Realty owners should honor sales contracts

RISING REALTY PRICES PROMPTED SEVERAL PROPERTY OWNERS in Shenzhen, South China’s Guangdong province, to nullify the sales contracts they had already signed with buyers. After a local court directed the realty owners to honor the contracts, they organized a protest on Aug 22 that turned violent. Police controlled the violence and put five of the demonstrators, including hired “protesters”, in judicial custody. Beijing News comments:

By organizing a violent “protest” on the court premises, the suspects have challenged the judiciary so they deserve to be punished.

However, the case also teaches us a lesson. When realty prices rise sharply, some people will always regret signing sales contracts earlier; often property owners try to tear up the contracts they have already signed.

How should a court deal with such a case? The law provides two possibilities: Ordering property owners to pay a penalty — 2 to 5 percent of the realty price to the buyer — or directing them to honor the contract.

Earlier, courts tended to opt for the first. But the problem is, with realty prices rising sharply, a property owner could tear up another contract, pay a fine and earn much more profit by selling the property at a still higher price. This could affect the market order. So a penalty can no longer stop people from breaking contracts.

And if people get accustomed to nullifying contracts, they may no longer believe in the rule of law.

The Shenzhen court has done the right thing by ordering the realty owners to honor the contracts. In fact, the law lists “executing the contracts” as a choice before the “penalty” clause. We do not mean to advise courts, but if all courts nationwide follow the Shenzhen court’s example, the economic order can be better protected.

Of course, the final solution is to control realty prices. Only when property prices are stable can the nullifying of contracts be ended.