The Owners' Association of the Jiule Building Community, Hongkou

The Owners’ Association of the Jiule Building Community, Hongkou District, Shanghai Municipality v. Shanghai Huanya Industrial Corporation, A Dispute over Owners’ Joint Ownership Rights

Guiding Case No. 65 (Discussed and Passed by the Adjudication Committee of the Supreme People’s Court Released on September 19, 2016)

CHINA GUIDING CASES PROJECT English Guiding Case (EGC65) ∗ May 29, 2017 Edition

∗ The citation of this translation of this Guiding Case is: 《上海市虹口区久乐大厦小区业主大会诉上海环亚实业总公司业主共有权纠纷案》 (The Owners’ Association of the Jiule Building Community, Hongkou District, Shanghai Municipality v. Shanghai Huanya Industrial Corporation, A Dispute over Owners’ Joint Ownership Rights ), STANFORD LAW SCHOOL CHINA GUIDING CASES PROJECT , English Guiding Case (EGC65), May 29, 2017 Edition, http://cgc.law.stanford.edu/guiding-cases/guiding-case-65. The original, Chinese version of this case is available at 《最高人民法院网》(WWW .COURT .GOV .CN ), http://www.court.gov.cn/zixun-xiangqing-27811.html. See also 《最高人民法院关于发布第 14 批指导性案例的通知》 (The Supreme People’s Court’s Notice Concerning the Release of the 14 th Batch of Guiding Cases ), issued on and effective as of Sept. 19, 2016, http://www.court.gov.cn/zixun-xiangqing-27801.html. This document was primarily prepared by Oma Lee, Sean Webb, and Dr. Mei Gechlik; it was finalized by Lorraine Wan, Dimitri Phillips, and Dr. Mei Gechlik. Minor editing, such as splitting long paragraphs, adding a few words included in square brackets, and boldfacing the headings, was done to make the piece more comprehensible to readers; all footnotes, unless otherwise noted, have been added by the China Guiding Cases Project. The following text is otherwise a direct translation of the original text released by the Supreme People’s Court.

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Keywords

Civil Owners’ Joint Ownership Rights Special Maintenance Funds

Statutory Obligation Time Limit for Bringing Suit

Main Points of the Adjudication

Special maintenance funds are funds used specifically for the maintenance, renovation, and remodeling of the jointly-used parts and jointly-used facilities and equipment of the property after the warranty period has expired; [the funds] are jointly owned by all of the owners [of the property]. The payment of special maintenance funds is a statutory obligation that an owner should bear to preserve the long-term, safe use of the building. Where an owner refuses to pay special maintenance funds and uses the time limit for bringing suit as a defense, a people’s court shall not support [the defense].

Related Legal Rule(s)

Article 135 of the General Principles of the Civil Law of the People’s Republic of China 1

Article 79 and Article 83, Paragraph 2 of the Property Law of the People’s Republic of China 2

Article 7, Item 4 and Article 54, Paragraph 1 and Paragraph 2 of the Regulation on Property Management 3

Basic Facts of the Case

In March 2004, defendant Shanghai Huanya Industrial Corporation 4 (hereinafter referred to as “Huanya Company”) obtained property rights to the housing on the bottom and second

1 《中华人民共和国民法通则》 (General Principles of the Civil Law of the People’s Republic of China ), passed and issued on Apr. 12, 1986, effective as of Jan. 1, 1987, amended on and effective as of Aug. 27, 2009, http://www.npc.gov.cn/npc/lfzt/rlys/2014-10/28/content_1883354.htm. 2 《中华人民共和国物权法》(Property Law of the People’s Republic of China ), passed and issued on Mar. 16, 2007, effective as of Oct. 1, 2007, http://www.gov.cn/flfg/2007-03/19/content_554452.htm. 3 《物业管理条例》(Regulation on Property Management ), passed by the State Council on May 28, 2003, issued on June 8, 2003, effective as of Sept. 1, 2003, amended two times, most recently on and effective as of Feb. 6, 2016, http://www.gov.cn/gongbao/content/2016/content_5139402.htm. The citations to Articles 7 and 54 in this Guiding Case are to the 2007 revision of the Regulation on Property Management ; Article 7 was not affected by the 2016 revision and Article 54 was only renumbered (as Article 53). 4 The name “ 上海环亚实业总公司 ” is translated here literally as “Shanghai Huanya Industrial Corporation”.

2017.05.29 Edition floors of the Jiule Building, Hongkou District, Shanghai Municipality. The construction area of the bottom floor was 691.36 square meters and that of the second floor was 910.39 square meters. Huanya Company did not pay the special maintenance funds for the aforementioned housing. In September 2010, the Owners’ Association of the Jiule Building Community 5 (hereinafter referred to as the “Jiule Owners’ Association”), the plaintiff, having sought the [building’s] owners’ opinions by vote, decided to have the Jiule Owners’ Association bring a lawsuit on behalf of the owners to recover the maintenance funds.

The Jiule Owners’ Association brought a lawsuit in [the Hongkou District People’s] Court [of Shanghai Municipality], demanding that Huanya Company pay the plaintiff RMB 57,566.90 as special maintenance funds for the housing it owned on the bottom and second floors of the Jiule Building. Defendant Huanya Company defended its position, claiming that it obtained a certificate of property rights to the housing in 2004, six years before the litigation of this case, that the plaintiff never asked for maintenance funds [during this period], and that it disagreed with the plaintiff’s litigation request [because] the request was [made] beyond the time limit for bringing suit.

Results of the Adjudication

On July 21, 2011, the Hongkou District People’s Court of Shanghai Municipality rendered the (2011) Hong Min San (Min) Chu Zi No. 833 Civil Judgment:6 defendant Huanya Company should pay plaintiff Jiule Owners’ Association RMB 57,566.90 as maintenance funds for the housing on the bottom and second floors of the Jiule Building. After the judgment was pronounced, Huanya Company appealed to the No. 2 Intermediate People’s Court of Shanghai Municipality. On September 21, 2011, the No. 2 Intermediate People’s Court of Shanghai Municipality rendered the (2011) Hu Er Zhong Min Er (Min) Zhong Zi No. 1908 Civil Judgment:7 [the court] rejects the appeal and upholds the original judgment.

5 The name “ 久乐大厦小区业主大会 ” is translated here literally as “The Owners’ Association of the Jiule Building Community”. 6 The judgment has not been found and may have been excluded from publication. 7 《上海环亚实业总公司与上海市虹口区久乐大厦小区业主大会所有权纠纷一案》 (Shanghai Huanya Industrial Corporation and the Owners’ Association of the Jiule Building Community, Hongkou District, Shanghai Municipality, A Dispute over Ownership Rights ) （2011 ）沪二中民二（民）终字第 1908 号 ((2011) Hu Er Zhong Min Er (Min) Zhong Zi No. 1908 Civil Judgment), rendered by the No. 2 Intermediate People’s Court of Shanghai Municipality on Sept. 21, 2011, full text available on the Stanford Law School China Guiding Cases Project’s website, at http://cgc.law.stanford.edu/judgments/shanghai-2011-hu-er-zhong-min-er-min-zhong-zi-1908- civil-judgment.

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Reasons for the Adjudication

In the effective judgment, the court opined: 8 Article 79 of the Property Law of the People’s Republic of China (hereinafter referred to as the “ Property Law ”) provides[, inter alia ]:

The funds for the maintenance of a building and its associated facilities are jointly owned by the owners [of the building]. After a joint decision by the owners, [the funds] may be used for the maintenance of jointly-owned parts [of the building], including elevators and water tanks.

Article 54, Paragraph 2 of the Regulation on Property Management provides:

Special maintenance funds are owned by the owners [of the property] and are used specifically for the maintenance, renovation, and remodeling of the jointly-used parts and jointly-used facilities and equipment of the property after the warranty period of the property has expired. [The funds] must not be diverted to other purposes.

Article 2, Paragraph 2 of the Measures for the Management of Special Maintenance Funds for Residences (Ministry of Construction and Ministry of Finance Order No. 165) 9 (hereinafter referred to as the “Measures ”) states:

[The term] “special maintenance funds for residences” as used in the Measures refers to the funds used specifically for the maintenance, renovation, and remodeling of the jointly-used parts and jointly-used facilities and equipment of the residences after the warranty period has expired.

According to the aforementioned provisions, maintenance funds are by nature special funds for specific purposes, i.e., funds specifically set up for the maintenance, renovation, and remodeling of the jointly-used parts and jointly-used facilities and equipment of residences after the warranty period has expired. In addition to housing purchase money, tax expenses, and property expenses, these funds are collected separately, saved in a specific account, and accounted for separately. As determined by the “specific purposes” nature [of these funds], [the obligation] to pay special maintenance funds does not arise from a particular transaction or legal relationship, but is in preparation for the emergency maintenance, renovation, or remodeling of the jointly-owned parts of the building, the different areas of which are classified [as residential or non-residential property]. Because the preservation of the jointly-owned parts [of a building] concerns the common or public interests of all of the owners, the maintenance funds are of a public nature and public interest nature.

8 The original text does not specify which court opined. Given the context, this should be the No. 2 Intermediate People’s Court of Shanghai Municipality. 9 《住宅专项维修资金管理办法》(Measures for the Management of Special Maintenance Funds for Residences ), passed by the Ministry of Construction on Oct. 30, 2007, issued by the Ministry of Construction and Ministry of Finance on Dec. 4, 2007, effective as of Feb. 1, 2008, http://www.gov.cn/flfg/2007- 12/29/content_846963.htm.

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Article 7, Item 4 of the Regulation on Property Management provides that owners, in property management activities, should perform the obligation to pay special maintenance funds in accordance with relevant provisions of the State. Article 54, Paragraph 1 [of the Regulation on Property Management ] states:

An owner of a non-residential property inside a residential property or a residential community or [an owner] of a non-residential property that is structurally connected to a single residential building should pay the special maintenance funds in accordance with relevant provisions of the State.

According to the aforementioned provisions, the payment of special maintenance funds is a statutory obligation established particularly for a public interest of a specific scope, i.e., the common interests of all of the owners of the building. The arising and existence of this type of obligation depends solely on whether or not the obligor is an owner of a residential or non- residential [property] within a building, the different areas of which are so classified. Therefore, the obligation to pay special maintenance funds is a type of statutory obligation aimed at preserving the common or public interests. There exists only a question of back payments; there is no question of [the possibility of] not paying on account of a passing of time.

The right of an owners’ association to demand back payments of maintenance funds is a management right of the owners’ association which is exercised, on behalf of all of the owners, [to fulfill] the responsibility of preserving the common or public interests of the community. If certain owners are allowed not to pay maintenance funds while enjoying the benefits brought by jointly-owned parts that are preserved by other owners’ maintenance funds, other owners may, for the preservation of jointly-owned parts, have paid amounts that are in excess of their own shares. This violates the principle of fairness and harms the long-term, safe use of the building and the common or public interests of all of the owners.

Considering the nature of special maintenance funds and the nature of an owner’s obligation to pay special maintenance funds as well as that defendant Huanya Company, as an owner of the Jiule Building, did not pay, on its own initiative, special maintenance funds in accordance with law and used as a defense [the argument] that the lawsuit brought by the owners’ association to recover the special maintenance funds had already exceeded the time limit for bringing suit, the defense could not stand. The amount that the defendant should pay, as calculated by the plaintiff based on the area of the property that the defendant owned and in accordance with the standards for calculating the special maintenance funds paid by other owners during the same period of time, was reasonable. Accordingly, [the court] decided that the defendant should pay the special maintenance funds in accordance with the plaintiff’s litigation request.

(Adjudication personnel of the effective judgment: LU Weiwei, CHEN Wenli, and CHENG Min)