Interest on construction costs under invalid contracts

Invalid construction contracts are a common problem that construction lawyers need to face. In the daily preparation of litigation documents, the author often encounters problems concerning how to claim relevant interest on construction costs under invalid construction contracts. The author makes a brief analysis here based on his own experience.

As the interest on construction costs is fructus civiles, will the acquisition of the interest be affected if the construction contract is invalid? As to the nature of the interest on construction costs, Civil Division I of the Supreme People’s Court (SPC) points out in the book, Understanding and Application of Judicial Interpretation of the Supreme People’s Court on Project Construction Contract: “The nature of the interest of the construction cost in arrears paid by the employer is fructus civiles.” Paragraph 2 of article 116 under the Property Law provides: “Fructus civiles shall be obtained by the parties concerned as stipulated by them; where it is not stipulated or clearly stipulated, it shall be obtained in accordance with the practices of trading.”

In current judicial practice, some still hold that the legal effect of a construction contract will adversely affect the appeal for the interest on construction costs, but the author understands that since the nature of the interest on construction costs is fructus civiles, the income is not subject to change because of the invalidity of the construction contract. It is different from the liability for breach of contract that must be based on the premise of the validity of contract.

Xu Yinzhe is a partner at City Development Law Firm