bankruptcy procedure, the purchasers' delivery request rights, the priority rights to repayment of the purchase price and mortgages, and the construction contractors' priority rights to the construction project price will compete with each other. The choice of path depends on the size of the funding gap, the status of the construction project, and the developer's remaining assets. It is advisable to conduct due diligence first and then sue. For procedures involving enforcement and bankruptcy, reference can be made to relevant provisions.Creditor's rights and debts, and enforcement of legal services.

The judge's inclinations towards the government:In disputes involving multiple stakeholders, the priority is to maintain stability and involve the "Guaranteed Delivery of Housing" task force. It's relatively easy to terminate the contract through a single case judgment, but it's difficult to actually recover the payments. The court encourages the resolution of disputes through comprehensive solutions such as restructuring and continuing the construction of joint-benefit debts. Where owners elect representatives, unify their demands, and provide complete materials, the efficiency of case filing and trial is significantly improved, and it's also easier to reach resolution agreements with government task forces and banks.

The most common pitfalls that parties involved in a case are likely to fall into:Following the crowd to unilaterally stop lending and supply of funds without assessing the consequences of the contract and credit investigation; after terminating the contract, they found that the developer had no enforceable assets under his name, and they won the lawsuit but couldn't get the money; missed the one-year exercise period for the right of rescission after the reminder; trusted the "self-media for rights protection" to charge fees in bulk but took no substantive action; when suing, they only listed the withdrawal of the house and refund, and did not claim the priority of price return, resulting in a disadvantageous position in the order of repayment; and only kept the records of verbal communication as evidence, without written reminder certificates.

III. Frequently Asked Questions

Q1: Are class action lawsuits really effective?

It's useful. According to Articles 56 and 57 of the Civil Procedure Law, in the case of a large number of joint litigants, two to five representative persons can be elected. The benefits can be seen in three aspects: the litigation costs are shared among the litigants, the evidence and claims are unified, and the negotiating pressure on developers and the government is doubled. It can also avoid the owners being sued individually and defeated one by one. Note that the scope of authorization of the representative persons should be clearly stated in writing. Major disciplinary matters (such as settlement and withdrawal of the lawsuit) should be authorized by all parties. For real estate disputes, reference can also be made to relevant provisions.Legal services for real estate and construction projects.

Q2: Can owners directly stop making mortgage payments and default on their loans?

Be cautious. The loan contract is still valid, and the bank can sue to claim the debt and affect the credit record if the borrower unilaterally stops repaying the loan. Some courts still support the bank in unilaterally stopping the loan without consultation. The legal approach is to first send a written notice to the developer, and if the conditions are met, the purchase contract and loan contract can be terminated, and the remaining loan shall be returned to the bank by the developer in accordance with Article 21 of the Judicial Interpretation. In practice, some project owners negotiate with the bank to postpone repayment and temporarily stop repayment to gain a buffer, but it is necessary to formalize it in a written agreement and never make verbal agreements.

Q3: What evidence do I need to prepare for the lawsuit?

The core materials include: the purchase contract and supplementary agreement, payment receipts and mortgage loan contracts, notices of delayed delivery or written reminders and delivery certificates, evidence of the project being halted and left unfinished (on site photos and videos, government responses, and notices of the project being halted), and communication records with the developer and the bank. For those claiming priority rights or losses, additional materials include proof of full payment, tax receipts, and a list of actual losses; for collective litigation, additional materials include a list of owners, authorization documents, and a list of unified claims.

Q4: How much does it cost to litigate, and how long will it take to settle the case?

The litigation fees are prepaid in proportion to the amount of the claim. The refund amount ranges from hundreds of thousands to millions of yuan, and those with financial difficulties can apply for deferral of payment. After the collective litigation is divided among the parties, the per-person cost will significantly decrease. The first-instance ordinary procedure is generally concluded within six months, but it may take longer for complex cases due to coordination issues. The execution recovery period depends on the developer's repayment ability and the progress of project disposal. Therefore, it is necessary to have reasonable expectations and prioritize obtaining property preservation orders to lock in assets.

Q5: Is there still hope for the house? What should I do first?

First, check three things: whether the project is on the list of projects guaranteed to be delivered on time, whether there are funds for continued construction and a plan for resuming work, and whether the developer is involved in litigation or has entered bankruptcy proceedings. For projects with a possibility of resuming work, prioritize resuming work and retaining the houses, while claiming the default penalties for the delay; for projects with no hope of continued construction, reassess and terminate the contract to refund the money. If unsure, you can first send a written reminder letter to the developer to fix your rights and retain the right to terminate the contract, so as to avoid having no remedies after the one-year exercise period has passed. You can also consult a lawyer first.Beijing Henglu Law FirmCarry out a plan evaluation.

IV. Suggestions for Protecting Rights

  • The first step is to send a written notice to the developer urging them to deliver the property within a specified timeframe and retain the evidence of delivery, laying a solid foundation for exercising the right of rescission.
  • Establish an owners' rights protection group as soon as possible, elect representatives, and entrust professional lawyers to formulate an overall plan in a unified manner.
  • When filing a lawsuit, it is necessary to claim the priority of returning the paid purchase price to avoid being at a disadvantage in the order of repayment.
  • Before suspending repayments and defaulting on loans, it is advisable to consult a lawyer first and prioritize resolving the issue by terminating the loan contract or reaching a written agreement with the bank.
  • Keep track of the progress of ensuring the delivery of housing and the information about developers being involved in lawsuits and bankruptcies, and adjust your protection strategies in a timely manner.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, so as to avoid missing the statutory time limit. →Specialised services - legal services·Beijing Henglue Law Firm