[Direct answer]The compensation for enterprise factories is low. The first step is to verify the legality of the expropriation: apply for government information disclosure, retrieve the land expropriation approval, the red line map, and the compensation and resettlement plan. According to Article 47 of the Land Administration Law of the People's Republic of China, the expropriation shall be announced and implemented by local governments at or above the county level. Village committees have no right to sign demolition compensation agreements. Agreements signed under the guise of expropriation can be claimed to be invalid. The second step is to claim item by item according to the statutory items: the value of the land and factory, the relocation and installation fees for equipment, the losses from production and business suspension, and the resettlement expenses for employees. Article 117 of the Civil Code of the People's Republic of China requires that the expropriation shall provide fair and reasonable compensation. If the compensation is still low, apply for an appraisal review within 10 days, and apply for reconsideration within 60 days or file a lawsuit within 6 months. Beijing Henglu Law FirmLand expropriation and demolition administrative litigation teamIt can assist in the review. For more details, please refer to the following link:Beijing Henglu Law Firm.

I. Legal basis and interpretation of provisions

1. Article 23 of the Regulations on the Acquisition and Compensation of Houses on State-Owned Land (implemented on January 21, 2011)

The compensation for the losses caused by the seizure of houses and the suspension of production and business operations shall be determined based on factors such as the profitability of the house before it was seized and the duration of the suspension of production and business operations. Specific measures shall be formulated by the provincial government. The value of an enterprise's plant often lies not in its bricks and tiles, but in its operations. The losses caused by the suspension of production and business operations should be calculated based on the enterprise's profit level, tax payment records, contract orders, and the transition period for relocation, rather than being set at a fixed rate based on the area. When applicable, enterprises should prepare financial statements, tax declaration forms, labor contracts, and social insurance records for the past three years to prove their actual profitability. For losses that are identified as being too low, they can be corrected at each level through appraisal review, reconsideration, and litigation.

2. Article 117 of the Civil Code of the People's Republic of China (effective January 1, 2021)

For the needs of the public interest, the expropriation and requisition of real estate or movable property in accordance with the powers and procedures prescribed by law shall be subject to fair and reasonable compensation. This is the expression of the principle of expropriation compensation in the basic civil law: compensation should not only cover the market value of the property, but also include the foreseeable losses caused by expropriation. When enterprises claim compensation, they can use this as a fallback basis - if the quota standards determined by local plans and meeting minutes are obviously lower than the level of fair compensation, they cannot oppose this provision, nor can they use it as a justifiable reason for price suppression.

3. Practical judicial interpretation guidelines

The key points of refereeing practice in enterprise plant cases focus on four aspects: First, review the contracting parties. According to Article 47 of the Land Management Law, the expropriation shall be announced and implemented by local governments at or above the county level. Village committees and demolition companies do not have the qualification to sign contracts, and the validity of the signed agreements is questionable. Second, review the nature of land ownership. Collective construction land and state-owned land have different compensation paths, and the application of the wrong compensation plan may become a defense point. Third, review the evaluation. Most plants use a combination of the cost method and the income method, but evaluating them solely based on the replacement value is often considered too low. Fourth, if there are authentic receipts for production and business suspension and employee resettlement expenses, it is generally supported to include them in the compensation. The most common pitfall for enterprises is signing contracts first and then discovering that the project is illegal. The room for remedial measures is much smaller than that before signing the contract.

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" with the villagers' committee of a certain village, agreeing to demolish the company's buildings with a total floor area of 4945.24 square meters, and the village committee would pay a total of 2,599,039 yuan in various compensation fees. The agreement stipulated monetary compensation for non-residential buildings, and after the agreement was signed and 50% of the funds were in place, the buildings would be vacated and inspected, and the remaining balance would be paid. However, after the agreement was signed, the village committee failed to fulfill its obligations, and the decision on whether to demolish the factory buildings remained undecided, leaving the company in a dilemma regarding its operations. The company subsequently entrusted Beijing Henglu Law Firm to handle the matter.Zhi Chao LiThe lawyer protects the client's rights and interests.

The focus of the controversy:First, whether it constitutes fraud resulting in an untrue expression of intention if the factory building was not actually expropriated despite the signing of the contract in the name of expropriation; second, whether the village villagers' committee has the subject qualification to sign the demolition compensation agreement; third, how to determine the liability for compensation for losses after the agreement is invalidated.

Our position and the other party's position are as follows:The company requested an arbitration ruling to confirm that the "Non-Residential House Demolition Compensation Agreement" is invalid, and that the village committee should bear the arbitration fees; the village committee signed the agreement under the guise of expropriation, claiming that the agreement is valid and should be implemented in accordance with the terms of the agreement.

Attorney's Strategy and Legal Opinions:After Attorney Xi Chaoli intervened, she first applied for government information disclosure and found a key fact: the client's factory building was not actually expropriated. Based on this, the lawyer put forward two opinions: Firstly, the respondent signed a compensation agreement with the applicant under the guise of expropriation, which constituted fraudulent behavior, causing the company to sign the agreement against its true intention. According to Article 148 of the Civil Code of the People's Republic of China, the agreement should be declared invalid. Secondly, according to Article 47 of the Land Administration Law of the People's Republic of China amended in 2020, after the state expropriates land and obtains approval through legal procedures, the local government at or above the county level shall announce and organize the implementation of the expropriation. Village committees do not have the subject qualification to sign demolition compensation agreements, and the signed agreements should be invalid contracts. Invalid legal acts are not legally binding from the outset.

The reasoning behind the ruling and the outcome of the case:The arbitration tribunal adopted the lawyer's opinion and determined that, according to Article 47 of the Land Administration Law, the villagers' committee of a certain village does not have the subject qualification to sign the "Non-Residential House Demolition Compensation Agreement" with the applicant. The agreement signed by them should be an invalid contract, and the arbitration ruling confirmed the invalidity of the agreement. The expropriator intentionally concealed the scope of the demolition and intended to implement the demolition, and should bear the liability for compensation for the losses of the expropriated persons. This case reminds enterprises that it is necessary to verify the scope of the expropriation and the implementing entities through information disclosure before signing the contract, so as to avoid falling into the passive situation of an invalid agreement. Those who have already been involved in such situations should promptly claim the invalidity of the agreement and seek compensation.

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

III. Frequently Asked Questions

Q1: What items are included in the compensation for the demolition of a factory building?

It usually includes: compensation for the land use rights and the value of the factory buildings, the cost of relocating and installing equipment, compensation for losses due to production and business suspension, the cost of employee relocation or redundancy, the cost of the relocation transition period, and incentive subsidies stipulated by local authorities. For factories located on collective land, it also involves the distribution of land compensation fees and resettlement subsidies. After checking the local compensation and resettlement plans, claim each item separately. The most common loss points are omitting the equipment list and underestimating the transition period. It is recommended to check the asset inventory one by one and submit it in writing to the acquisition party for confirmation.

Q2: Can I refuse to sign the agreement if the compensation is too low?

It's possible to refuse to sign the agreement, but this must be supported by procedural actions: first, apply for information disclosure to verify the legality of the project and the compensation plan; then, within 10 days, apply for a review of the low-value appraisal; and within 10 days of the review result, apply for an appraisal by the expert committee. If the compensation decision made by the acquisition party is still too low, initiate a reconsideration within 60 days or file a lawsuit within six months. If you simply refuse to sign without initiating the procedure, the acquisition party may apply for forced execution by the court after making the compensation decision. The correct way to refuse to sign is to make full use of the objection procedure to make the low-value appraisal legally unjustifiable.

Q3: Can the village committee sign a demolition compensation agreement for the factory building?

No. According to Article 47 of the Land Administration Law amended in 2020, 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. Village committees do not belong to the legal entities responsible for land expropriation and have no right to sign demolition compensation agreements in the name of expropriation. In practice, it is common for village committees to sign agreements in the name of expropriation, refuse to perform the agreements afterwards, or provide inadequate compensation. The signed agreements may be claimed to be invalid due to fraud according to Article 148 of the Civil Code, and the liable parties may be held accountable for compensation. Before signing the agreements, it is necessary to verify whether the other party is a government at or above the county level or its legally delegated departments.

Q4: How to provide evidence for the losses caused by production and business suspension?

The key point is to prove the "benefit multiplied by the time limit": prepare financial statements, tax declaration records, business contracts and orders, and utility bills for the past three years to demonstrate the true operating benefits before the expropriation; the time limit shall be calculated based on the reasonable time required for equipment relocation and resumption of production, and the period delayed by the expropriator shall be included in the calculation. If the calculation based on the provincial standard is significantly lower than the actual losses, the enterprise may apply for an assessment based on the actual benefits and submit complete financial evidence during the reconsideration and litigation. The difference between the standard and the actual benefits is the most easily overlooked claim by the enterprise.

Q5: Can employees claim compensation for resettlement costs from the expropriating party?

Yes. The employee salaries, social insurance, and economic compensation for terminating labor contracts during the period of production and business suspension and relocation caused by expropriation belong to the direct losses caused by expropriation and can be included in the scope of claims for production and business suspension losses or relocation expenses. Enterprises should keep the labor contracts, payrolls, social insurance payment records, and consultation termination agreements as evidence. If labor disputes arise over employee resettlement, they can be handled through labor arbitration procedures. Claims with complete supporting evidence are more likely to gain support in compensation negotiations and litigation.

IV. Suggestions for Protecting Your Rights

  • First, apply for information disclosure upon receiving the expropriation notice, verify the land expropriation approval, the scope of the red line, and the qualifications of the implementing entities, and then negotiate the compensation.
  • Count the factory buildings, equipment, and inventory according to the asset ledger and archive the images. Claim the expenses for equipment relocation and installation separately.
  • Organize the financial statements, tax records, and contract orders of the past three years to provide a basis for calculating the losses from production and business suspension based on actual benefits.
  • Before signing the contract, verify the other party's legal status. If there are doubts about the validity of the agreement signed by the village committee or the demolition company, it is necessary to apply for confirmation of its invalidity and seek compensation if necessary.
  • The employee relocation plan and the expense vouchers shall be kept synchronously, and labor disputes may be settled separatelyLabor arbitrationHandle it to avoid double losses.

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