In China, for companies (and even for people) the time to move is often unexpected. For instance, the local government may give notice to a company to move within six months. There could be many reasons for this sort of notice. However, it is often due to the intended construction of a public building or residential project on the land where the company is currently located. Such situations are fairly common because of the continued expansion of urban areas in China.
Six months is a very short period of time to address the many issues that the relocation of a company involves, some of which include:
- logistics of moving production to another place;
- termination of the employment contracts and negotiations of the employees’ severance payment;
- selection of a new location and negotiations with the local authorities and landlord;
- auditing from a legal and environmental perspective of the new building and land;
- legal and administrative aspects (and the time required) to change the company’s registered address or establish a new company in the new location; and – last but not least
- who pays for it?
The following considerations may be useful for a company to address an unwanted relocation:
- Gather information (even informally) on the urban development plans regarding the areas adjacent to the company;
- Provide, in the premises lease agreement, the landlord’s obligation to inform the company as soon as they receive a relocation notice. (The landlords are those entitled to receive the relocation notices from the authorities. However, it may happen that they inform the company/tenant only after the compensation for relocation is settled);
- Provide, if the company’s premises are rented, for the landlord’s obligation to compensate the company for the early termination of the lease (the landlord will be required to share the relocation compensation received from the authorities with the company);
- Know that the relocation of a company (the change of its registered address) can be easily implemented within the same city district. If, however, the company’s registered address is changed to a new district or city altogether, it may be advisable to establish a new company. The establishment of a new company may be implemented in order to save time and costs. In fact, there is usually significant resistance from the tax authorities of the original place of registration to allow a company (i.e. a source of tax revenue) to leave the district of origin to settle elsewhere.
So, what to do now? Monitor residential areas that are expanding nearby your company and try to gather information (even informally from the office for urban planning, the industrial park authorities, or nearby factories, etc.) regarding the development projects in the area where your company is located.