Abstract: In cases of disputes over construction and real estate contracts, the ruling should be made in accordance with principle of change of situation, which can protect the legitimate rights and interests of the parties and facilitate the fair handling of disputes. In the performance, change, and transfer of contracts, all parties should pay attention to the management of the contract process and protect the rights of the contract in a timely manner.

Keywords: Construction industry; real estate contracts; application measures

Introduction

At present, on the basis of the “Principle of Change of situation”, when a related contract of construction and real estate is established, if there is change of situation due to reasons that cannot be attributed to the parties, which ultimately leads to the loss of the basis of legal conduct and the failure to achieve the goals of the parties, it is difficult to ensure the fairness of the contract validity. Therefore, it is necessary to actively adopt diversified application measures.

1. Specific overview of changes of situation

The so-called situation can be understood in the Civil Code as the basic living environment and possibility of pursuit of interests of the parties when they implement the contract behavior, including the social system, the legal system, the economic situation, the degree and value of the property as a guarantee for the performance of the contract by the parties, etc. The so-called change refers to abnormal changes in the environment or foundation on which legal actions are established. It can be concluded herein that during the contract performance, the objective basis on which the contract is concluded has undergone fundamental changes that cannot be attributed to the parties, resulting in the loss of the basis for the existence and continued performance of the contract.

2. Grasp and standardize the principles of the conclusion of construction and real estate contracts

The signing of a construction and real estate contract shall follow certain rules. The content of the contract shall be carefully discussed and reached by both parties, asl long as it does not violate the mandatory provisions of the law. In the practical application of the principle of contract agreement, the adverse effects of some uncontrollable factors on the fairness of real estate construction contracts should be considered, followed by effective avoidance methods to protect the fairness in accordance with the principles of fairness and voluntariness. The parties concerned shall have corresponding civil rights and civil conduct capabilities when entering into a contract. The parties may also entrust an agent to enter into relevant contracts in accordance with the law. The contract is entered mainly by way of offer and promise. If one party submits reasonable requirements for contract conditions to the other party, the other party is willing to accept it, indicating that the person proposing the contract should carefully review whether it complies with the principles of authenticity and fairness. At the same time, the signing of the contract should avoid unilateral loss of protection caused by factors such as large-scale currency depreciation and large-scale changes in national policies.

In a construction and real estate contracts, the parties reached agreement on principles that cover the labor, materials, construction period, quality, safety, price, settlement, etc. Except for design changes or on-site inspections, the price shall still be subject to the fixed price agreed by both parties. The above-mentioned agreement belongs to the contract period. The foregoing agreement on the concerned party’s bearing of the market risks arising from the corresponding prices of labor, materials, etc. during the term of contract suggests that the parties already foreseen the above-mentioned possible price change risks when signing the contract. For this reason, we believe that such risk is a conventional business risk, not a change of situation. In judicial practice, judicial subjects need to comprehensively consider the specific applicable conditions required for the change of situation. The satisfaction of one or more of the conditions does not necessarily make the principle of change of situation applicable. Generally speaking, the number of jurisprudences with application of the principle of change of situation is small, and the trial standards are strict, which make it rather difficult for the parties to prove the change of situation. Compared with post-mortem remedies, the parties concerned should predict risks before the signing of the contract and treat the terms of the real estate contract carefully.

3. Discussion on the application of the principle of situation change in the disputes over construction and real estate contracts

3.1 The guarantee of contract value by introducing the principle of change of situation

In construction and real estate disputes, the specific application of the principle of change of situation should consider whether the parties have signed relevant supplementary agreements or whether subsequent documents conform to the true meaning of the parties. Especially after the signing of the contract, most of them involve financial institutions (such as various types of guarantees, mortgages, etc.), and the financial institutions are also involved. Once the adjustment is made, it will involve the related reactions of multiple parties. For this reason, the provisions on the principle of change of situation in real estate contracts should be considered.

3.2 Effective control of the subjective and objective factors regarding the changes of situation in contracts

Inn promoting the principle of change of situation in contract disputes, it is necessary to consider whether the parties carry out activities in accordance with the principles of equality, voluntariness, fairness, honesty and law compliance in signing the contract. In practicing the principle of change of situation,

subjective and objective factors of the contract should be considered to ensure the fairness in the contract execution. The behaviors that may affect the unfeasibility of the contract in practical activities should be clearly regulated and distinguished. When a construction and real estate contract cannot be performed after signing, both parties should consider various main objective reasons before the reference to the principle of change of situation. In practice, it is also necessary to allocate respective obligations to be fulfilled by the parties, so as to facilitate the continued performance of the rights of the contract, rather than blindly adjusting or terminating the contract. Both parties should consider from multiple angles whether the contract requires prevention, control and relief of risks with the existence of other relationships.

Because the term of construction and real estate contracts is long and vulnerable to changes in prices, policies, laws and regulations, etc., there are basically no construction and real estate contracts without changes in price, etc. Therefore, the parties should control the risk of performance dynamically throughout the life cycle, actively promote performance, and lower or reduce disputes. Before signing a construction and real estate contract, the contractor should strictly follow the bidding procedures (pre-qualification review or post qualification review), carefully select the contractor, and promptly evaluate and inspect the contractor’s qualifications based on its strength, project performance, performance ability, integrity and market conditions. Before signing the contract, the contractor should participate in bidding honestly, carefully consider the cost of building materials and labor costs by taking into account the instability of the building materials market, and seek a competitive advantage without relying on excessive price reduction. Otherwise, it may face the risk of not being able to claim the expected benefits through claims, issuance of changes, withdrawals, and termination of contracts in the later stage.

In signing a construction and real estate contract, both parties shall adhere to the principle of good faith, minimize the interference of third parties, communicate together to assess their potential risks, negotiate related risks and remedies, and agree on legal responsibilities and remedial methods. Of course, there may indeed be changes in the implementation of the contract, but there should be a standard regarding the degree of changes, that is, the validity of the original contract will be unfair or the purpose of the contract cannot be achieved. As far as construction real estate contracts are concerned, in theory, the cost of the project is used as the main criterion for measuring fairness. Changes of situation cannot be used due to relative reduction in the benefits obtained by the contractor or additional payment by the contractor, let alone as a basis for both parties to squeeze each other.

In addition, the principle of change of situation is statutory. During the performance of the construction and real estate contracts, the project cost shall be adjusted and determined in accordance with the contractual agreement. In the absence of such agreement, the parties shall negotiate on adjusting the contract price, and enter into a supplementary contract, other than inviting a third party.

The fundamental purpose of the principle of situation change in the field of construction and real estate is to build an excellent construction order and fully protect the legitimate rights and interests of the parties. If the parties sign the contract rationally, actively perform the contract and communicate with each other, they need to use the principle of change of situation in a timely manner to legally and reasonably defend their rights, provided they cannot reach a consensus. However, it can be learned from the analysis of current judicial cases that, application standards of the principle of change of situation are relatively high. Therefore, it is recommended that the parties construct the risk clauses beforehand in a timely manner when signing the contract. The construction market is witnessing rapidly changes with the development and progress of China, and the principle of change of situation will further usher in greater scope for application accordingly.

4. Conclusion

In summary, the principle of change of situation in the legal disputes over construction and real estate contracts is a kind of contract protected by law. In handling contract disputes, all parties need to take into account the characteristics and true meaning of the real estate contract at the time of signing, strictly abide by the civil legal relationship between equal subjects, and legally clarify the specific rights and obligations under the specific construction and real estate contract between the parties, and carefully apply the change of situation to avoid adverse effects on the market.

References:

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