Shenzhen 32 owners' small property rights housing deemed invalid; Zhiming lawyers relied on "artistic litigation" to fully confirm property rights for all, a battle that lasted 18 months.

In the autumn of 2019, a teahouse in Shawei Village, Futian District, was packed with anxious property owners. They clutched the same "Cooperative Housing Construction Agreement" in their hands, having lived in their homes for nearly a decade, when they suddenly received a notice from the subdistrict office—this piece of land had been included in the urban renewal scope, and the developer only recognized original villagers, not these "external buyers."

"The contract was signed in black and white, and the money was paid in full—how could it turn out to be an illegal transaction?" Old Chen, the homeowner and a retired teacher, spoke with a trembling voice. The "contract" he referred to was actually a collective housing construction agreement signed with the village joint-stock company back then. The house was built on collective land without a commercial housing pre-sale permit. Legally speaking, this is a typical example of small property rights housing.

Thirty-two households paid over 800,000 yuan at most and at least 400,000 yuan each, totaling more than 20 million yuan. Yet their names were nowhere to be found in the developer's demolition compensation plan. Old Chen and the others approached the subdistrict office and filed petitions for three months, only to receive a single response: resolve it through negotiation on your own. After six months of talks, the developer wouldn't even lend them a meeting room anymore.

A deadlock behind a piece of "invalid contract"

When we took on this case, we were well aware that the difficulty lay not in the evidence, but in the legal characterization. Under Article 63 of the Land Administration Law and Shenzhen's earlier "Decision of the Standing Committee of the Shenzhen Municipal People's Congress on Handling Historically Remaining Illegal Structures from Rural Urbanization," contracts for the external transfer of such houses built on homestead land or collective construction land would most likely be deemed invalid.

The legal consequence of an invalid contract is "return of property or compensation based on appraised value." Here's the problem: the houses have already been demolished, the land has been taken back into government storage, and the money has long since been deposited into the village joint-stock company's accounts. What is there to return? How should compensation be calculated? By what standard? If the purchase price is refunded at its original amount, each household loses not just the interest, but also the opportunity cost of Shenzhen property prices having tripled over the past decade.

To make matters worse, the developer has already signed a "Relocation Compensation and Resettlement Agreement" with the village shareholding company, with a total compensation of 120 million yuan, of which 60 million has already been paid. If we take the conventional route of "confirming the contract is void + refunding the purchase price," the homeowners would at best get back their principal, and would still have to cover lawyer fees and litigation costs out of pocket—fighting this lawsuit would be pointless.

Simply put, this is a battle that is doomed to fail procedurally but must be won substantively. We argued for three rounds at our internal review meeting, and Director Shen Jinlong finally made the call: switch tactics—drop the confirmation lawsuit and go with a tort damages claim, targeting the developers and the village shareholding company for "malicious collusion."

Why can't it be treated as an invalid contract?

Question: If the contract for a small property rights house is invalid, why doesn't the court directly order the return of the purchase price?

Answer: Because refunding the purchase price only addresses the issue of "returning the money," but fails to resolve the problem of "the house being gone." The property in question has already been demolished, making it impossible to return the original asset, and there is no statutory reference standard for compensation in lieu. If the court only rules for a refund of the principal, it would effectively allow the developer and the village collective to pocket the land appreciation gains for free, while the homeowners bear all the losses, which would violate the principle of fairness.

Our strategy is based on Article 157 of the Civil Code (formerly Article 58 of the Contract Law), which states that "the party at fault shall compensate the other party for the losses incurred as a result." The developer and the village shareholding company, fully aware that the nature of the land could not be sold to outsiders, still publicly promoted "collective fundraising for housing construction," and deliberately concealed the compensation plan after the demolition commenced. This constitutes a concurrence of culpa in contrahendo and tort liability.

The evidence collection process was extremely difficult. Most of the 32 homeowners only had cash receipts as proof of payment, with no bank transaction records. We spent two weeks meticulously cross-checking the accounts of the village joint-stock company, and finally uncovered the payment details from that year in an old safe — the funds had never entered the village collective account, but were instead transferred to a related company controlled by the developer. This detail became the decisive factor in the entire case.

A Practical Application of the "Artistic Litigation Method"

Director Shen referred to this representation as a typical application of "artistic litigation." Traditional litigation adheres to a black-and-white approach, but disputes over small-property-rights housing fall precisely into the gray area of the law. The first step we took was not to file a lawsuit, but to apply for government information disclosure with the Shenzhen Municipal Bureau of Planning and Natural Resources, obtaining the "Land Grant Contract" and "Urban Renewal Unit Plan" for the land in question—documents revealing that the developer had known as early as 2016 that the plot would be included in urban renewal, yet never disclosed this to the property owners.

After obtaining this evidence, we filed two lawsuits simultaneously: one against the developer and the village shareholding company for joint infringement, claiming a total of 38 million yuan in house replacement value and location compensation; the other was an application for property preservation, freezing 28 million of the 60 million yuan in compensation that the developer had not yet received. This move forced the developer back to the negotiating table.

The pretrial conference was held four times, and the judge's attitude gradually shifted from "If the contract is invalid, can't you just refund the money?" to "This case does indeed involve concealment and fraud." During the final mediation, the developer's legal director slammed the table and said, "At most, we'll refund the principal plus interest." Director Shen immediately opened that government information disclosure document, pointed at the date on it, and asked the other side, "You knew about the demolition in 2016, yet you still collected home purchase payments from our owners in 2017—does that make you a bona fide counterparty?" The other side was left speechless.

All 32 households have confirmed their rights and interests.

In March 2021, the Shenzhen Nanshan District Court issued a first-instance judgment (Case No.: (2020) Yue 0305 Min Chu No. 18237), finding that the developer and the village joint-stock company were at fault during the contract negotiation process and should bear 80% of the compensation liability for the owners' losses. The judgment explicitly stated that although the cooperative housing construction agreement was invalid, the plaintiffs' "reliance interest" should be protected. Each household received compensation equivalent to 60% of the price of commercial housing in the same area, calculated as the sum of the house replacement cost, location compensation, and transitional resettlement fees, totaling over 21 million yuan.

All 32 property owners chose not to appeal. On the day Old Chen received the court judgment, he sat in the law firm for a long time. He said, "If I'd known the law could be used this way, we wouldn't have wasted those three months going through petitions." But deep down, he knew what really turned the case around was the frozen compensation funds—if the developer had no money in their accounts, winning the judgment would have been just a piece of paper.

Such cases are not uncommon in Shenzhen. According to the "White Paper on Real Estate Trials" issued by the Shenzhen Intermediate People's Court, the average annual number of cases involving disputes over the sale of illegal buildings left over from historical issues exceeds 400, with cases involving amounts over 5 million yuan accounting for 40%. Many property owners believe that in transactions involving small-property-rights housing, they "win the lawsuit but lose money." In reality, the key lies in whether it can be proven that the other party engaged in malicious concealment or fraudulent behavior—as long as this can be proven, even a void contract can still result in substantial compensation.

Three reminders for homebuyers.

If you are facing a similar predicament, don't rush to hire a lawyer and file a lawsuit. Do three things first: First, go to the Shenzhen Real Estate Registration Center to check the nature of the land rights for the parcel where the property is located, and confirm whether it is state-owned land or collective land. Second, dig out the payment receipts from back then and check whether the payee was a village joint-stock company or a third-party company. If it was a third party, they are likely suspected of illegal fundraising. Third, keep an eye on announcements regarding urban renewal or land consolidation. Once the plan is made public, it becomes much easier to secure evidence of the developer's concealment.

The path to confirming rights for small property housing has never been a straight road. But the law never offers a dead end—only a mountain path that requires detours. Whether you can make it through depends on whether you hold the key to unlock the procedural door—a key that often lies hidden in the very document the other party least wants you to see.

If you encounter a property dispute in Shenzhen, whether it involves small-property-rights housing, dual sales of the same property, or obstacles in title transfer, you are welcome to visit Guangdong Zhiming Law Firm for an in-person consultation. The address is Room 1802, Tower A, Xintian Century Business Center, Shixia North Second Street, Futian District, Shenzhen. Phone: 0755-25986969. Director Shen Jinlong has been practicing law for 26 years and has handled over a thousand property cases. When it comes to litigation, finding the right approach matters more than finding the right connections.