[Direct answer]In the Beijing area, the right of priority compensation for project funds is a statutory right of contractors to receive priority compensation for the construction project price based on the discounted or auctioned price of the project. According to Article 807 of the Civil Code of the People's Republic of China, if the employer fails to pay the price on time, the contractor may agree to a discounted price or request the court to auction and receive priority compensation. The exercise of this right must be within the statutory time limit. According to Article 41 of the Interpretation of the Supreme People's Court on Legal Issues Applicable to the Trials of Construction Contract Disputes, the contractor shall exercise this right within 18 months from the date when the employer should pay the construction project price. If the claim is made after the expiration of the time limit, it may not be supported. It is recommended to keep records of the process, send letters in a timely manner, and file lawsuits. For more details, please refer to the following link:Real estate sales and construction project services.

I. Problem Background and Typical Scenarios

Arrears in construction project payments are a common pain point in the construction industry. Typical scenarios include: the employer using financial difficulties as an excuse to delay progress payments and settlement payments for a long time; the project being halted before completion, leaving the contractor with huge unpaid advances that are difficult to recover; the employer mortgaging or selling the completed property, resulting in insufficient executable assets; and under the chain of subcontracting and illegal subcontracting, it is difficult for the actual constructors to directly negotiate with the employer. Many contractors only assert their rights several years after the completion of the project, by which time the project has already been disposed of, and their priority right to compensation has been lost due to exceeding the time limit or the loss of assets. Construction project payments have priority over ordinary creditor's rights, but the construction project involves multiple conflicts such as mortgage rights and purchasers' rights, so the order and timing of exercising these rights are particularly crucial. For the enforcement of arrears in construction project payments, reference can be made to the following cases:Inheritance succession and family property division servicesThe idea of sorting out one's property in China.

II. Key points of contention

The disputes over the exercise of the right of priority compensation focus on three points. Firstly, the subject of the right: the contractors who sign contracts with the employers can claim it; the actual constructors generally need to do so through the subcontractors or illegal subcontractors, or through the path of subrogation, and cannot claim it directly in their own name, unless they meet the special circumstances specified in the judicial interpretation. Secondly, the exercise period: according to Article 41 of the relevant judicial interpretation, the eighteen-month period starts from the date when the employer should pay the construction project price. This period is of a preclusive nature, and the right of priority will be lost if it is exceeded. Thirdly, the scope and priority of the right of priority: the object of the right of priority is the discounted or auctioned price of the project, which takes precedence over ordinary creditor's rights, but the relationship with the mortgage right and the rights of consumers who purchase houses needs to be judged according to the specific circumstances. The disputes also focus on the determination of the starting point of the time limit when the settlement is not completed and the payment node is unclear. For cases involving the recovery and enforcement of funds, reference can be made to the relevant provisions.Creditor-debtor relations and enforcement case services.

III. Professional analysis by Henglue Lawyers

Based on practical experience in handling construction project cases, the right of priority compensation often fails due to exceeding the time limit and lack of evidence. Many contractors believe that they should receive payment upon project completion, but fail to assert their rights through litigation or arbitration within the agreed time limit. By the time the employer's assets are seized, it's already exceeded the 18-month exclusionary period; or they only use WeChat to collect payments for a long time without formal settlement, making it difficult to determine the payment conditions and amounts. According to Article 807 of the Civil Code and the judicial interpretations, the right of priority must be based on a clear and enforceable creditor's right, and should be fixed through litigation or arbitration within the statutory time limit. Henglue Lawyers usually recommend: fixing the project quantity and confirming the progress payment on a monthly basis during the construction process; submitting the project for review and retaining the evidence of delivery in a timely manner after completion; preparing letters and lawsuits immediately from the due date to avoid delaying negotiations instead of exercising rights. For disputes involving contract validity and settlement, it is advisable to seek assistance from legal professionals.Business and contract dispute services for enterprises.

IV. Practical suggestions and legal basis

The core basis is Article 807 of the Civil Code of the People's Republic of China (effective from January 1, 2021) (the right of priority compensation for the construction project price); Articles 35 to 42 of the Interpretation of the Supreme People's Court on Legal Issues Applicable to the Trials of Construction Contract Disputes (promulgated on December 29, 2020 and effective from January 1, 2021) (the subject, term, scope, and disposition rules of the priority right); and the provisions of the Civil Procedure Law of the People's Republic of China on litigation, preservation, and enforcement. Practical suggestions: Specify the payment milestones and settlement deadlines when signing the contract; improve process materials such as visas and meeting minutes during construction; submit the settlement report and fix the delivery time promptly after completion; claim the priority right through litigation or arbitration within 18 months from the date when the project payment is due; and, if necessary, apply for property preservation on the construction project to prevent it from being disposed of separately. For cases involving malicious transfer of assets, relevant provisions can be combined accordingly.Criminal defense and criminal case filing servicesUnderstand the paths such as refusing to execute a judgment; for complex projects, you can seek help from professionals.Special services and other case services.

5. Henglu Law Firm's Advice

The right of priority compensation for project payments is the most powerful guarantee for contractors to recover payments, but the time limit is rigid and cannot be neglected. Never equate long-term friendly negotiation with the exercise of rights. The eighteen-month exclusion period will not be suspended due to the interruption of negotiations. It is recommended to: keep records of the process and confirm the project quantity and payable amounts monthly; send letters of notice at the due date to urge payment and retain the delivery records; promptly file a lawsuit to fix the priority right within the time limit; and apply for property preservation immediately if the employer transfers assets. For complex subject relationships such as subcontracting and挂靠 (illegal contracting), it is necessary to clarify in advance who to claim against and in what name to claim, to avoid losing rights due to incorrect subject assignment. If assistance is needed, it is recommended to consult a professional lawyer as soon as possible.

VI. Frequently Asked Questions

Q1: Is it guaranteed that the right to priority compensation for project payments will result in successful recovery of the money, and can the lawsuit win?

The right of priority repayment enhances the repayment priority, but it does not necessarily guarantee full repayment. Whether the actual money can be recovered depends on whether the project meets the conditions for discounted auction, whether the employer still has executable assets, and whether the rights can be realized before mortgage rights and the rights of consumers purchasing the house. If the project has been left unfinished, mortgaged, or sold to a buyer who is not at fault, the priority right may be partially or even difficult to enforce. Whether the lawsuit can be supported depends on whether the creditor's amount is clear, the time limit is not exceeded eighteen months, and the subject is qualified. The establishment of rights and full repayment are two different matters. It is recommended to fix the rights through litigation and at the same time take measures to preserve the property.

Q2: To exercise the right of priority compensation for project funds, what evidence do I need to prepare?

The core evidence includes: the construction contract and supplementary agreement, which prove the contractual relationship and payment agreements; the quantity verification, progress payment application and confirmation form, and meeting minutes, which prove the completed project quantity and payment milestones; the completion report, settlement document, and delivery receipt, which prove the settlement amount and the due date; the demand letters and delivery receipts, which prove that the rights have been asserted; and clues to the employer's arrears and assets being mortgaged or disposed of. The evidence should be organized around four points: the validity of the contract, the quality of the project, the fulfillment of payment conditions, and the non-exceedance of deadlines. The more complete the materials are, the more conducive it will be for the court to support the priority right.

Q3: How much will it cost in attorney's fees and litigation expenses to sue for the right of priority compensation for project payments?

The litigation fees shall be calculated in accordance with the "Measures for the Payment of Litigation Fees" based on the amount of the litigation request, and shall be borne by the losing party. The amount of the project payment is usually high, and the acceptance fee is correspondingly high, but it can be borne by the other party. The attorney's fees depend on the complexity of the project, whether cost appraisal is needed, and whether it involves subcontracting and actual constructors. Generally, they are charged on a per-case basis or as a percentage of the project amount, subject to the terms of the entrustment contract, and there is no uniform standard. In cases involving judicial appraisal, appraisal fees will also be incurred. It is recommended to clarify the charging methods and upper limits with the law firm before entrusting, and to balance the amount of priority compensation with the cost. For cases with solid evidence and assets still in place, it is best to start as soon as possible.

Q4: Generally, when should the right of priority compensation for project payments be exercised?

According to Article 41 of the relevant judicial interpretation, the contractor's exercise of the right of priority compensation shall commence eighteen months from the date when the employer should pay the construction project price. This period is a preclusive period and is not subject to suspension or interruption. If the claim is made beyond the time limit, the court will not support it. The starting point is usually the payment date specified in the contract, the settlement confirmation date, or the date when it should be paid according to law. In practice, disputes are prone to arise when the nodes are unclear. In terms of the overall rights protection cycle, the first-instance summary procedure takes three months, the ordinary procedure takes six months, and the cost appraisal may take even longer. The key point is not how long the litigation will last, but that the fixed rights must be sued or arbitrated within eighteen months.

Q5: If I discover that the employer is in arrears and may be transferring assets, what should I do first?

It is recommended to follow four steps: First, immediately sort out the contract, visa, and settlement materials to confirm the amount payable and the due date, and determine whether the eighteen-month deadline is approaching; Second, send a written payment reminder letter to the employer and retain the delivery receipt, clearly asserting the claim for project payments and the right to priority compensation; Third, inquire whether the project has been mortgaged, sold, or sealed up, collect clues about the employer's assets, and apply for property preservation if necessary; Fourth, within the deadline, entrust a lawyer to file a lawsuit or initiate arbitration to fix the right to priority compensation by judgment and promote its enforcement. Throughout the process, avoid delaying the matter solely through verbal negotiation to prevent the loss of rights due to exceeding the deadline or the disposal of assets.

The above content is based on the compilation of judicial practices in the Beijing area. The facts of individual cases and the jurisdiction of the court may affect the conclusions. Welcome to consult Henglu Law Firm for specific situations.

If you are 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.Legal services for real estate transactions·Beijing Henglu Law Firm

Disclaimer: This article is compiled based on current effective laws and regulations and open 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.