CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian and Liangqian Ying, JunHe LLP
7.6 Liens or Encumbrances in the Event of Non-Payment The contractor for construction work has the right of contractor’s lien over the construction in the event of non-payment by the owner, which is senior to a mort - gage or other debts. Such contractor’s lien is valid for up to 18 months, commencing from the date the con - struction payment becomes due. The contractor’s lien may be removed if the overdue payments are made in full by the owner by voluntary payment or offset against the negotiated sale price (between owner and contrac - tor) of the construction, or the proceeds from the auc - tion of the construction, ordered by a competent court. 7.7 Requirements Before Use or Inhabitation The PRC laws explicitly stipulate that no construction shall be delivered for use unless it passes completion acceptance. The owner must organise the geologi - cal survey contractor ( 勘察 ), designer, contractor and jianli ( 监理 ) (professional supervision engineer mainly responsible for the supervision and management of the construction quality and schedule) to attend the completion acceptance inspection; and, after comple - tion acceptance is passed, the owner must go through specific completion acceptance filing formalities at the relevant government authorities, and obtain the Certificate of Completion Acceptance Confirmation, which may be replaced by an electronic notice from HUDA declaring that the completion acceptance has been passed, for certain small-scale non-residential construction works in some localities. In addition, in the case of a residential housing project, the PRC laws also require the Residential Housing Qual - ity Warranty and Residential Housing Use Manual to be provided by the real estate developer when delivering such housing, and certain localities, such as Shanghai, Shandong province and Tianjin, further require a cer - tificate of delivery and occupancy issued by the local HUDA, to be obtained by the real estate developer before occupation of the newly built residential housing.
Furthermore, a project owner may require a contrac - tor to take out and maintain project-related insurance (such as contractor’s all risks and third-party liability insurance) in favour of the owner. 7.4 Management of Schedule-Related Risk The owner and contractor generally specify a duration for work, including milestone and completion dates in the contract, and manage the work progress through the following contractual arrangements: • the contractor is required to make and update the work schedule, report in a timely manner any risks of extension of work duration, take all actions nec - essary to keep to the agreed schedule and pay the delay damages; • the owner has the right to terminate the contract in case of severe delay of the schedule; and • the circumstances under which the owner must agree to extend the duration of the contract must be specified. Monetary compensation may be claimed by an owner in accordance with the contract or by law, if certain milestone and completion dates are not achieved. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance In practice, the following forms of security are gener - ally requested by the owner: • a performance bond, in the form of a bank guaran - tee or third-party guarantee, which is issued to the owner by the guarantor for the purpose of securing the performance of the contract by the contractor; • a payment guarantee in the form of a bank guaran - tee or third-party guarantee, which is issued to the subcontractors, suppliers or construction workers by the guarantor, for the purpose of securing the payment obligations of the contractor under the relevant contract(s); and • retention money is an amount retained from each progress payment, which is generally released to the contractor after the contractor has fully per - formed its contract obligations, usually after the expiry of the defect liability period.
8. Tax 8.1 VAT and Sales Tax
PRC companies are subject to payment of VAT for the sale of real estate, and the seller is the obliged
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