A problematic urban renewal project has come to light in New Taipei City’s Sanchong District (三重). The implementer — a construction company rather than an autonomous renewal organization — submitted its business plan in 2010. The application was approved in 2014 and a notice of its implementation was issued.
However, the company ran into financial problems and never applied for a construction license. The New Taipei City Government canceled the plan, leaving the land lying derelict and the residents in limbo.
This case highlights a loophole and legal risk associated with urban renewal of which most people are probably unaware — even after a plan has been approved by authorities, it can often take years for the houses to be built and the property rights to be transferred to the residents.
Comparing urban renewal projects to buying pre-sale property might make this easier to understand.
In a pre-sale property deal, the consumer buys a new house or apartment, but in an urban renewal project, the original residents usually participate based on the terms of their agreements with the implementer — or rights transfer agreement — whereby they gain a newly built house or apartment in exchange for the original value of their land or buildings.
What urban renewal and pre-sale property deals have in common is that the new properties only come into existence after several years. In both cases, the time involved makes the construction company’s financial status extremely important.
If a reputable developer with plenty of experience in urban renewal is chosen, it would to some extent reduce the financial risk. It is therefore advisable to do a background check on the company before signing the papers.
The information is not that hard to get.
The first thing is to find out whether the building firm has an official Web site and tangible achievements.
Next, visit the Judicial Yuan’s Web site to check whether the company has been involved in any litigation over urban renewal disputes.
The Web site of the Ministry of Economic Affairs’ Department of Commerce has a “company and branch company registration information inquiry” page where a company’s paid-in capital and date of incorporation can be searched. From this information, a basic idea of the company’s financial situation can be gleaned so residents can judge whether it is a “one-case firm,” as it is commonly known.
In an urban renewal project, residents can take a step further by agreeing with the developer to implement the project by means of a trust, because setting up a trust is good for both parties.
Under a trust, a bank controls the funds and makes sure they are used for their designated purpose, thus ensuring a project’s smooth completion.
For the developer, property under a trust is not subject to compulsory execution, and in principle, trust relations do not become void in the event of death, bankruptcy or incapacity, so both parties can maintain stable, long-term legal relations.
Once work on the project has been completed as planned, the trustee bank transfers the rights for the land and finished buildings to the residents according to the ratios stipulated in the cooperative construction contract and house-selection agreement or according to the distribution inventory of the rights transfer plan, thereby avoiding disputes when the transfer is registered.
If this is combined with a construction continuation and completion mechanism, it can further ensure that the project does not grind to a halt if the developer runs into financial trouble.
Of course, whether such a mechanism is effective depends on the arrangements of the mechanism and the actual conditions of the project, such as the prevailing market conditions, the property rights situation and the originally agreed terms.
These factors decide whether other implementers will be willing to take over the project, but such a mechanism can at least give residents an extra layer of protection.
Article 56, Paragraph 2 of the Urban Renewal Act (都市更新條例), which gives authorities the power to revoke their approval of renewal projects, further stipulates that the authorities “can take [a renewal project] over compulsorily [and] the regulations for taking it over are instituted by the central authority.”
In 1999, the Ministry of the Interior implemented the Regulations of Right Transfer of Urban Renewal (都市更新事業接管辦法), Article 2 of which stipulates: “When the municipal, county or city authority takes over [an urban renewal project] in accordance with Article 56, Paragraph 2 of the [Urban Renewal] Act, it may allocate a budget or use urban renewal funds to implement it in accordance with these regulations.”
If these rules can be applied — or the conditions and method of transfer revised to make the compulsory transfer system truly effective — it would build public confidence in urban renewal and make the government’s policy of encouraging urban renewal easier to implement.
Kevin Liu is a partner at Lee and Li Attorneys-at-Law.
Translated by Julian Clegg
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