Is virtual real estate legal?

Recently, there has been an upsurge of virtual real estate abroad. With the game as the carrier, the land registered in the blockchain owned by the player is auctioned at a high price. The most famous ones include decentralized land. In March this year, a piece of land Somnium Space was sold for $280,000, and in March this year, a property was sold for $500,000. These virtual real estate transactions can be found on a website.

It sounds a little incredible. Even more exaggerated, there is a company called Republic Realm, which specializes in the acquisition, management and development of virtual real estate. The company recently received more than $36 million in investment. These virtual properties exist in the meta-universe, such as the scattered land mentioned above. In this "universe", the land sold for $500 in 20 19 years has now soared to $8,000.

A core factor in the formation of virtual real estate value is still scarcity. Like the logic of traditional real estate, location and matching are the driving factors of land value, but in the virtual world, these words are replaced by "content". In scattered areas, the most popular land is located in the city center, and casinos are the most popular places. The more content of a "meta-universe", the more expensive the land price.

Who will pay the bill? At present, players who are doing more in this field are investors in the cryptocurrency industry. At the same time, many traditional real estate investors are also eager to move. Virtual real estate transactions can take shape, thanks to NFT (non-fun token), a heterogeneous token with indivisible and irreplaceable characteristics, which is the mainstream digital asset at present. In the land speculated by investors, each virtual land has a unique number, and the relevant data is stored in the blockchain. Players who own this land can do anything they want on it, including secondary artistic creation, renting or selling.

For example, another well-known company in this field is called Sandbox, which has built a community-driven decentralized virtual world based on the Ethereum blockchain. Players in the game can build and mark their game experience on the Ethereum. Every piece of land in the sandbox is a unique NFT in the blockchain. Players can create 3D pixelated assets on the plot, or create new games directly on the plot. In the future, sandbox will also support the scanning of real-world objects into blockchain games.

Blockchain, virtual real estate and gamification experience have brought huge imagination space. In another interesting virtual real estate transaction, people built a house on the moon. Through rendering and modeling, they have a 3D full-length photo of the house, which can be visualized both inside and outside. The layout of the house is very complete-there are designated living quarters, working areas, kitchens, laboratories, gyms, technical places and even a greenhouse, which is considered as "a kind of digital art".

As a kind of real estate investment product favored by the market at present, the virtual property store "sells by rent" actually has many legal risks in its operation, such as: overall project or illegal fund-raising; "Sale and leaseback, after-sale charter" is difficult to make a sustainable profit; Specific stores cannot be registered or returned separately; It is difficult to determine the validity of the contract of "selling by rent"; And developers make good use of the "legal form" routine to profit from it. No matter what kind of risks mentioned above, store investors may suffer losses, or even "both money and stores lose". Of course, investors should not be helpless against such risks. Before, during and during the litigation, investors can take measures to protect their rights, so as to actively avoid and reduce the corresponding risks. Finally, this paper thinks that the best way for investors to protect their rights is to stay away from the high-risk investment projects of virtual property shops, and cut off all the possibility of subsequent risks from the source!

First of all, it summarizes the "selling by rent" of virtual property stores.

(A) Introduce the connotation of virtual property store

The so-called virtual property store is one of the sub-concepts of property store [1], which mainly refers to the real estate development mode that the developer first divides the concept of the large-scale commercial project it develops on the drawings, and then sells the divided small-area units to the store investors, and then the investors sign an agreement with the developer, and the developer or a third-party professional management company manages and operates the shopping mall in a unified way by leasing or entrusting management, and the investors collect part of the rental income from it. [2] In practice, because developers did not physically divide such shops when selling them, the shops sold did not have four units, so they did not have structural independence, so they were called virtual property shops by the industry (and academic circles). As a widely popular business model in recent years, virtual property shops are actually difficult to find their own reasonable legal position in China's existing property rights system. [3] Because this small-area unit store itself does not have the value of independent use, the so-called "property right" actually purchased by investors is actually a kind of virtual income ownership based on the size of the store area share.

(B) the introduction of "rent for sale" model.

In practice, virtual property stores are usually implemented in combination with "selling by rent". The so-called "selling by rent" means that developers rent out properties (shops, serviced apartments, etc.). ) Long-term (30 years, 40 years, etc.) with or without property rights (referring to the inability to apply for a certificate) to customers. ), and through this long-term lease to achieve the effect of similar property rights sale. In this "rent-for-sale" mode, developers and investors usually agree to lease the store back to themselves (or affiliated companies) within a period ranging from 5 years to 10 years, so as to realize the unified management of shopping malls. During the leaseback period, investors can get "fixed rate of return" or "market-oriented share of rent level". When the leaseback expires, investors can also freely handle the shopping industry: sublease, resell, operate independently, or ask developers to buy back. In practice, this model will be completed by investors in the form of "purchasing 20-year use right+free use until the deadline of property right registration". Based on the discussion in this paper, the "selling by rent" of shops can not be separated from agreements such as "after-sale leaseback" or "after-sale charter". Therefore, the "selling by rent" mentioned in this paper is actually a general term for the business model of "selling by rent, leaseback after sale or after-sale charter" of shops.

(C) Virtual property shops "to rent on behalf of the sale" approach.

1. Hot opening

As a combination of the above two modes, the virtual property store "selling by rent" has become a business model favored by the market in recent years. For developers, this business model can quickly realize the fixed assets of enterprises and achieve the purpose of fully withdrawing funds; For investors, the investment threshold for small-area units to "sell" shops is low, and professional developers are responsible for operation and management, and agreements such as leaseback and charter also guarantee rental income. Therefore, almost every virtual property-style store "selling by rent" project is a hot opening.

2. Disadvantages are gradually emerging

But in fact, the premise of giving full play to the above advantages is that the developer is a capable developer with business ethics and integrity. Otherwise, if developers only care about "financing with money", regardless of the operation of shopping malls, only shop investors will suffer. As mentioned above, it is difficult for virtual property stores to find a reasonable legal position in China's existing property rights system. This means that the existing laws in China actually obviously lack the regulation and supervision of such shops. In practice, after completing the "selling by rent", the developer will mortgage the property rights of the shops in his hands to the bank to continue to obtain loans, thus maximizing financing. However, due to the lack of supervision, developers may not put it into the operation of shopping malls after obtaining such a large amount of funds. On the contrary, it is possible to "do the same thing" for other projects to continue financing. With the arrival of the peak period of leaseback, if the market is depressed or the developer's capital chain encounters problems, the high return promised by the developer to investors may not be fulfilled. In fact, due to the continuous "cooling down" of the real estate market in recent years, the problem of "post-financing" of developers through virtual property shops has gradually emerged, especially after entering the stage of owners' return, the contradictions between the two sides have gradually exposed and disputes have continued.

Second, the legal risk of "selling by rent" in virtual property stores.

In fact, there are many legal risks in the actual operation of shops based on virtual property. A little careless, investors will easily suffer losses, or even "money and money are lost." Due to the lack of regulation and supervision of this business model in China's current laws, virtual property shops "selling by rent" are easily out of shape in practice and become tools and means for developers to seize benefits in the market. Specifically, the virtual property store "selling by rent" may have the following risks:

(1) The overall project may involve illegal fund-raising.

According to Item 1 of Article 2 of the Supreme People's Court's Interpretation on Several Issues Concerning the Specific Application of Laws in the Trial of Criminal Cases of Illegal Fund-raising, anyone who sells virtual property shops by "leasing and selling" in practice may be suspected of violating the crime of illegally absorbing public deposits stipulated in Article 176 of China's Criminal Law. Judging from the current commercial practice, virtual property shops usually need to combine the sales method of "renting for sale". The business model of virtual property shops "selling by rent" was originally for developers to get the fastest and biggest financing from the market. Based on the purpose of "financing", virtual property shops "selling by rent" can only be used as a way for developers to "raise funds", and the sale or lease of shops is only a false form. In fact, many developers have never thought about long-term business development from beginning to end, but just want to cash out in the short term, so these developers just use a lot of advertisements to throw attractive high returns, attract investors to be fooled, and try to escape after obtaining high profits. [5] In this sense, investors in shops are actually doomed to lose money from the time they come into contact with virtual property shops that are sold by rent. In practice, in addition to "sale and leaseback", there are also cases of "leaseback and leaseback". [6] The emergence of the latter is actually a reasonable explanation for developers to find that virtual property shops cannot apply for licenses. Because buying a shop requires a certificate, it is not necessary to "rent" a shop. The so-called "leaseback, leaseback" means that under the condition that the contents of "leaseback" and "leaseback" are consistent with the mode of "selling on behalf of rent", the developer "rents" a certain area of shops to the investors, who will pay the right to use the shops for 20 years. After the expiration of 20 years, investors can use the store for free until the registration of property rights is closed. However, whether it is "sale and leaseback" or "leaseback", it is only a commercial means for developers to achieve rapid financing. Its essence is no different from the "sales with money back" prohibited by the Measures for the Administration of Commercial Housing Sales, and it is also suspected of violating the crime of illegally absorbing public deposits stipulated in the Interpretation of Criminal Law.

(B) "sale and leaseback, after-sale charter" is difficult to make a sustainable profit.

In reality, shop investors buy or "lease" virtual property shops at a price far higher than the market price, but in fact they have no right to operate or sublet the shops they buy/lease, and can only be managed by a specific management company in the shopping mall. In this case, the profit of investors depends on the overall operation effect of the mall. As mentioned above, "selling by rent" is just a way for developers to "collect money and finance". After the developer's financing purpose is achieved, he actually doesn't care about the overall operation of the mall in the later period. At this point, all related risks have been transferred to investors. In the case that the business quality has nothing to do with the developer, it is difficult for investors to meet a developer who is "kind" enough, and they are still willing to work hard to run the whole shopping mall in the absence of corresponding supervision and incentives. In addition, except for "hostile" developers, even if there are developers who really want to run the shopping mall well in reality, it is still inevitable that the shopping mall will be "poorly managed" under the economic downturn. As long as any of the above risks occur, the leaseback or charter agreement held by investors will become a piece of waste paper (full of rights). Until the end, these investors who don't have the property right of the store only enjoy a paper of creditor's rights to the mall management company, and even the object of claim is not the property right party (that is, the developer) of the store.

(3) A specific store cannot be independently registered or returned.

1. Property registration is difficult.

Virtual property shops can't confirm the registration, and can't handle the property right certificate, which is also a big risk in reality. Because many developers didn't physically divide the independent space with partition walls or nails when planning virtual property shops and shopping malls in the early stage, they couldn't carry out surveying and mapping for each shop and then couldn't submit the surveying and mapping results for approval, so there is no possibility of handling the "small property right certificate". [7] In addition, even if in practice some developers simply crossed the line for the convenience of selling shops, we still can't conclude that the shops in this case contain Qing Si. Because, in this case, the small-area shops purchased by investors still lack the basis of substantive surveying and mapping, so it is impossible to register and obtain the property right certificate. In this regard, whether it crosses or not, the essence of virtual property stores "dividing sales only in the concept of area" will not change. In reality, many developers have designed a new model of "leaseback" in order to avoid the prohibition of "leaseback and leaseback" in the Measures for the Administration of Commercial Housing Sales, and to deal with the collective rights protection incident in which owners ask for a certificate. In fact, it is still a temporary solution. Entering the return stage, as long as the high return promised by the developer in the early stage cannot be fulfilled, investors who "wake up from a big dream" collectively become victims of "being cheated by the developer from beginning to end".

2. It is difficult to get support for the application for returning the store.

At this time, because it is difficult for virtual property shops to apply for permission, it is also difficult for shop investors to request the return of shops based on "ownership" or "contractual rights" to obtain court support. The reason is the registration of real property rights in China. Without registration, store investors naturally do not enjoy the ownership of virtual property stores. Then the request of shop investors to return the shops involved based on the provisions of the Property Law on the right to return the original property will lose the reasonable basis supported by the court. In practice, even if some cities have registered virtual property shops, investors' requests for return are still not supported by the courts. For example, in the case of Li Kaining v. Shenzhen Longxingquan Commercial Management Co., Ltd. and Shenzhen Longxing Liantai Furniture Co., Ltd., the court finally held that in order to protect the overall business interests of most owners and avoid the waste of social wealth, the way in which unauthorized owners exercise their ownership can be appropriately restricted (the return of shops is not supported). [8] On the other hand, for investors who request to return the store according to "contractual rights" (if there is an agreement on returning the store in the contract at that time), the most common view in judicial practice is that, as a whole building, the store purchased by the buyer has no clear four or specific location, and it is only a nominal store, so it is unrealistic to request to return the store entity, so the virtual property store cannot be returned separately.