Real estate perspective: when to return the construction project quality deposit rules.

Published:

2022-07-13

1. Introduction In construction projects, the issuing and contracting parties usually agree on a certain proportion of quality deposit as a guarantee to restrain the contractor to bear the liability for defects, but in practice there are still some situations such as unclear agreement on the return period of quality deposit and mixed use of warranty period and warranty period. 2. specific circumstances and relevant adjudication rules (I) the contract does not stipulate the warranty period, when will the warranty be returned? Judgment rules: If the parties have not agreed on the time limit for the return of the project quality deposit, the people's court shall support the contractor's request for the return of the project quality deposit after two years from the date of completion acceptance of the construction project. Specific cases: Tailai XX Real Estate Development Co., Ltd. and XX Construction Group Co., Ltd. Civil Judgment of Second Instance on Disputes over Construction Contracts-(2019) Supreme Law Minzong No. 564 The Supreme People's Court holds that Article 8 of the Interpretation (II) of the Supreme People's Court on the Application of Legal Issues in the Trial of Construction Contract Disputes stipulates: "In one of the following circumstances, the people's court shall request the contractor to return the project quality deposit. Support: (II) the parties have not agreed on the time limit for the return of the project quality deposit, two years shall expire from the date when the construction project passes the completion acceptance." The contract between the two parties did not stipulate the date for returning the quality assurance fund. The first instance found that since the project involved in the case has been completed two years since Haitian Company withdrew from the market in July 2015, the quality assurance fund can be returned to XX Company according to the stipulation of Article 2 of the Measures for the Administration of Quality Guarantee Fund for Construction Projects that the maximum liability period for defects shall not exceed 2 years, but XX Company is not exempted from performing its warranty obligations for the project according to the agreement or legal provisions. The "Interpretation (I) of the Supreme People's Court on the Application of Legal Issues in the Trial of Construction Contract Disputes" also stipulates, "In one of the following circumstances, the contractor requests the employer to return the project quality deposit, the people's court shall support the (II) If the parties fail to agree on the return period of the project quality deposit, two years shall expire from the date when the construction project passes the completion acceptance." (II) the contract on the warranty period in accordance with the law, the contract agreed that the warranty payment after the expiration of the warranty period, when the warranty return? Judgment rules: There are different views in practice. One view is that the contract agreement should be observed. If the warranty has not reached the return period agreed by the parties, the litigant's request for the return of the warranty will not be supported. Another view is that the warranty period system and the defect liability period system of the quality deposit are not the same legal system, and the defect liability period of the quality deposit is determined by the relevant agreement of the warranty period, which lacks a legal basis and should be paid two years after the acceptance of the project. Specific cases:(1) Guizhou XX Real Estate Development Co., Ltd. and Zhejiang XX Construction Group Co., Ltd. retrial of construction contract disputes-(2020) Supreme Famin Shen No. 1873 The Supreme Court believes that the issue of whether the project quality deposit should be fully withheld. The two sides agreed in the "construction project construction contract": within 1 month after the completion of the final accounts of the whole project, 98% of the total price of the final accounts of the project shall be paid, and the remaining 2% shall be used as the quality warranty fund... the quality deposit shall be withheld at one time when the project is completed and settled. Regarding the quality guarantee fund, both parties have added an agreement: Guizhou XX Company will reserve 2% of the total project cost as the quality guarantee fund (the guarantee fund does not include interest), of which civil engineering and decoration account for 1.6; Installation accounts for 0.3; Waterproofing accounts for 0.1. Project warranty expires, no quality repair cost deduction, within 15 working days without interest returned to Zhejiang XX company quality warranty. In addition, the project warranty period agreed by both parties is: 2 years for civil engineering and decoration, 2 years for installation and 5 years for waterproofing. In this case, although the project involved in the case has not been completed and settled, the project involved in the case has been delivered to Guizhou XX company on October 1, 2016 due to the midway exit. the court of second instance has not calculated the corresponding project warranty period from that date. At the time of litigation in this case, the 2-year warranty period for civil engineering, decoration and installation has expired, and the 5-year warranty period for waterproofing has not yet expired. Therefore, 0.1 per cent of the quality deposit for waterproofing of the court of second instance shall be withheld, and the remaining 1.9 per cent of the quality deposit shall be refunded. (2) China XX Construction Co., Ltd. and Shanxi XX Co., Ltd. Civil Judgment of Second Instance on Construction Contract Disputes-(2019) Supreme Law Minzong No. 710 The Supreme People's Court believes that although XX Company and Sinochem XX Company have agreed in the "Construction Contract of Construction Project" that the security deposit will be returned depending on the quality of the project upon the expiration of the warranty period, different warranty periods have been agreed upon for roof waterproofing, heating and cooling systems, equipment installation, water supply and drainage facilities and other projects. The warranty period system and the defect liability period system of the quality deposit are not the same legal system. Lu'an Resin Company uses the relevant agreement of the warranty period to determine the defect liability period of the quality deposit, which lacks a legal basis. Article 8, Paragraph 1, Item 3 of the Interpretation (II) of the Supreme People's Court on the Application of Laws in the Trial of Disputes over Construction Contracts stipulates that if the construction project fails to undergo completion acceptance within the agreed time limit due to the employer, the project quality deposit return period agreed upon by the parties shall expire 90 days after the contractor submits the project completion acceptance report; if the parties fail to agree on the return period of the project quality deposit, two years have elapsed since the ninetieth day after the submission of the project completion acceptance report by the contractor. In this case, since the defect liability period of the quality deposit is calculated from March 10, 2014, XX Company shall return the quality deposit to Sinochem Sijian Company until March 9, 2016. After the quality deposit is returned, it does not affect XX Company's right to claim warranty from Sinochem XX Company when quality problems occur during the warranty period. When the (III) warranty return period is not clear, when will the warranty be returned? Judgment Rules: The agreed time limit for the return of the quality guarantee fund is unknown, and the time limit for the return of the project quality guarantee fund is two years. Specific cases: Henan XX construction engineering co., ltd. and Dengfeng XXX people's government civil ruling on retrial review and trial supervision of construction contract disputes-(2020) supreme fa min Shen no 2055 The Supreme Court believes that the issue of the starting time of interest on the project funds and quality assurance funds involved in the case. In the "Audit Application" submitted to XX Town Government, XX Company admitted that the project involved in the case was handed over to XX Town Government in February 2014. Therefore, the original judgment was not improper in calculating the interest on the unpaid project funds from March 1, 2014. Both parties have not clearly agreed on the time limit for the return of the project warranty fund involved in the case. According to the relevant laws and regulations, the original court decided that the time limit for the return of the project warranty fund involved in the case was two years, and the judgment was not improper to calculate the interest of the warranty fund from March 10, 2016. (IV) the contract stipulates that the warranty return period exceeds 2 years, when will the warranty be returned? Judgment rules: In response to this issue, there are different views in practice. For example, in the case of (2020) Gan Min Zhong No. 560, the Gansu Provincial Higher People's Court held that the quality bond corresponds to the defect liability period, within a range of no more than 2 years., Can be agreed by both parties in the contract. In this case, although the reemployment company and the city investment company agreed on the warranty period of different projects in the contract, the two sides agreed to return the part of the insurance premium for more than 2 years, which is invalid. However, in the above-mentioned (2020) Supreme Fa Min Shen No. 1873, the Supreme Court still recognizes the parties' agreement that the return period of the quality deposit exceeds 2 years. In this regard, our lawyers believe that the "Measures for the Administration of Construction Project Quality Guarantee" is a departmental rule. According to Article 153 of the Civil Code, civil legal acts that violate the mandatory provisions of laws and administrative regulations are invalid. Article 31 of the Minutes of the National Court Conference on Civil and Commercial Trials (Law [2019] No. 254) stipulates: "Violation of regulations does not affect the validity of the contract under normal circumstances, but if the contents of the regulations involve public order and good customs such as financial security, market order and national macro policies, the contract shall be deemed invalid. Our lawyers tend to believe that a violation of departmental regulations does not invalidate an agreement with a warranty period of more than 2 years. However, if an excessively long warranty period is agreed upon, it is obviously detrimental to the contractor and unfair, and the court will reasonably determine the period according to the actual situation. Opinions and Suggestions of 3. Lawyers The quality guarantee fund is an agreed guarantee, not a legal form of guarantee. Although there are relevant ministerial regulations to regulate it, the regulations only guide and manage the behaviors involved in the project quality guarantee fund. The specific quality guarantee period in the contract shall be agreed by the parties to the contract. Moreover, the return of the quality guarantee fund does not affect the contractor's warranty responsibility. Therefore, our lawyers believe that with regard to the return period of the warranty fund, we should first respect the agreement of the parties. If the agreement on the return period of the warranty fund exceeds two years, the agreement is not of course invalid, and the warranty fund should be returned after the expiration of the agreed period. If the parties do not agree in the contract, it shall be returned within two years from the date of completion and acceptance of the construction project in accordance with the provisions of the (I) of the Supreme People's Court on the Interpretation of Legal Issues Applicable to the Trial of Construction Contract Disputes. If the parties are not clear about the time limit for the return of the warranty, the time limit for the return of the warranty shall be two years after the acceptance of the project. Related Suggestions: The contract is prone to disputes due to unclear agreement on the warranty period or simple agreement on the return of the warranty fund after the expiration of the warranty period. Our lawyers suggest that both parties to the contract should pay attention to distinguishing the defect liability period from the quality warranty period, and clearly agree on the specific return period and return ratio of the quality guarantee fund, so as to avoid disputes over the application of the terms due to unclear agreement. If the quality guarantee is to be linked to the terms of the quality warranty period, attention should be paid to clarify the warranty period of each warranty item and the proportion of the corresponding warranty item to the total quality guarantee amount.

Key words:

Deposit, agreement, return, project, guarantee, construction, quality, term, xx