Before signing the formal land lease, an FDI enterprise usually places a deposit to hold the plot and the rent price. When the project cannot proceed — denied licensing, planning changes, or a strategy shift — the fate of the deposit depends on why performance failed and the deposit agreement signed.
The deposit penalty rule — Article 328, 2015 Civil Code
The 2015 Civil Code (still in force) provides in Article 328: a depositor refusing to conclude or perform the contract forfeits the deposit; a deposit-taker refusing must return the deposit plus an equal amount (deposit penalty). This is the statutory default — parties may agree otherwise, and their agreement prevails.
Three practical scenarios
One, investor fault (voluntary withdrawal, financing failure): the penalty applies — deposit forfeited, unless the agreement is more lenient. Two, deposit-taker fault (lessor fails to deliver land or raises the price against the agreement): the taker must return the deposit plus the matching penalty. Three, objective obstacles (planning changes, investment policy disapproval, policy shifts): the grey zone where most disputes arise — the law sets no rigid rule; outcomes turn on evidence: each side must show it was faultless and the event was beyond control. In practice, parties often negotiate a partial or full refund where both act in good faith with clear evidence.
Prevention from the start
The deposit agreement should list refund triggers: denial of the investment registration certificate, planning changes making the project unviable, or failure to agree the formal contract within a deadline. Detail prevents disputes. And always pay deposits by bank transfer with a clear description — cash without documents is a disaster in disputes.
Frequently asked questions
1. Project denied licensing — is the land deposit forfeited?
It depends on the deposit agreement and proof of cause. If the agreement lists “investment licence denied” as a refund trigger, it is refunded. Otherwise the depositor must show an objective obstacle beyond control to negotiate — neither automatic forfeiture nor automatic refund.
2. What if the lessor raises the price after taking the deposit?
That is the deposit-taker fault — under Article 328 of the 2015 Civil Code, the taker must return the deposit plus an equal amount (unless a different penalty was agreed).
3. Can a cash deposit without receipt be recovered?
Very difficult. Without documents you cannot prove the deposit, its amount, or its terms. Always transfer with a clear description such as “land lease deposit [location]” and keep the deposit agreement.
4. Can parties agree a penalty different from the statute?
Yes. Article 328 is the default — parties may agree a different penalty (higher, lower, or specific exemptions), and the agreement prevails in disputes.
Key takeaways for investors
- Deposit penalty (Civil Code Art. 328): depositor walks away, loses it; taker walks away, pays double.
- Objective obstacles (planning, licensing) are negotiable — evidence decides.
- List refund triggers in the deposit agreement from the start.
- Always pay by transfer with a clear description; keep the written agreement.
This article has been quality-reviewed by the FLAW AI Legal Council. Content is for legal reference only and does not replace lawyer advice for specific cases.
