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China Market Consultant Accuses NAR of Misappropriation Scheme

With fewer internal constraints on foreign investment and a favorable exchange rate, China has become the fastest-growing source of international purchasers of both residential and commercial real estate in the U.S., according to the National Association of Realtors. Between March 2013 and March 2014 Chinese buyers, bought some $22 billion in U.S. real estate -- up from $12.8 billion in the same period a year before. Even more interesting to sellers, around 76 percent of the time, those purchases were made with cash.

Since the NAR says Chinese nationals prefer to purchase in coastal "gateway cities," landholders and developers here in New Orleans are undoubtedly scrambling for a foothold in this lucrative market. The business challenges, even for sophisticated sellers however, start with developing the right contacts. Even then, the language barrier and cultural factors can get in the way of sales. 

In fact, the NAR itself needed to ramp up before it could be effective at matching Chinese buyers with U.S. sellers. To accomplish that, in 2012 it contracted with an experienced party -- Austin-based China United Real Estate Group, according to a recent report by Courthouse News Service.

The agreement basically called for China United to invest in a joint program with the NAR. China United would use its "substantial credentials and experience in doing business in China," which it had developed over the course of 20 years, to help the NAR build its brand. In exchange, the NAR agreed to use China United's services exclusively and to refer all resulting business leads to it.

Now, China United is suing the NAR for breach of contract, deceptive trade practices, fraudulent inducement and misappropriation of trade secrets, along with 11 other claims. It seems the NAR initially fulfilled its side of the bargain, but then began violating the exclusivity terms and deliberately trying to misinterpret the contract in its favor, according to that lawsuit.

We won't try to sum up the lengthy details here, but it does illustrate an important issue every business should consider when entering into a complex agreement. It does matter whether the NAR interpreted the contract correctly, innocently misinterpreted it, or fraudulently entered into it with the full intention of taking advantage of China United's proprietary knowledge and contacts. However, for China United, each scenario results in costly, potentially disruptive litigation. Careful preparation for the possibility of breach is crucial in every contract.

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