In recent years, the circulation of rural land contractual management rights has become an important part of improving the rural economic level and adjusting the rural production relations. The Civil Code of 2020 defines land contractual management rights as real rights, ranking them first among various usufructuary rights, and clearly stipulates that "land contractual management rights are a type of usufructuary right derived from the collective ownership of land".

Since 2020, Lu Heng has been entrusted by Hunan XX Agricultural Industry Holding Group to conduct due diligence on multiple pig farm projects, and select social capital parties to carry out joint venture construction and cooperative operation. During the due diligence process, it was found that there are still various legal risks in the land circulation behaviors and related contracts of the intended cooperative social capital parties. The project team has sorted out the common legal risks of land circulation in practice and put forward effective preventive suggestions.

I. Overview of the Lease of Rural Land Contractual Management Rights

Article 39 of the Rural Land Contract Law stipulates that leasing means the contractor leases part or all of the land contractual management rights to others for agricultural production and operation for a certain period of time.

• Leasing must be carried out within the original contract term. If the agreed lease term exceeds the legal provisions or the remaining contract term, the overdue part shall be invalid, and the remaining term shall be valid;
• Unlike subcontracting, the transferee in leasing can be a farmer household within the same collective economic organization or other members outside the collective;

• Leasing does not lead to the elimination of the original contractual relationship. The contractual relationship between the lessor and the lessor (issuer of the contract) still exists, and a new leasing legal relationship is established between the lessor and the transferee, and both parties perform their obligations and enjoy their rights in accordance with the provisions of the contract.

II. Validity of Defective Subcontracting (Leasing) Contracts

To maintain the basic system of collective ownership of rural land, the Rural Land Contract Law and the Land Administration Law stipulate the substantive and procedural conditions for the circulation of contractual management rights in the form of transfer:

• The contracting shall be carried out by the rural collective economic organization, villagers' committee or villagers' group, and villagers are not the contracting subjects;
• The leasing of land must be approved by more than two-thirds of the members of the villagers' meeting or more than two-thirds of the villagers' representatives;
• Reported to the township (town) people's government for approval.

The first two points are the substantive conditions for members of the collective economic organization to exercise their land contractual management rights. If they are not met, the validity of the subcontracting (leasing) contract will be affected; The third point is a procedural requirement. Although it cannot negate the validity of the subcontracting (leasing) contract, there are still legal flaws.

In the industrial M&A projects undertaken by the project team, most of the signed land circulation contracts involve the problem of failure to meet the substantive requirements. If not corrected in a timely manner, it will affect the subsequent construction and acquisition of pig farms.

III. Preventive Suggestions

In practice, there are a large number of cases where rural land is used for enterprise production and operation. It is recommended to prevent legal risks through the following approaches:

1. Formalization of Subcontracting (Leasing) Contracts in Writing

Although Article 37 of the Rural Land Contract Law stipulates: "Where land contractual management rights are circulated in the form of subcontracting, the parties shall sign a written contract." However, due to local customs and habits, oral subcontracting (leasing) contracts may appear. To avoid disputes arising from oral subcontracting (leasing) contracts, it is necessary to implement them in the form of formal contracts.

2. Specification of the Content of Subcontracting (Leasing) Contracts

Regarding the issue of indefinite-term subcontracting (leasing) contracts, to avoid future disputes, the subcontracting (leasing) term shall be clearly specified to the year, month and day when concluding the subcontracting (leasing) contract; In the case of an existing indefinite-term subcontracting (leasing) contract, if the subcontractor intends to recover the agricultural land, it shall notify the transferee in advance, and if the immediate return of the subcontracted land by the transferee will endanger their survival interests, the subcontractor shall not immediately terminate the contract, but may require the transferee to give appropriate compensation.

3. Clarification of the Signing Subject of Subcontracting (Leasing) Contracts

When an enterprise signs a lease contract with the villagers' committee to lease collective land, it shall require the villagers' committee to provide a written document showing that the leasing of the collective land has been discussed and approved by the villagers' meeting to ensure the validity of the lease contract. Before the villagers' committee provides such documents, the parties shall not pay rent to the villagers' committee to avoid losses.

4. Standardization of the Filing of Subcontracting (Leasing) Contracts

In accordance with the current law, after the signing of the subcontracting (leasing) contract, the original contractor (subcontractor) shall promptly file the contract with the lessor (issuer of the contract) and report it to the township (town) people's government for approval. If it is found that the subcontracting has not been approved and filed, it shall be approved and filed in a timely manner. Enterprises shall enhance their awareness of filing, and village collectives shall do a good job in their own supervision.