Home Buyer Loses 250,000 Yuan Deposit in Off-Plan Property Dispute: Lessons from a Chinese Civil Court Case

Home Buyer Loses 250,000 Yuan Deposit in Off-Plan Property Dispute: Lessons from a Chinese Civil Court Case

CASE OVERVIEW

A home buyer in Eastern China lost her 250,000 yuan deposit after refusing to complete a notarization procedure for the purchase of an off-plan property. The court held that the buyer had constructive knowledge that the property was a future delivery unit and could not be vacated or handed over on the agreed date. Her refusal to proceed with the transaction constituted a breach of contract, and she was not entitled to the return of her deposit.

CASE BACKGROUND AND FACTS

On September 9, 2009, the seller, Ms. Wang, entered into a pre-sale contract with a real estate developer to purchase an apartment in Eastern China. The property had a total area of 88.86 square meters, and the developer was required to deliver it by December 31, 2012. On April 11, 2010, Ms. Wang entered into a second agreement with the buyer, Ms. Xiang, to sell the same property. The contract stated that the property was a commercial housing unit and referenced the original pre-sale contract number. Under the terms of the second agreement, Ms. Xiang was to pay a 250,000 yuan deposit at signing. Both parties agreed to complete a notarized power of attorney procedure on May 11, 2010. Upon completion of that procedure, Ms. Xiang was to pay the remaining balance, and Ms. Wang was to vacate the property and hand over all documents and keys on the same day.

Ms. Xiang paid the deposit as agreed. However, on May 11, 2010, she refused to proceed with the notarization. The parties later agreed to rescind the contract, but they could not agree on whether the deposit should be returned.

COURT PROCEEDINGS AND EVIDENCE

Ms. Xiang filed a lawsuit in the local court, arguing that Ms. Wang had fundamentally breached the contract by failing to vacate the property on May 11, 2010. Ms. Wang countered that Ms. Xiang knew the property was an off-plan unit and could not be vacated on that date, and that Ms. Xiang’s refusal to complete the notarization was the actual breach.

The court heard testimony from two staff members of the real estate agency that facilitated the transaction. Their testimony was inconsistent on certain points but supported the conclusion that Ms. Xiang was aware the property was a forward-delivery unit. The court also examined the pre-sale contract, which clearly stated a delivery date of December 31, 2012. The contract between Ms. Xiang and Ms. Wang explicitly referenced the pre-sale contract number.

The trial court dismissed Ms. Xiang’s claims, ruling that she had breached the contract and was not entitled to the return of her deposit. Ms. Xiang appealed to the intermediate court.

COURT FINDINGS AND JUDGMENT

The intermediate court affirmed the trial court’s decision. The court found that the key issue was whether Ms. Xiang’s refusal to complete the notarization constituted a breach. The court held that Ms. Xiang, by virtue of the contract’s explicit reference to the pre-sale contract number and the testimony of the agency staff, should have known that the property was an off-plan unit. The delivery date in the pre-sale contract was December 31, 2012, which made it impossible for Ms. Wang to vacate the property and hand over keys on May 11, 2010. Therefore, Ms. Xiang could not claim that Ms. Wang’s failure to vacate was a breach.

The court further held that Ms. Xiang’s refusal to proceed with the notarization was a clear breach of her contractual obligations. Under Chinese contract law, a party who breaches a contract is not entitled to return a deposit. The court rejected Ms. Xiang’s argument that the contract was invalid because the property was not yet completed. The court noted that the sale of pre-sale contracts is permissible under certain conditions, and the parties had voluntarily entered into the agreement.

The court dismissed the appeal and upheld the original judgment. The appellate court costs of 8,800 yuan were assessed against Ms. Xiang.

KEY LEGAL PRINCIPLES

A deposit serves as a guarantee of performance under Chinese contract law. The party who pays the deposit forfeits it if they breach the contract. If the receiving party breaches, they must return the deposit doubled.

A buyer of off-plan property is expected to exercise due diligence. When a contract references a pre-sale agreement with a known future delivery date, the buyer is deemed to have constructive knowledge of that date. Standard form contract terms that are inconsistent with the known facts do not override the parties’ actual understanding.

The sale of a pre-sale contract for a property that has not yet been completed is not automatically invalid. Such transactions are governed by specific regulations, and the contract is enforceable if both parties voluntarily agree and no statutory prohibition applies.

PRACTICAL INSIGHTS

Buyers of off-plan properties should carefully review the underlying pre-sale contract. The delivery date and other key terms in the pre-sale agreement will control, even if a secondary purchase agreement contains contradictory standard terms. A buyer who ignores the underlying contract does so at their own risk.

Parties should ensure they can fulfill all contractual obligations before signing. Refusing to complete a required procedure, such as a notarization, without a valid legal excuse will likely be treated as a breach. Deposits are at stake, and courts are reluctant to order their return to a party who fails to perform.

Real estate agents and their staff may be called as witnesses. Their testimony, even if inconsistent, can be used to establish what a buyer knew or should have known at the time of signing.

LEGAL REFERENCES

Contract Law of the People’s Republic of China, Articles 8, 60, 93, 97, and 115.
Civil Procedure Law of the People’s Republic of China (2007 Revision), Article 153, Paragraph 1, Item 1.

DISCLAIMER

This article is for informational purposes only and does not constitute legal advice. Laws and regulations vary by jurisdiction. Readers should consult a qualified legal professional for advice specific to their situation.