CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian, Qian Gu and Liangqian Ying, JunHe
• the Interim Regulations Concerning the Assignment and Transfer of the Right to the Use of State-Owned Land in Urban Areas; and • the Interim Regulation on Real Estate Regis - tration. 2.3 Effecting Lawful and Proper Transfer of Title No transfer of real estate is valid unless it is duly registered or otherwise provided by law. For example, a court judgment, arbitration award or, in the event of government taking or expropria - tion, an administrative decision of government, may serve to effect a title 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 inves - tigations 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 requirements, environmental compliance, leas - ing, 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, restric - tions 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 comprehensive investigation, subject to the client’s specific instruction, of the target com -
pany, in addition to the investigation upon the target property. The investigation of the target company generally covers the corporate his - tory, corporate governance structure, business operation, material contracts (including financing contracts), environmental compliance, material litigation, 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 representations 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 deal). Typical repre - sentations and warranties on the seller include capacity, power, authority, solvency of the sell - er, 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 tar - get property in an asset deal include clean title to the target 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 knowl - edge of taking, seizure or expropriation. 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 encumbrances or, as the case might be, with disclosed existing encumbrances), legal capacity and status, financial condition, tax mat -
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