CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian and Liangqian Ying, JunHe LLP
2.3 Effecting Lawful and Proper Transfer of Title No transfer of real estate is valid unless it is duly reg - istered or otherwise provided by law. For example, a court judgment, arbitration award or, in the event of government taking or expropriation, an administrative decision of government, may serve to effect a title
deal). Typical representations and warranties on the seller include capacity, power, authority, solvency of the seller, all authorisations, consents and approvals obtained, the binding effect of the contract and the sale of the target without contravention or claim by third parties or other contracts. Target Property Typical representation and warranties on the target property in an asset deal include clean title to the tar - get property (free from encumbrances or, as the case might be, with disclosed existing encumbrances), the state of the target property, leasing status, no pending fees and no knowledge of taking, seizure or expropria - tion. Target Equity/Shares In an equity deal, sellers are often requested to make additional representations and warranties on the clean title to the target equity/shares (free from encumbranc - es or, as the case might be, with disclosed existing encumbrances), legal capacity and status, financial condition, tax matters, compliance with laws, envi - ronmental matters, indebtedness and loans, leases and other material contracts, employees, intellectual property and no pending litigation in respect of the target company. Coverage of Representation and Warranties The coverage of representation and warranties is subject to business negotiations between the parties to a transaction. In general, parties to cross-border transactions are more comfortable with standard broad representation and warranties provisions, while domestic players tend to welcome a shorter version of an asset or equity transfer agreement; ie, a more con - densed coverage of representation and warranties. Breach of Representations and Warranties If the seller is in breach of the relevant representa - tions and warranties, the buyer is generally entitled, in accordance with the contract or relevant PRC laws, to claim for damages, refuse to proceed with the closing or even terminate the contract. A sophisticated seller may insist that the buyer may only refuse to proceed with the closing or terminate the contract when the seller is in breach of fundamen -
transfer if the same is effectively issued. Title insurance is not common in the PRC. 2.4 Real Estate Due Diligence
A buyer typically performs due diligence investiga - tions on various aspects, such as legal, tax, financial, environmental and technical. Asset Deal In terms of legal due diligence, the scope for an asset deal focuses more on the property, such as title, existing encumbrances, zoning and licence require - ments, environmental compliance, leasing, operation and management status, but also covers verification of key aspects of the seller, which may prevent or materially affect the sale of the property, such as the corporate governance structure and legal capacity of the seller, restrictions under financing obligations, and ongoing or pending material litigation, arbitration and administrative penalties involving the property. Equity Deal The scope for an equity deal is generally a compre - hensive investigation, subject to the client’s specific instruction, of the target company, in addition to the investigation upon the target property. The investiga - tion of the target company generally covers the cor - porate history, corporate governance structure, busi - ness operation, material contracts (including financing contracts), environmental compliance, material litiga - tion, arbitration and administrative penalty, intellectual property, labour and employment, taxes, subsidiaries and investment into other entities. 2.5 Typical Representations and Warranties A buyer generally requests the seller to make repre - sentations and warranties on itself and on the target (ie, the target property in an asset deal, and the target property, the target company and the target equity/ shares in the target company in the event of an equity
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