PRC Property Law

CLP Reference: 1420/07.03.16 PRC Reference: ( 62 ) Promulgated: 16 March 2007 Effective: 01 October 2007

(Promulgated on March 16 2007 and effective as of October 1 2007.)

PRC President's Order (No.62 of the 10th NPC) ()

( 62 )

VOLUME ONE: GENERAL PROVISIONS

PART ONE: BASIC PRINCIPLES

Article 1: This Law has been formulated pursuant to the Constitution in order to safeguard the basic economic system of the state, maintain order in the socialist market economy, clarify the ownership of things, leverage the utility of things and protect the rights in rem of rights holders.

Article 2: This Law shall govern the civil relationships that arise from the ownership and utilization of things.

For the purposes of this Law, the term "things" includes both immovable and movable property. Where a law provides that rights may serve as the objects of rights in rem, such law shall prevail.

For the purposes of this Law, the term "rights in rem" means the exclusive rights of a rights holder to exercise direct control over a specific thing in accordance with the law, and includes ownership, usufructuary rights and security rights.

Article 3: During the initial stage of socialism, the state upholds a basic economic system in which the public ownership system has primacy and multiple ownership systems develop in tandem.

The state consolidates and develops the publicly owned part of the economy and encourages, supports and guides the development of the non-publicly-owned parts of the economy.

The state implements a socialist market economy and ensures the equal legal status and development rights of all market entities.

Article 4: The rights in rem of the state, collectives, private individuals and other rights holders are protected by the law, and no work unit or individual may infringe upon such rights.

Article 5: The types and substance of rights in rem shall be specified in law.

Article 6: The creation, change, transfer and extinguishing of rights in rem over immovable property shall be subject to registration in accordance with the law. The creation and transfer of rights in rem over movable property shall be delivered in accordance with the law.

Article 7: The obtaining and exercise of rights in rem shall comply with the law, respect social ethics and may not harm the public interest or the lawful rights and interests of others.

Article 8: If other relevant laws contain special provisions in respect of rights in rem, such provisions shall prevail.

PART TWO: CREATION, CHANGE, TRANSFER AND EXTINGUISHING OF RIGHTS IN REM

Section One: Registration of Immovable Property

Article 9: The creation, change, transfer and extinguishing of rights in rem over immovable property shall become effective once registered in accordance with the law. Without registration, they shall not become effective, unless otherwise specified in law.

For natural resources that belong to the state according to law, the ownership thereof need not be registered.

Article 10: Registration of immovable property shall be carried out by the registration authority of the place where the immovable property is located.

The state implements a uniform system of registration in respect of immovable property. The scope of uniform registration, the registration authorities and the method of registration shall be specified in laws and administrative regulations.

Article 11: When a party applies for registration, it shall, depending on the particulars being registered, provide proof of title and necessary materials, such as the boundaries and area of the immovable property.

Article 12: The registration authority shall perform the following duties:

(1) examining and verifying the proof of title and other necessary materials provided by the applicant;

(2) questioning the applicant concerning the relevant particulars to be registered;

(3) accurately registering the relevant particulars in a timely manner; and

(4) other duties specified in laws and administrative regulations.

If relevant particulars of the immovable property being registered need further proof, the registration authority may require the applicant to provide supplementary materials and, if necessary, may carry out an onsite inspection.

Article 13: The registration authority may not:

(1) require an appraisal of the immovable property;

(2) carry out repetitive registration in the guise of an annual inspection, etc.; or

(3) commit another act that exceeds the scope of its registration duties.

Article 14: If the creation, change, transfer or extinguishing of rights in rem over immovable property requires registration in accordance with the law, the same shall become effective once recorded in the immovable property register.

Article 15: If parties enter into a contract concerning the creation, change, transfer or extinguishing of rights in rem over immovable property, such contract shall enter into effect upon its conclusion, unless otherwise provided in law or specified in the contract. A failure to register the rights in rem shall not affect the validity of the contract.

Article 16: The immovable property register is the basis of the ownership and the substance of the rights in rem. The immovable property register shall be managed by the registration authority.

Article 17: An immovable property title certificate is proof that the rights holder enjoys the rights in rem over such property. The particulars recorded on the title certificate for immovable property shall be consistent with those recorded in the immovable property register. In the event of a discrepancy, the immovable property register shall prevail, unless there is evidence proving that the immovable property register is in error.

Article 18: The rights holder and materially-interested parties may apply to review and take copies of the registration information, and the registration authority shall provide the same.

Article 19: If the rights holder or a materially-interested party is of the opinion that a particular recorded in the immovable property register is erroneous, it may apply for correction of the registration. If the rights holder recorded in the immovable property register agrees in writing to the correction or if there is evidence proving that there indeed is an error in the registration, the registration authority shall correct the same.

If the rights holder recorded in the immovable property register does not agree to the correction, a materially-interested party may apply to register an objection. If the registration authority registers the objection and the applicant fails to institute a legal action within 15 days from the date of registration, such registration shall become null and void. If the registered objection is unjustified, causing the rights holder to incur damage, it may claim damages against the applicant.

Article 20: If parties enter into an agreement for the sale and purchase of rights in rem over premises or other immovable property, they may, in order to secure the future realization of the rights in rem, apply to the registration authority for pre-registration as agreed by them. After pre-registration, the disposal of the immovable property without the consent of the rights holder who carried out the pre-registration shall not become effective.

Following pre-registration, if the claim is extinguished or if registration is not applied for within three months from the date on which registration of the immovable property became possible, the pre-registration shall become null and void.

Article 21: If a party submits fraudulent materials when applying for registration, causing a third party to incur damage, it shall bear liability for compensation.

If a party incurs damage due to a registration error, the registration authority shall be liable for compensation. Once it has paid the compensation, the registration authority may recover the same from the party who caused the registration error.

Article 22: The fee for the registration of immovable property shall be charged per registration. It may not be charged based on the area or volume of the immovable property or as a percentage of the price thereof. The specific fee rates shall be specified by the relevant department of the State Council in concert with the competent pricing department.

Section Two: Delivery of Movable Property

Article 23: The creation and transfer of rights in rem over movable property shall become effective upon delivery, unless otherwise specified in law.

Article 24: If the creation, change, transfer or extinguishing of rights in rem over a vessel, aircraft, motor vehicle, etc., has not been registered, it may not be used to defend against a bona fide third party.

Article 25: If movable property was legally in the possession of the rights holder before the creation and transfer of the rights in rem therein, the rights in rem shall become effective when the legal act enters into effect.

Article 26: If movable property was legally in the possession of a third party before the creation and transfer of the rights in rem therein, the party with the obligation to deliver the same may substitute delivery by transferring the right to request the third party to return the original thing.

Article 27: If, at the time of a transfer of the rights in rem over movable property, the parties provide that such movable property shall continue to remain in the possession of the transferor, the rights in rem shall become effective at the time that such provision enters into effect.

Section Three: Miscellaneous Provisions

Article 28: If rights in rem are created, changed, transferred or extinguished as the result of a legal document from a people's court or arbitration commission or a requisition decision by a people's government, etc., such creation, change, transfer or extinguishing shall become effective at the time the legal document or the requisition decision of the people's government enters into effect.

Article 29: If rights in rem are obtained as the result of a succession or bequest, they shall become effective from the time of commencement of the succession or bequest.

Article 30: If rights in rem are created or extinguished as the result of a fact or act, such as the lawful construction or demolition of premises, such creation or extinguishing shall become effective at the time of completion of the fact or act.

Article 31: If rights in rem over immovable property are enjoyed in accordance with Articles 28 to 30 hereof and the disposal of such rights in rem requires registration as specified by law, such disposal of rights in rem shall not become effective without registration.

PART THREE: PROTECTION OF RIGHTS IN REM

Article 32: If rights in rem are infringed, the rights holder may seek resolution through reconciliation, mediation, arbitration, litigation, etc.

Article 33: In the event of a dispute over the ownership or the substance of rights in rem, a materially interested party may request confirmation of its rights.

Article 34: If immovable property or movable property is unrightfully possessed, the rights holder may request return of the original thing.

Article 35: If rights in rem are impaired or potentially impaired, the rights holder may request removal of the impairment or elimination of the threat.

Article 36: If damage to or destruction of immovable property or movable property is caused, the rights holder may request repair, redoing, replacement or restoration to the original state.

Article 37: If rights in rem are infringed, causing the rights holder to incur damage, it may seek damages or request the bearing of other civil liability.

Article 38: The means of protecting rights in rem specified in this Part may be applied singly or, depending on the infringement of the rights, applied in conjunction.

If rights in rem are infringed, in addition to bearing civil liability, administrative liability shall be borne in accordance with the law if administrative provisions have been violated. If a criminal offence is established, criminal liability shall be pursued in accordance with the law.

VOLUME TWO: OWNERSHIP

PART FOUR: GENERAL PROVISIONS

Article 39: An owner has the rights to possess, use, benefit from and dispose of its own immovable property or movable property according to law.

Article 40: An owner has the right to create usufructuary rights or security rights over its immovable property or movable property. When the usufructuary or the security rights holder exercises its rights, it may not harm the rights and interests of the owner.

Article 41: No work unit or individual may obtain ownership of immovable property or movable property that laws specify as being owned exclusively by the state.

Article 42: Collectively owned land and the premises and other immovable property of work units and individuals may be requisitioned for the public interest provided that the same is done on the authority and by the procedures specified by law.

When collectively owned land is requisitioned, payments, such as land compensation fees, resettlement subsidies, and compensation for attachments to the land and for young crops shall be paid in full in accordance with the law and arrangements for the social security expenses of the displaced farmers shall be made in order to secure their livelihood and safeguard their lawful rights and interests.

When the premises or other immovable property of a work unit or individual is requisitioned, it/he/she shall be paid demolition and relocation compensation and its/his/her lawful rights and interests shall be safeguarded. When the dwelling of an individual is requisitioned, his/her conditions of residence shall also be ensured.

No work unit or individual may embezzle, misappropriate, surreptitiously divide, retain or delay payments, such as requisition compensation.

Article 43: The state accords special protection to arable land, strictly limits the conversion of agricultural land to construction land and controls the total quantity of construction land. Collectively owned land may not be requisitioned in violation of the authority and procedures specified by law.

Article 44: The immovable property or movable property of work units or individuals may be requisitioned on the authority and by the procedures specified by law in exigent circumstances, such as emergencies and disaster relief. After use, the requisitioned immovable property or movable property shall be returned to the party from whom it was requisitioned. If the immovable property or movable property of a work unit or individual is requisitioned or if the same is damaged, destroyed or lost after being requisitioned, the work unit or individual shall be compensated therefor.

PART FIVE: STATE OWNERSHIP, COLLECTIVE OWNERSHIP AND PRIVATE OWNERSHIP

Article 45: Property that the law specifies as being owned by the state is owned by the state, namely by the people.

Ownership of state-owned property is exercised by the State Council on behalf of the state, unless otherwise provided by law, in which case such provisions shall prevail.

Article 46: Mineral reserves, watercourses and territorial seas are owned by the state.

Article 47: Land in urban areas is owned by the state. Land in rural areas and suburban areas that the law specifies as being owned by the state is owned by the state.

Article 48: Natural resources, such as forests, mountain ranges, grasslands, wastelands and tidal flats are owned by the state, with the exception of those specified by law as being collectively owned.

Article 49: Wild flora and fauna resources that the law specifies as being owned by the state are owned by the state.

Article 50: Radio spectrum resources are owned by the state.

Article 51: Cultural relics that the law specifies as being owned by the state are owned by the state.

Article 52: National defence assets are owned by the state.

Infrastructure, such as railways, roads, electric power facilities, telecommunication facilities, and oil and gas pipelines that the law specifies as being owned by the state, is owned by the state.

Article 53: State agencies have the rights to possess and use immovable property and movable property directly controlled by them and the right to dispose of it in accordance with laws and relevant provisions of the State Council.

Article 54: Institutions established by the state have the rights to possess and use immovable property and movable property directly controlled by them and the right to benefit from and dispose of it in accordance with laws and relevant provisions of the State Council.

Article 55: The State Council and local people's governments separately, on behalf of the state in accordance with laws and administrative regulations, perform the duties and enjoy the rights and interests of an investor in enterprises in which the state has invested.

Article 56: State-owned property shall be protected by law, and all work units and individuals are prohibited from appropriating, plundering, surreptitiously dividing, retaining or damaging the same.

Article 57: Organizations and their working personnel that perform the duties of managing and monitoring state-owned property shall strengthen the management and monitoring thereof in accordance with the law, promote maintenance of the value and increase in the value thereof and guard against the loss thereof. If abuse of authority or dereliction of duty causes a loss of state-owned property, legal liability shall be borne in accordance with the law.

If regulations on the management of state-owned property are violated by transferring such property at a low price, surreptitiously dividing it in a conspiracy, encumbering the same with security rights without authorization or otherwise causing a loss of state-owned property in the course of enterprise restructuring, merger, division, affiliated transactions, etc., legal liability shall be borne in accordance with the law.

Article 58: Collectively owned immovable property and movable property shall include:

(1) land, forests, mountain ranges, grasslands, wastelands and tidal flats that the law specifies as being collectively owned;

(2) collectively owned buildings, production facilities and agricultural water control facilities;

(3) collectively owned educational, scientific, cultural, health, sports and other such facilities; and

(4) other collectively owned immovable property and movable property.

Article 59: Immovable property and movable property owned by a farmers' collective is collectively owned by the members of the collective.

The following matters shall be decided by members of the collective in accordance with the statutory procedure:

(1) land contracting plans and the contracting of land out to a work unit or individual that is not part of the collective;

(2) adjustment of contracted land among individual holders of contracted management rights in land;

(3) measures for the use and distribution of funds, such as land compensation;

(4) matters, such as the change of ownership of an enterprise invested in by the collective; and

(5) other matters specified by law.

Article 60: Ownership of land, forests, mountain ranges, grasslands, wastelands, tidal flats, etc., shall be exercised in accordance with the following provisions:

(1) if owned by a farmers' collective of a village, ownership shall be exercised by the collective economic organization or residents' committee of the village on behalf of the collective;

(2) if ownership is divided between/among two or more farmers' collectives in a village, ownership shall be exercised by the concerned collective economic organizations or residents' groups in the village on behalf of the collectives; or

(3) if owned by a farmers' collective of a township, ownership shall be exercised by the collective economic organization of the township on behalf of the collective.

Article 61: The rights to possess, use, benefit from and dispose of immovable property and movable property owned by an urban collective shall, in accordance with laws and administrative regulations, be enjoyed by the collective.

Article 62: The collective economic organization, or residents' committee or residents' group of the village shall inform the members of the collective as to the state of the collective property in accordance with laws, administrative regulations, the charter and village rules and practices.

Article 63: Collectively owned property shall be protected by law, and the appropriation, plundering, surreptitious division and damaging thereof by any work unit or individual is prohibited.

If a decision made by the collective economic organization, residents' committee of the village or the person in charge thereof infringes the lawful rights and interests of members of the collective, the injured members of the collective may petition a people's court to have the decision revoked.

Article 64: Private individuals shall enjoy ownership over their lawful immovable property and movable property, such as income, premises, articles of daily use, production tools and raw materials.

Article 65: The lawful savings, investments and the returns thereon of private individuals shall be protected by law.

The state protects the right of succession and other lawful rights and interests of private individuals in accordance with the law.

Article 66: The lawful property of private individuals shall be protected by law, and the appropriation, plundering and damaging thereof by any work unit or individual is prohibited.

Article 67: The state, collectives and private individuals may, in accordance with the law, invest in and establish limited liability companies, companies limited by shares and other enterprises. If the immovable property or movable property of the state, a collective or a private individual is invested in an enterprise, the investor shall enjoy rights, such as returns on assets, making material decisions and selecting the management and perform obligations as provided or in proportion to its/his/her capital contribution.

Article 68: An enterprise legal person shall have the rights to possess, use, benefit from and dispose of its immovable property and movable property in accordance with laws, administrative regulations and its articles of association.

The rights of a legal person other than an enterprise legal person to its immovable property and movable property shall be governed by relevant laws, administrative regulations and its articles of association.

Article 69: The immovable property and movable property lawfully owned by social organizations shall be protected by law.

PART SIX: DIVISION OF OWNERSHIP OF BUILDINGS

Article 70: An owner shall enjoy ownership over the part in a building exclusive to it, such as a residence and business premises and shall enjoy co-ownership and the right of joint management of the parts other than the exclusive part that are owned in common.

Article 71: An owner shall have the rights to possess, use, benefit from and dispose of the part in a building exclusive to it. When exercising its rights, an owner may not jeopardize the safety of the building or harm the lawful rights and interests of other owners.

Article 72: An owner has rights in, and bears obligations in respect of, the parts of a building other than the exclusive part that are owned in common. It may not refuse to perform its obligations on the grounds of having waived its rights.

When an owner transfers a residence or business premises in a building, its co-ownership of and right to jointly manage the parts owned in common shall be transferred together therewith.

Article 73: The roads within a developed site are owned in common by the owners, with the exception of urban public roads. The green spaces within a developed site are owned in common by the owners, with the exception of urban public green spaces or those expressly stated as belonging to an individual. Other common areas, facilities used in common and property management premises within a developed site are owned in common by the owners.

Article 74: Parking spaces and parking garages earmarked for the parking of motor vehicles within a developed site shall satisfy the requirements of the owners on a priority basis.

Title to parking spaces and parking garages earmarked for the parking of motor vehicles within a developed site shall be determined by the concerned parties through means, such as sale, inclusion with the premises or lease.

Spaces for the parking of motor vehicles that occupy road space or other space owned in common by the owners shall be owned in common by the owners.

Article 75: Owners may establish an owners' general meeting and elect an owners' committee.

Relevant departments of local people's governments shall guide and assist the establishment of owners' general meetings and the election of owners' committees.

Article 76: The following matters shall be jointly decided by the owners:

(1) the formulation and amendment of the rules of procedure for the owners' general meeting;

(2) the formulation and amendment of the rules for the management of the building and its ancillary facilities;

(3) the election of the owners' committee and the replacement of the members of the owners' committee;

(4) the engagement and dismissal of the property management enterprise or other manager;

(5) the collection and use of the funds for the maintenance and repair of the building and its ancillary facilities;

(6) the alteration or reconstruction of the building and its ancillary facilities; and

(7) other material matters relating to co-ownership and the right of joint management.

A decision on the matters specified in Item (5) and Item (6) of the preceding paragraph shall require the approval of owners whose exclusively owned parts account for two-thirds or more of the total area of the building and of two-thirds or more of all the owners. A decision on the other matters specified in the preceding paragraph shall require the approval of owners whose exclusively owned parts account for more than half of the total area of the building and of a majority of all the owners.

Article 77: An owner may not convert a residence into business premises in violation of laws, regulations and management rules. If an owner wishes to convert a residence into business premises it shall, in addition to complying with laws, regulations and management rules, require the consent of the materially interested owners.

Article 78: The decisions of the owners' general meeting or owners' committee shall be binding on the owners.

If a decision made by the owners' general meeting or owners' committee infringes the lawful rights and interests of the owners, the injured owners may petition a people's court to have the decision revoked.

Article 79: The funds for the maintenance and repair of a building and its ancillary facilities are owned in common by the owners. Subject to a joint decision of the owners, such funds may be used for the maintenance and repair of parts owned in common, such as lifts and the water tank. Details of the collection and use of the maintenance and repair funds shall be published.

Article 80: If matters, such as the sharing of the expenses of, and the distribution of the benefits from, the building and its ancillary facilities have been provided for, they shall be handled in accordance with such provisions. If such matters have not been provided for or if the provisions are unclear, they shall be determined in proportion to the total area of the building accounted for by the part exclusively owned by each owner.

Article 81: The owners may manage a building and its ancillary facilities themselves or, alternatively, they may appoint a property management enterprise or other manager to manage the same.

The owners shall have the right, in accordance with the law, to replace the property management enterprise or other manager engaged by the project owner.

Article 82: A property management enterprise or other manager shall manage the building and its ancillary facilities within a developed site in accordance with the appointment of the owners and subject itself to the monitoring of the owners.

Article 83: Owners shall comply with laws, regulations and management rules.

The owners' general meeting and owners' committee shall have the right, in accordance with laws, regulations and management rules, to demand that the perpetrator of an act that harms the lawful rights and interests of others, such as the indiscriminate dumping of refuse, discharge of pollutants or noise, raising of animals in violation of rules, erection of illegal structures, occupation of passageways and refusal to pay the property management fee, cease the infringement,

eliminate the danger, remove obstructions and compensate for losses. An owner may institute a legal action in a people's court in accordance with the law in respect of an act that infringes upon its lawful rights and interests.

PART SEVEN: ADJACENT RELATIONSHIPS

Article 84: Rights holders of adjacent immovable property shall correctly handle adjacent relationships in accordance with the principles of conduciveness to production, facilitating life, unity, mutual assistance, fairness and reasonableness.

Article 85: If laws or regulations provide for the handling of adjacent relationships, such provisions shall prevail. If laws and regulations are silent on such matters, they may be handled in accordance with local practice.

Article 86: The rights holder of immovable property shall provide the necessary facilitating conditions for the use and discharge of water by adjacent rights holders.

The utilization of natural running water shall be reasonably distributed among the rights holders of adjacent immovable property. The discharge of natural running water shall respect the natural direction of flow.

Article 87: If adjacent rights holders need to use the land of the rights holder of immovable property for purposes, such as passage, the rights holder shall provide the necessary facilitating conditions.

Article 88: If the rights holder of immovable property is required to use adjacent land or an adjacent building for the construction or repair of a building or the laying of electric wiring, electric cables, water pipes, heating and gas ducts, etc., the rights holder of such land and/or building shall provide the necessary facilitating conditions.

Article 89: When erecting a building, relevant state construction project standards may not be violated by obstructing the air circulation, daylight and sunlight of adjacent buildings.

Article 90: A rights holder of immovable property may not violate state provisions by dumping solid waste or discharging air pollutants, water pollutants, noise, light, electromagnetic radiation or other such harmful substances.

Article 91: When a rights holder of immovable property excavates land, erects a building, lays wiring or pipes or installs equipment, etc., it may not jeopardize the safety of adjacent immovable property.

Article 92: If a rights holder of immovable property utilizes adjacent immovable property for water use, water discharge, passage, wiring or pipe laying purposes, etc., it shall endeavour to avoid causing damage to rights holders of adjacent immovable property. If damage is caused, it shall compensate therefor.

PART EIGHT: CO-OWNERSHIP

Article 93: Immovable property or movable property may be co-owned by two or more work units or individuals. Coownership includes tenancy in common and joint tenancy.

Article 94: A tenant in common enjoys ownership over co-owned immovable property or movable property in proportion to its share.

Article 95: Joint tenants jointly enjoy ownership over co-owned immovable property or movable property.

Article 96: Co-owners shall manage co-owned immovable property or movable property as provided by them. If provisions have not been specified or are unclear, each co-owner shall have management rights and obligations.

Article 97: For the disposal or major overhaul of co-owned immovable property or movable property, the consent of tenants in common accounting for at least two-thirds of the shares thereof or the consent of all of the joint tenants shall be required, unless the co-owners have otherwise provided among themselves.

Article 98: If the co-owners have provided for the management fee for and other burdens on the co-owned thing, such provisions shall prevail. If they have not provided therefor or if the provisions are unclear, tenants in common shall bear the same in proportion to their shares while joint tenants shall jointly bear the same.

Article 99: If the co-owners have provided that the co-owned immovable property or movable property may not be divided so as to maintain the co-ownership relationship, such provisions shall prevail. However, if a co-owner has material grounds to divide such immovable property or movable property, it may request division. If the co-owners have not stipulated such provisions or if the provisions are unclear, a tenant in common may request division at any time, and a joint tenant may request division if the basis for the co-ownership is lost or if it has material grounds for such division. If the division causes damage to the other co-owners, compensation shall be paid to them.

Article 100: Co-owners may hold consultations to determine the method of division. If they fail to reach an agreement and the immovable property or movable property is divisible and doing so would not reduce its value, the actual thing shall be divided. If division thereof is difficult or would reduce its value, the proceeds derived from the conversion thereof into money, or the auction or sale thereof shall be divided.

If the immovable property or movable property received by a co-owner as the result of a division is defective, the other co-owners shall share the loss.

Article 101: A tenant in common may transfer its share of co-owned immovable property or movable property. All things being equal, the other co-owners shall have the right of first refusal thereto.

Article 102: With respect to third parties, co-owners shall enjoy joint and several claims and bear joint and several debts in respect of the claims and debts arising from their co-owned immovable property or movable property, unless otherwise specified in law or the third party is aware that the co-owners do not enjoy joint and several claims and do not bear joint and several debts. With respect to the relationships among the co-owners, unless the co-owners have provided otherwise, a tenant in common shall enjoy claims and bear debts in proportion to its share, and a joint tenant shall jointly enjoy the claims and bear the debts. If the debt repaid by a tenant in common exceeds the share it is required to bear, it shall have the right to recover the same from other co-owners.

Article 103: If co-owners have not provided as to whether the co-owned immovable property or movable property is of a tenancy in common or joint tenancy, or if the provisions thereon are unclear, such property shall be deemed of a tenancy in common, unless there is a family relationship, etc., among the co-owners.

Article 104: If tenants in common have not provided for the shares that they each enjoy in the co-owned immovable property or movable property, or if such provisions are unclear, their shares shall be determined based on their capital contributions. If their capital contributions cannot be determined, they shall be deemed to have equal shares.

Article 105: If two or more work units or individuals jointly enjoy usufructuary rights or security rights, matters shall be handled with reference to this Part.

PART NINE: SPECIAL PROVISIONS ON THE OBTAINING OF OWNERSHIP

Article 106: If a party without the right of disposal transfers immovable property or movable property to a transferee, the owner shall have the right to recover such property. Unless otherwise specified in law, the transferee shall obtain the ownership of such immovable property or movable property if:

(1) it acquired such immovable property or movable property in good faith;

(2) the property was transferred at a reasonable price; or

(3) the transferred immovable property or movable property requires registration in accordance with the law and such registration was carried out or, if registration is not required, the property has been delivered to the transferee.

If a transferee obtains ownership of immovable property or movable property in accordance with the preceding paragraph, the original owner shall have the right to seek compensation for its losses from the party without the right of disposal.

If a party obtains other rights in rem in good faith, matters shall be handled with reference to the preceding two paragraphs.

Article 107: An owner or other rights holder shall have the right to recover a lost thing. If the lost thing has entered the possession of a third party through a transfer, the rights holder shall have the right to claim damages against the party without the right of disposal or seek return of the original thing from the transferee within two years from the date it became aware of, or ought to have become aware of, the transferee, unless the transferee obtained such lost thing through an auction or purchased the same from a legitimate business operator. When seeking return of the original thing, the rights holder shall cover the costs incurred by the transferee. After it has covered the costs incurred by the transferee, the rights holder shall have the right to recover the same from the party without the right of disposal.

Article 108: Once a bona fide transferee has obtained movable property, the original rights in such movable property shall be extinguished, unless the bona fide transferee was aware or ought to have been aware of such rights at the time of transfer.

Article 109: If a lost thing is found, it shall be returned to the rights holder. The finder shall notify the rights holder in a timely manner to collect it, or shall deliver it to the public security or other such relevant department.

Article 110: When the relevant department receives the lost thing, if it knows the rights holder, it shall notify the rights holder in a timely manner to collect the thing; if it does not, it shall issue a found item announcement in a timely manner.

Article 111: A finder shall duly take care of the found thing until he/she delivers it to the relevant department and the relevant department shall duly take care of it until it is collected. If the lost thing is damaged, destroyed or lost intentionally or due to gross negligence, civil liability shall be borne.

Article 112: When collecting the lost thing, the rights holder shall pay to the finder or the relevant department the necessary expenses borne by him/her/it in taking care thereof.

If the rights holder offered a reward for the finding of the lost thing, it shall perform its obligation in accordance with its undertaking when collecting the lost thing.

If the finder had appropriated the lost thing, he/she shall not have the right to claim the expenses he/she bore for taking care thereof, nor the right to request that the rights holder perform its obligation in accordance with its undertaking.

Article 113: If a lost thing is not claimed within six months from the date of the issuance of the lost item announcement, it shall belong to the state.

Article 114: If a thing adrift is found, or a buried thing or hidden thing discovered, matters shall be handled with reference to relevant provisions on the finding of lost things. If it is otherwise provided in laws, such as the Law for the Protection of Cultural Relics, such provisions shall prevail.

Article 115: When a principal thing is transferred, its appendants are transferred together therewith, unless the parties have provided otherwise.

Article 116: Natural fruits shall vest in the owner. If there is both an owner and a usufructuary, they shall vest in the usufructuary. If the parties have provided otherwise, such provisions shall prevail.

If the parties have provided for legal fruits, they shall vest in accordance with such provisions. If the parties have not provided therefor or if the provisions are unclear, they shall vest in accordance with trading practice.

VOLUME THREE: USUFRUCTUARY RIGHTS

PART TEN: GENERAL PROVISIONS

Article 117: A usufructuary shall have the right in accordance with the law to possess, use and benefit from immovable property or movable property owned by another.

Article 118: Work units and individuals may, in accordance with the law, posses, use and benefit from natural resources owned by the state, those owned by the state and used by a collective, and those owned by a collective as specified in law.

Article 119: The state implements a system of use of natural resources for consideration, unless otherwise specified by law.

Article 120: When a usufructuary exercises its rights, it shall comply with provisions of laws on the protection and reasonable development and use of resources. The owner may not interfere in the usufructuary's exercise of its rights.

Article 121: If usufructuary rights are extinguished or their exercise is affected by the expropriation or requisitioning of the immovable property or movable property, the usufructuary shall have the right to the attendant compensation in accordance with Article 42 or 44 hereof.

Article 122: Lawfully obtained rights to use territorial sea shall be protected by law.

Article 123: Lawfully obtained exploration rights, mining rights, water drawing rights and the right to use a body of water or tidal flats to engage in aquaculture or fishing/harvesting shall be protected by law.

PART ELEVEN: CONTRACTED MANAGEMENT RIGHTS IN LAND

Article 124: Village collective economic organizations shall implement household contracted management as the foundation of a dual level system that combines centralization and decentralization.

Arable land, forest land, grasslands and other agricultural land owned by farmers' collectives or owned by the state and used by farmers' collectives shall be subject to a system of contracted management in accordance with the law.

Article 125: A holder of contracted management rights in land shall have the rights to possess, use and benefit from the arable land, forest land, grassland, etc., that he/she has contracted to manage and has the right to engage in agricultural production, such as cultivation, forestry and animal husbandry.

Article 126: The contract term for arable land shall be 30 years, that for grassland shall be 30 years to 50 years and that for forest land shall be 30 years to 70 years. The contract term for forest land with special trees may be extended with the approval of the State Council's administrative department in charge of forestry.

Once the contract term specified in the preceding paragraph expires, the land shall continue to be contracted by the holder of the contracted management rights in the land in accordance with relevant state provisions.

Article 127: Contracted management rights in land shall come into being once the contract for contracted management rights in land enters into effect.

Local people's governments at the county level or above shall issue contracted management rights certificates for land, forest rights certificates and grassland leasehold certificates to holders of contracted management rights in land, and record the same in a register in confirmation of the contracted management rights in the land.

Article 128: A holder of contracted management rights in land shall have the right to pass on such rights by way of a subcontract, mutual exchange, transfer, etc., in accordance with the Rural Land Contracting Law. The term of such passing

on may not exceed the remaining period of time in the contract term. Contracted land may not be used for nonagricultural construction without lawful approval.

Article 129: If a holder of contracted management rights in land exchanges his/her contracted management rights in the land with, or transfers them to, another and such party requests registration thereof, an application for amendment of the registration of the contracted management rights in the land shall be made to the people's government at the county level or above. If such rights are not registered, they may not be used to defend against a bona fide third party.

Article 130: The owner may not adjust the contracted land during the contract term.

If contracted arable land or grassland needs to be appropriately adjusted due to special circumstances, such as severe damage to the contracted land caused by a natural disaster, etc., matters shall be handled in accordance with the provisions of laws, such as the Rural Land Contracting Law.

Article 131: The owner may not recover the land during the contract term. If it is otherwise provided in laws, such as the Rural Land Contracting Law, such provisions shall prevail.

Article 132: If contracted land is requisitioned, the holder of the contracted management rights in the land shall have the right to the attendant compensation in accordance with the second paragraph of Article 42 hereof.

Article 133: If rural land, such as wasteland is contracted for by way of an invitation of bids, auction, public consultations, etc., the contracted management rights in such land may be transferred, injected to acquire an equity share in an enterprise, mortgaged or otherwise passed on pursuant to laws, such as the Rural Land Contracting Law and relevant State Council provisions.

Article 134: Reference shall be made to the relevant provisions hereof for matters relating to state-owned agricultural land that is subject to contracted management.

PART TWELVE: LEASEHOLDS OF CONSTRUCTION LAND

Article 135: Leaseholders of construction land shall have the rights to possess, use and benefit from state-owned land in accordance with the law, and the right to use such land to erect buildings, structures and their ancillary facilities.

Article 136: Leaseholds of construction land may be created with respect to the land surface, aboveground or underground. Newly created leaseholds of construction land may not prejudice existing usufructuary rights.

Article 137: Leaseholds of construction land may be created by way of a grant or allocation.

Land of a commercial nature, such as for industry, commerce, tourism, entertainment and commodity residential premises as well as land for which two or more parties have indicated an interest in using shall be granted by way of an open competition, such as by an invitation of bids or auction.

The creation of leaseholds of construction land by way of allocation is stringently restricted. If such leaseholds are created by an allocation, the provisions of laws and administrative regulations on land purposes shall be complied with.

Article 138: If a leasehold of construction land is created by way of a grant through an invitation of bids, auction, agreement, etc., the parties shall enter into a contract for grant of a leasehold of construction land in writing.

In general, a contract for grant of a leasehold of construction land shall include provisions on the following:

(1) the names and domiciles of the parties;

(2) the boundaries, area, etc., of the land;

(3) the space to be occupied by buildings, structures and their ancillary facilities;

(4) the purpose of the land;

(5) the use term;

(6) charges, such as the grant fee and the method of payment thereof; and

(7) the dispute resolution method.

Article 139: When a leasehold of construction land is created, an application for the registration of the leasehold of construction land shall be made to the registration authority. The leasehold of construction land shall come into being upon registration. The registration authority shall issue a certificate for the leasehold of construction land to the construction land leaseholder.

Article 140: A leaseholder of construction land shall utilize the land reasonably and may not change the purpose of the land. If it wishes to change the purpose of the land, it shall require the approval of the relevant competent administrative department in accordance with the law.

Article 141: The leaseholder of construction land shall pay charges, such as the grant fee in accordance with the law and the contract.

Article 142: Ownership of the buildings, structures and their ancillary facilities erected by a leaseholder of construction land shall vest in such leaseholder, unless there is evidence to the contrary.

Article 143: A leaseholder of construction land shall have the right to transfer, exchange, bestow or mortgage its leasehold of construction land, or the right to use such leasehold as a capital contribution, unless otherwise specified in law.

Article 144: If a leasehold of construction land is to be transferred, exchanged, used to make a capital contribution, bestowed or mortgaged, the parties shall enter into the relevant contract in writing. The use term shall be specified by the parties, but may not exceed the remaining term of the leasehold of construction land.

Article 145: If a leasehold of construction land is transferred, exchanged, used to make a capital contribution or bestowed, an application for amendment of registration shall be made to the registration authority.

Article 146: If a leasehold of construction land is transferred, exchanged, used to make a capital contribution or bestowed, the buildings, structures and their ancillary facilities attached to the land shall be disposed of together therewith.

Article 147: If buildings, structures and their ancillary facilities are transferred, exchanged, used to make a capital contribution or bestowed, the leasehold of the construction land within the area occupied thereby shall be disposed of together therewith.

Article 148: If land needs to be recovered for the public interest before the expiration of the term of a leasehold of construction land, compensation shall be paid for the premises and other immovable property on the land in accordance with Article 42 hereof, and the corresponding grant fee shall be refunded.

Article 149: Once the term of the leasehold of construction land for residential premises expires, it shall be renewed automatically.

The renewal of the term of a leasehold of construction land for non-residential-premises purposes after the expiration of the term thereof shall be handled in accordance with the law. If ownership of the premises and other immovable property

on the land has been provided for, such provisions shall prevail. If the same has not been provided for or if the provisions are unclear, matters shall be handled in accordance with laws and administrative regulations.

Article 150: If a leasehold of construction land is extinguished, the grantor shall carry out de-registration procedures in a timely manner. The registration authority shall recover the certificate for the leasehold of construction land.

Article 151: If collectively owned land is to be used as construction land, matters shall be handled in accordance with laws, such as the Land Administration Law.

PART THIRTEEN: HOMESTEAD LEASEHOLDS

Article 152: A homestead leaseholder shall have the rights to possess and use collectively owned land in accordance with the law, and the right to use such land to erect a residence and its ancillary facilities.

Article 153: The obtaining, exercise and transfeleaseholdsr of homestead leaseholds shall be governed by laws, such as the Land Administration Law and relevant state provisions.

Article 154: If homestead land is destroyed due to a natural disaster or other such reason, the homestead leaseholds shall be extinguished. A village resident who has lost his/her homestead land shall be allocated new homestead land.

Article 155: If registered homestead leaseholds are transferred or extinguished, the procedures for the amendment of registration or de-registration shall be carried out in a timely manner.

PART FOURTEEN: EASEMENT

Article 156: The holder of an easement shall have the right to use another's immovable property in accordance with the provisions of the contract in order to increase the benefits from its own immovable property.

The immovable property of another as mentioned in the preceding paragraph is known as the servient tenement and a party's own immovable property is known as the dominant tenement.

Article 157: To create an easement, the parties shall enter into an easement contract in writing.

An easement contract shall include provisions on the following:

(1) the names and domiciles of the parties;

(2) the locations of the servient tenement and dominant tenement;

(3) the objective and method of use;

(4) the use term;

(5) the charges and method of payment; and

(6) the dispute resolution method.

Article 158: An easement shall come into being once the easement contract enters into effect. If a party requests registration, an application for registration of the easement may be made to the registration authority. If the easement is not registered, it may not be used to defend against a bona fide third party.

Article 159: The rights holder of the servient tenement shall permit the holder of the easement to use its land in accordance with the contract and may not hinder the holder of the easement in the exercise of its rights.

Article 160: The holder of the easement shall use the servient tenement in accordance with the objective and method specified in the contract and endeavour to minimize the restrictions on the rights in rem of the rights holder of the servient tenement.

Article 161: The term of an easement shall be stipulated by the parties, but may not exceed the remaining term of the usufructuary rights, such as the contracted management rights in the land and the leasehold of the construction land.

Article 162: If an owner of land enjoys an easement or is burdened by an easement, when contracted management rights in the land or a homestead leasehold is created, the holder of the contracted management rights in the land or the homestead leaseholder shall continue to enjoy or be burdened by the existing easement.

Article 163: If rights, such as contracted management rights, a leasehold of construction land, a homestead leasehold, etc., have been created over land, the owner of the land may not create an easement without the consent of the usufructuary.

Article 164: An easement may not be transferred separately. If contracted management rights in land, a leasehold of construction land, etc., is transferred, the easement shall be transferred together therewith, unless otherwise specified in the contract.

Article 165: An easement may not be mortgaged separately. If contracted management rights in land, a leasehold of construction land, etc., are mortgaged, the easement shall be transferred together therewith when the mortgage rights are realized.

Article 166: If part of a dominant tenement and the contracted management rights or a leasehold of construction land created on such dominant tenement is transferred and the transferred part involves the easement, the transferee shall also enjoy the easement.

Article 167: If part of a servient tenement and the contracted management rights or leasehold of construction land created on such servient tenement is transferred and the transferred part involves the easement, the easement shall be binding on the transferee.

Article 168: If the holder of an easement is characterized by either of the following circumstances, the rights holder of the servient tenement shall have the right to terminate the easement contract and the easement shall be extinguished:

(1) it abuses the easement in violation of the law or in breach of the contract; or

(2) after two reminders it fails to pay the charge within a reasonable period after the expiration of the agreed upon deadline for payment, if the servient tenement is used for consideration.

Article 169: If a registered easement is modified, transferred or extinguished, the procedures for amendment of registration or de-registration shall be carried out in a timely manner.

VOLUME FOUR: SECURITY RIGHTS

PART FIFTEEN: GENERAL PROVISIONS

Article 170: A security rights holder shall, in accordance with the law, enjoy the right to repayment from property encumbered by security rights on a priority basis if the debtor fails to perform its matured debt obligation or a circumstance provided for by the concerned parties for the realization of the security rights arises, unless otherwise specified in law.

Article 171: If a creditor, in the course of civil activities, such as borrowing/lending and purchase/sale requires the provision of security in order to secure the realization of its claim, security rights may be created in accordance with this Law and other laws.

If a third party provides security to a creditor for a debtor, it may require the debtor to provide counter-security. Counter-security shall be governed by this Law and other laws.

Article 172: When security rights are to be created, a security contract shall be entered into in accordance with this Law and other laws. A security contract shall be a dependent contract to the master claim/debt contract. If the master claim/debt contract is invalid, the security contract shall be invalid, unless otherwise specified in law.

If a security contract is confirmed to be invalid and the debtor, guarantor and creditor are at fault, each shall bear the attendant civil liability based on its fault.

Article 173: The scope covered by security rights shall include the principal claim and interest thereon, liquidated damages, damages and expenses for safekeeping of the property provided as security and for realizing the security rights. If the parties have provided otherwise, such provisions shall prevail.

Article 174: If the property provided as security is damaged, destroyed, lost or requisitioned during the security term, the security rights holder shall have the right to repayment from the insurance indemnity, compensation or indemnity obtained therefor on a priority basis. If the term of performance of the secured claim has not expired, such insurance indemnity, compensation or indemnity may be placed in escrow.

Article 175: If a third party has provided security and the creditor permits the debtor to transfer all or part of the debt without the written consent of the guarantor, the guarantor shall cease to bear the corresponding security liability.

Article 176: If a secured claim is secured both by a thing and by a person and the debtor fails to perform its matured debt obligation or a circumstance provided for by the concerned parties for the realization of the security rights arises, the creditor shall realize its claim as provided. If the parties failed to provide therefor or if the provisions are unclear and the debtor itself provided security in the form of a thing, the creditor shall first realize its claim against the thing provided as

security. If a third party provided security in the form of a thing, the creditor may realize its claim against the thing provided as security or, alternatively, require the guarantor to assume its liability for the guarantee. Once the third party that provided the security bears its security liability, it shall have the right of recourse against the debtor.

Article 177: Security rights shall be extinguished if:

(1) the principal claim is extinguished;

(2) the security rights are realized;

(3) the creditor relinquishes its security rights; or

(4) another circumstance specified in law under which security rights are extinguished arises.

Article 178: In the event of a discrepancy between the Security Law and this Law, this Law shall prevail.

PART SIXTEEN: MORTGAGE RIGHTS

Section One: General Mortgage Rights

Article 179: If a debtor or a third party mortgages property to the creditor, without transferring possession thereof, in order to secure performance of the debt obligation and the debtor fails to perform its matured debt obligation or a circumstance provided for by the concerned parties for the realization of the mortgage rights arises, the creditor shall have the right to repayment from such property on a priority basis.

The debtor or third party mentioned in the preceding paragraph is known as the mortgagor, the creditor as the mortgagee and the property provided as security as the collateral.

Article 180: The following types of property to which a debtor or third party has the right of disposal may be mortgaged:

(1) buildings and other attachments to land;

(2) leaseholds of construction land;

(3) contracted management rights in land, such as wasteland obtained by way of an invitation of bids, auction, public consultations, etc.;

(4) production equipment, raw materials, semi-finished products and products;

(5) buildings, vessels and aircraft under construction;

(6) means of transport; and

(7) other property the mortgage of which is not prohibited by laws or administrative regulations.

The mortgagor may mortgage any of the property specified in the preceding paragraph together.

Article 181: Subject to a written agreement between the concerned parties, an enterprise, family proprietor or agricultural producer may mortgage existing and future production equipment, raw materials, semi-finished products and products; and if the debtor fails to perform its matured debt obligation or a circumstance provided for by the concerned

parties for the realization of the mortgage rights arises, the creditor shall have the right to repayment on a priority basis from the movable property available at the time of the realization of the mortgage rights.

Article 182: If a building is mortgaged, the leasehold of the construction land occupied by the building shall be mortgaged together therewith. If a leasehold of construction land is mortgaged, the buildings on such land shall be mortgaged together therewith.

If the mortgagor fails to mortgage the leasehold of the construction land together with the building or the buildings together with the leasehold of the construction land in accordance with the preceding paragraph, the property that was not mortgaged shall be deemed to have been mortgaged together with the mortgaged property.

Article 183: The leaseholds of construction land of township and village enterprises may not be mortgaged separately. If buildings of a township or village enterprise, such as factory buildings are mortgaged, the leasehold of the construction land that they occupy shall be mortgaged together therewith.

Article 184: The following types of property may not be mortgaged:

(1) ownership of land;

(2) leaseholds of collectively owned land, such as arable land, homestead land, household plots, privately used hilly land, unless the law specifies that the same may be mortgaged;

(3) the educational facilities, medical and health facilities and other public welfare facilities of institutions and social organizations established for public welfare, such as schools, kindergartens and hospitals;

(4) property the ownership of, or use rights to, which is/are unclear or disputed;

(5) property that has been placed under seal, seized or is under supervision in accordance with the law; and

(6) other property that laws and administrative regulations specify may not be mortgaged.

Article 185: When mortgage rights are to be created, the parties shall enter into a mortgage contract in writing.

In general, a mortgage contract shall include provisions on the following:

(1) the type and amount of the secured claim;

(2) the term for the debtor's performance of its debt obligation;

(3) the collateral's description, quantity, quality, state, location, in whom or which the ownership thereof or use rights thereto vest; and

(4) the scope of the security.

Article 186: Prior to the expiration of the term for the performance of the debt obligation, the mortgagee may not specify with the mortgagor that the collateral will vest in the creditor should the debtor fail to perform its obligation when the debt matures.

Article 187: If the property specified in Items (1) to (3) or a building under construction as specified in Item (5) of the first paragraph of Article 180 hereof is to be mortgaged, procedures for the registration of the mortgage shall be carried out. The mortgage rights shall come into being upon registration.

Article 188: If the property specified in Item (4) or (6) or a vessel or aircraft under construction as specified in Item (5) of the first paragraph of Article 180 hereof is mortgaged, the mortgage rights shall come into being once the mortgage contract enters into effect. If the mortgage rights are not registered, they may not be used to defend against a bona fide third party.

Article 189: If an enterprise, family proprietor or agricultural producer mortgages the movable property specified in Article 181 hereof, registration shall be carried out with the administration for industry and commerce of the place where the mortgagor is domiciled. The mortgage rights shall come into being once the mortgage contract enters into effect. If the mortgage rights are not registered, they may not be used to defend against a bona fide third party.

If a mortgage is created in accordance with Article 181 hereof, it may not be used to defend against a buyer who, in the course of normal business activities, has paid a reasonable price for and obtained the collateral.

Article 190: If, before conclusion of the mortgage contract, the collateral had been leased out, the existing lease relationship shall not be affected by the mortgage rights. If the collateral is leased out after the creation of the mortgage rights, the lease relationship may not be used to defend against the registered mortgage rights.

Article 191: If the mortgagor transfers the collateral during the mortgage term with the consent of the mortgagee, it shall use the proceeds derived from the transfer to discharge the debt early with the mortgagee or place the same in escrow. Any amount above the amount of the debt shall belong to the mortgagor, and any shortfall shall be discharged by the debtor.

The mortgagor may not transfer the collateral during the mortgage term without the consent of the mortgagee, unless the transferee discharges the debt and extinguishes the mortgage rights on the behalf of the debtor.

Article 192: Mortgage rights may not be separated from a claim and be independently transferred or serve as security for another claim. If a claim is transferred, the mortgage rights securing such claim shall be transferred together therewith, unless otherwise specified in law or provided by the parties.

Article 193: If the acts of the mortgagor are sufficient to cause an impairment in the value of the collateral, the mortgagee shall have the right to require the mortgagor to stop such acts. If the value of the collateral is reduced, the mortgagee shall have the right to require that the value of the collateral be restored or that security equivalent to the reduced value be provided. If the mortgagor fails to restore the value of the property and does not provide additional security, the mortgagee shall have the right to demand that the debtor discharge its debt early.

Article 194: A mortgagee may relinquish its mortgage rights or the position of its mortgage rights in the sequence. The mortgagee and mortgagor may reach an agreement on changing the position of mortgagee's mortgage rights in the sequence, the amount of the secured claim, etc. However, without the written consent of the other mortgagees, the change in the mortgage rights may not have an adverse effect on the other mortgagees.

If a debtor creates a mortgage over its own property, and a mortgagee relinquishes its mortgage rights or the position of its mortgage rights in the sequence or modifies its mortgage rights, the other guarantors shall be released from their security liability to the extent that the mortgagee's priority right of repayment has been extinguished, unless the other guarantors undertake to continue providing security.

Article 195: If a debtor fails to perform its matured debt obligation or a circumstance provided for by the concerned parties for the realization of the mortgage rights arises, the mortgagee may reach an agreement with the mortgagor to convert the collateral into its monetary value or receive repayment on a priority basis from the proceeds derived from the auction or selling off of the collateral. If the agreement harms the interests of other mortgagees, the other mortgagees may petition a people's court to rescind such agreement within one year from the date on which they became aware or ought to have become aware of the grounds for the rescission.

If a mortgagee fails to reach an agreement with the mortgagor on the method of realizing its mortgage rights, it may petition a people's court to auction or sell off the collateral.

If collateral is converted into its monetary value or sold off, reference shall be made to the market price thereof.

Article 196: If a mortgage is created in accordance with Article 181 hereof, the collateral shall be determined at the time any of the following circumstances arises:

(1) the term for performance of the debt obligation expires and the claim has not been realized;

(2) the mortgagor is declared bankrupt or is closed down;

(3) a circumstance as provided for by the concerned parties for the realization of the mortgage rights arises; or

(4) another circumstance that seriously impairs the realization of the claim arises.

Article 197: If a debtor fails to perform its matured debt obligation or a circumstance provided for by the concerned parties for the realization of the mortgage rights arises, resulting in the collateral being seized by the people's court in accordance with the law, the mortgagee shall have the right to collect the natural fruits or legal fruits from the collateral from the date of seizure, unless the mortgagee fails to notify the party with the obligation to discharge the legal fruits.

The fruits specified in the preceding paragraph shall first be used to offset the costs of collecting the fruits.

Article 198: Once the collateral has been converted into its monetary value or been auctioned or sold off, any part of the proceeds exceeding the amount of the claim shall belong to the mortgagor and any shortfall shall be discharged by the debtor.

Article 199: If the same property is mortgaged to two or more creditors, the proceeds derived from the auction or selling off of the collateral shall be used to discharge the claims in accordance with the following provisions:

(1) if the mortgage rights have been registered, the proceeds shall be used to discharge the claims in sequence by the date of registration; if positions in the sequence are identical, the claims shall be discharged pro rata;

(2) registered mortgage rights shall have priority over those that are not registered; or

(3) if mortgage rights have not been registered, the claims shall be discharged pro rata.

Article 200: Buildings newly constructed on land after the mortgage of the leasehold of the construction land shall not form part of the collateral. When the mortgage rights over the leasehold of the construction land are realized, the buildings newly constructed on the land shall be disposed of together with the leasehold of the construction land. However, the mortgagee shall not have a right of repayment on a priority basis from the proceeds derived from the newly constructed buildings.

Article 201: If the contracted management rights in land specified in Item (3) of the first paragraph of Article 180 hereof are mortgaged, or if the leasehold of the construction land occupied by buildings of a township or village enterprise, such as factory buildings as specified in Article 183 hereof are mortgaged together with such buildings, the nature of the ownership of the land and the purpose of the land may not be changed after the realization of the mortgage rights if the statutory procedures have not been carried out.

Article 202: A mortgagee shall exercise its mortgage rights before the expiration of the statute of limitations for litigation concerning the principal claim. If it fails to exercise such rights, the people's court shall not accord protection.

Section Two: Mortgage Rights up to a Maximum Amount

Article 203: If a debtor or third party provides collateral for successive claims that are to arise over a certain period in order to secure the performance of the debt obligations and the debtor fails to perform a matured debt obligation or a circumstance provided for by the concerned parties for the realization of the mortgage rights arises, the mortgagee shall have the right to repayment on a priority basis from the collateral up to a maximum claim amount.

Subject to the consent of the concerned parties, claims existing prior to the creation of the mortgage rights up to a maximum amount may be included in the scope of the claims secured by the mortgage up to a maximum amount.

Article 204: If certain claims are transferred prior to determination of the claims secured by the mortgage up to a maximum amount, the mortgage rights up to a maximum amount may not be transferred, unless the concerned parties have provided otherwise.

Article 205: Prior to determination of the claims secured by a mortgage up to a maximum amount, the mortgagee and mortgagor may, through consultations, modify the term, claim scope and maximum claim amount determined for the claims, but such change may not adversely affect other mortgagees.

Article 206: A mortgagee's claims shall be determined if:

(1) the stipulated period for determination of the claims expires;

(2) no period for determination has been stipulated or if the stipulation is unclear, when the mortgagee or mortgagor requests determination of the claims after the lapse of two years following the date of creation of the mortgage rights up to a maximum amount;

(3) no new claim could arise;

(4) the collateral is placed under seal or seized;

(5) the debtor or mortgagor is declared bankrupt or is closed down; or

(6) another circumstance specified in law concerning the determination of claims arises.

Article 207: In addition to being governed by this Section, mortgage rights up to a maximum amount shall be governed by the provisions on general mortgage rights of Section One of this Part.

PART SEVENTEEN: PLEDGE

Section One: Pledge of Movable Property

Article 208: If a debtor or third party pledges its movable property and delivers it into the possession of the creditor in order to secure performance of a debt obligation and the debtor fails to perform its matured debt obligation or a circumstance provided for by the concerned parties for the realization of the pledge rights arises, the creditor shall have the right of repayment from the movable property on a priority basis.

The debtor or third party mentioned in the preceding paragraph is known as the pledgor, the creditor as the pledgee and the delivered movable property as the pledge.

Article 209: Movable property the transfer of which is prohibited by law may not be pledged.

Article 210: To create pledge rights, the parties shall enter into a pledge contract in writing.

In general, a pledge contract shall include provisions on the following:

(1) the type and amount of the secured claim;

(2) the term for performance of the debt obligation by the debtor;

(3) the pledge's description, quantity, quality and condition;

(4) the scope of the security; and

(5) the date of delivery of the pledge.

Article 211: Prior to the expiration of the term for the performance of the debt obligation, the pledgee may not specify with the pledgor that the pledge will vest in the creditor should the debtor fail to perform its obligation when the debt matures.

Article 212: Pledge rights shall come into being once the pledgor delivers the pledge.

Article 213: The pledgee shall have the right to collect the fruits from the pledge, unless otherwise specified in the contract.

The fruits specified in the preceding paragraph shall first be used to offset the costs of collecting the fruits.

Article 214: If the pledgee uses or disposes of the pledge during the term of the pledge rights without the consent of the pledgor, causing the pledgor to incur damage, it shall be liable for compensation.

Article 215: The pledgee shall bear an obligation of duly safekeeping the pledge. If the pledge is damaged, destroyed or lost due to improper safekeeping, the pledgee shall be liable for compensation.

If the acts of the pledgee could cause the pledge to be damaged, destroyed or lost, the pledgor may require the pledgee to place the pledge in escrow or request early discharge of the debt and return of the pledge.

Article 216: If the pledge could be damaged or its value markedly impaired due to a reason other than one attributable to the pledgee, thus jeopardizing the rights of the pledgee, the pledgee shall have the right to require the pledgor to

provide appropriate security. If the pledgor fails to provide such security, the pledgee may auction or sell off the pledge and, after reaching agreement with the pledgor, use the proceeds from the auction or sale to discharge the debt early or place the same in escrow.

Article 217: If the pledgee sub-pledges the pledge during the term of the pledge rights without the consent of the pledgor, thereby causing damage to or the destruction or loss of the pledge, it shall be liable to the pledgor for compensation.

Article 218: A pledgee may relinquish its pledge rights. If the debtor pledged its own property, and the pledgee relinquishes its pledge rights therein, the other guarantors shall be released from their security liability to the extent that the pledgee's priority right of repayment has been extinguished, unless the other guarantors undertake to continue providing security.

Article 219: If the debtor performs its debt obligation or if the pledgor discharges early the secured claim, the pledgee shall return the pledge.

If a debtor fails to perform its matured debt obligation or a circumstance provided for by the parties for the realization of the pledge rights arises, the pledgee may reach an agreement with the pledgor to convert the pledge into its monetary value or, alternatively, receive repayment on a priority basis from the proceeds derived from the auction or selling off of the pledge.

If a pledge is converted into its monetary value or sold off, reference shall be made to the market price thereof.

Article 220: The pledgor may request that the pledgee exercise its pledge rights in a timely manner upon expiration of the term for performance of the debt obligation. If the pledgee fails to exercise such rights, the pledgor may petition a people's court to auction or sell off the pledge.

If the pledgor requests that the pledgee exercise its pledge rights in a timely manner, but incurs damage due to the pledgee's delay in exercising such rights, the pledgee shall be liable for compensation.

Article 221: Once the pledge has been converted into its monetary value or been auctioned or sold off, any part of the proceeds exceeding the amount of the claim shall belong to the pledgor and any shortfall shall be discharged by the debtor.

Article 222: A pledgor and pledgee may agree to create pledge rights up to a maximum amount.

Pledge rights up to a maximum amount shall be governed by this Section, additionally, reference shall be made to the provisions of Section Two of Part Sixteen hereof on mortgage rights up to a maximum amount.

Section Two: Pledge of Rights

Article 223: The following rights to which a debtor or third party has the right of disposal may be pledged:

(1) bills of exchange, cheques and promissory notes;

(2) bonds and deposit certificates;

(3) warehouse receipts and bills of lading;

(4) transferable fund shares and equity;

(5) transferable property rights in intellectual property rights, such as the exclusive right to use a trademark, patent rights, copyrights;

(6) receivables; and

(7) other property rights that laws and administrative regulations specify may be pledged.

Article 224: If a bill of exchange, cheque, promissory note, bonds, deposit certificates, warehouse receipt or bill of lading is to be pledged, the parties shall enter into a written contract. The pledge rights shall come into being once the rights certificate(s) is/are delivered to the pledgee. In the absence of a rights certificate, the pledge rights shall come into being once the relevant department has carried out the pledge registration procedures.

Article 225: If the redemption date or goods delivery date of the bill of exchange, cheque, promissory note, bonds, deposit certificates, warehouse receipt or bill of lading is earlier than the date of maturity of the principal claim, the pledgee may redeem the same or take delivery of the goods and agree with the pledgor to use the proceeds from the redemption or use the goods that have been delivered to discharge the debt early or place them in escrow.

Article 226: If fund shares or equity are/is pledged, the parties shall enter into a written contract. If fund shares or if equity registered with a securities depository and clearing institution is pledged, the pledge rights shall come into being once the securities depository and clearing institution carries out the procedures for registration of the pledge. If other equity is pledged, the pledge rights shall come into being once the administration for industry and commerce carries out the procedure for registration of the pledge.

After fund shares or equity have/has been pledged, they/it may not be transferred, unless the pledgor and pledgee agree thereto through consultations. Proceeds derived by the pledgor from the transfer of the fund shares or equity shall be used to discharge the debt early with the pledgee or placed in escrow.

Article 227: If property rights in intellectual property rights, such as exclusive rights to use a trademark, patent rights and copyrights are pledged, the parties shall enter into a written contract. The pledge rights shall come into being once the relevant competent department carries out the procedure for registration of the pledge.

Once property rights in intellectual property rights have been pledged, the pledgor may not transfer or license the same to a third party, unless the pledgor and pledgee agree thereto through consultations. The proceeds derived by the pledgor in transferring the pledged property rights in the intellectual property rights or by licensing the same to a third party shall be used to discharge the debt early with the pledgee or placed in escrow.

Article 228: If receivables are pledged, the parties shall enter into a written contract. The pledge rights shall come into being once the credit consulting institution carries out the procedure for registration of the pledge.

Once receivables have been pledged, they may not be transferred, unless the pledgor and pledgee agree thereto through consultations. The proceeds derived by the pledgor in transferring the receivables shall be used to discharge the debt early with the pledgee or placed in escrow.

Article 229: In addition to being governed by this Section, pledges of rights shall be governed by the provisions of Section One of this Part on the pledge of movable property.

PART EIGHTEEN: LIEN

Article 230: If a debtor fails to perform its matured debt obligation, the creditor may place a lien on movable property of the debtor legally in its possession, and to receive repayment from such movable property on a priority basis.

The creditor mentioned in the preceding paragraph is known as the lienor and movable property in its possession is known as the property under lien.

Article 231: The movable property over which a creditor has placed a lien shall form part of the same legal relationship as the claim, with the exception of liens between enterprises.

Article 232: A lien may not be placed on movable property that the law specifies or the parties have agreed may not be encumbered with a lien.

Article 233: If property under lien consists of separable things, the value of the property under lien shall be equivalent to the amount of the debt.

Article 234: The lienor shall bear an obligation of duly safekeeping the property under lien. If the property under lien is damaged, destroyed or lost due to improper safekeeping, the lienor shall be liable for compensation.

Article 235: The lienor shall have the right to collect the fruits from the property under lien.

The fruits specified in the preceding paragraph shall first be used to offset the costs of collecting the fruits.

Article 236: The lienor and debtor shall stipulate the term for performance of the debt obligation after the lien is placed on the property. If the parties have not stipulated the same or if such stipulation is unclear, the lienor shall accord the debtor at least two months to perform the debt obligation, except in the case of movable property that is difficult to safekeep, such as fresh, live or perishable goods. If the debtor fails to perform its obligation by the specified time, the lienor may reach an agreement with the debtor to convert the property under lien into its monetary value or, alternatively, receive repayment on a priority basis from the proceeds derived from the auction or selling off of the property under lien.

If property under lien is converted into its monetary value or sold off, reference shall be made to the market price thereof.

Article 237: The debtor may request that the lienor exercise its lien rights upon expiration of the term for performance of the debt obligation. If the lienor fails to exercise such rights, the debtor may petition a people's court to auction or sell off the property under lien.

Article 238: Once the property under lien has been converted into its monetary value or been auctioned or sold off, any part of the proceeds exceeding the amount of the claim shall belong to the debtor and any shortfall shall be discharged by the debtor.

Article 239: If movable property is encumbered by mortgage rights or pledge rights and a lien is then placed on the same, the lienor shall have the right of repayment therefrom on a priority basis.

Article 240: If a lienor loses possession of property under lien or accepts other security provided by the debtor, the lien shall be extinguished.

VOLUME FIVE: POSSESSION

PART NINETEEN: POSSESSION

Article 241: Where possession arises based on a contractual relationship, etc., the use of, benefits from, liability for breach of contract in connection with the immovable property or movable property shall be handled in accordance with the contract. If the contract does not provide therefor or if the provisions are unclear, the same shall be handled in accordance with relevant laws.

Article 242: If a possessor, in using immovable property or movable property in its possession, causes damage thereto, the bad faith possessor shall be liable for compensation.

Article 243: If immovable property or movable property is in the possession of the possessor, the rights holder may request that it return the original thing and the fruits therefrom, however, if the possessor was acting in good faith, the rights holder shall pay the necessary expenses incurred by the possessor in maintaining the immovable property or movable property.

Article 244: If immovable property or movable property in the possession of a possessor is damaged, destroyed or lost and the rights holder of such property claims compensation, the possessor shall return to the rights holder the insurance indemnity, compensation or indemnity obtained due to the damage, destruction or loss. If the damage incurred by the rights holder is not fully made good, a bad faith possessor shall additionally compensate for the loss incurred.

Article 245: If immovable property or movable property in the possession of a possessor is appropriated, the possessor shall have the right to request return of the original thing. If possession is impaired, the possessor shall have the right to request that such impairment be removed or the threat eliminated. The possessor shall have the right to claim compensation in respect of any damage caused by the appropriation or impairment.

If the possessor fails to exercise its right of requesting the return of the original thing within one year from the date on which the appropriation occurred, such right of request shall be extinguished.

SUPPLEMENTARY PROVISIONS

Article 246: Until laws and administrative regulations specify the scope of, registration authority for and method of uniform registration of immovable property, provisions therefor may be set forth in local regulations based on the relevant provisions hereof.

Article 247: This law shall be effective as of October 1 2007.