REALWorld Law

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

Leases with a fixed term may be renewed automatically on the same terms if, after the term expires, the lessee continues to use the premises and the lessor does not object. However, the renewed lease will be for an indefinite term, and can be terminated at any time with reasonable notice.

Last modified 13 Mar 2025

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

If the lease is terminated and the lessee fails to vacate the premises, the lessor has a right to demand rent covering the entire period of the delay in vacating. All risks occurring during this period will be borne by the lessee. Penalties for the late return of the premises can also be set out in the lease contract.

Last modified 13 Mar 2025

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

The lease can be terminated early if the lessor gives written notice of termination for the reasons specified by law or in the lease. However, if early termination is not based on a specified ground, commercial leases usually provide for compensation by the lessor as well (eg several months' rent based on the rent payable that year).

Last modified 13 Mar 2025

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

The lease may be terminated if the premises are expropriated or subject to demolition. If the expropriator is the government or if the demolition is a result of zoning or city planning, the government will usually pay compensation. The lease should provide for such situations. If the lease is silent, these circumstances are likely to fall under the force majeure clause.

Last modified 13 Mar 2025

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

A security deposit of about two to three months' rent and sometimes three months' management fee is standard. A down payment or advance payment for one month's rent is also usually required. If the deposit is not sufficient for the cost of repairs and unpaid utilities, the lessee is usually required to remit the amount within 15 days.

Last modified 13 Mar 2025

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

The lessee is entitled to use the premises as agreed in the lease. If the lease is silent or unclear on this point, the premises must be used in a manner consistent with their nature.

The lessee must always comply with the use designated by the government as an unauthorized change away from the designated purpose may result in re-entry by the government without compensation.

Last modified 13 Mar 2025

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

The lessee is allowed to alter and improve the premises with the lessor's consent but should not alter load-bearing structures or indoor facilities without the required authorizations.

Where the lessee makes alterations without the lessor's consent, he pays the cost in full and is also obliged to restore the premises to their original condition or compensate for any damage when the lease expires.

Last modified 13 Mar 2025

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

The lessee may sublet the premises or transfer its rights and obligations to a third party. The lessor's written consent is always required for both types of dealing.

Last modified 13 Mar 2025

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

The rent in commercial leases is usually fixed but subject to an annual increase, with either the total increased amount or the percentage being specified in the lease. It is also common for retail leases to include turnover rent as well as fixed rent where the lessee pays whichever is the higher.

In addition, under PRC law, the rent payable cannot be increased by the lessor unilaterally during the term of the lease.

Last modified 13 Mar 2025

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

In most commercial leases, annual increases are already agreed between the parties as a percentage, or the total increased amount is specified. Where turnover rent is payable, changes in rent will be based on the increase or decrease in the lessee's turnover.

Last modified 13 Mar 2025

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

China has gone through a tax reform to replace Business Tax with VAT and it applies to the real estate industry starting from 1 May, 2016. After such tax reform, the gross rent is subject to VAT at 9% under the general rules, which can be used to offset the output VAT payable on the business income. However, if the leased premises were acquired by the owner before 30 April 2016, the owner may opt for a simplified tax method, ie apply a reduced VAT rate of 5% on the rental income without claiming input VAT credit.

Last modified 13 Mar 2025

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

There are several options available to the landlord depending upon the specific circumstances and what the landlord wants to achieve.

Court / arbitration proceedings to recover debt: A landlord can initiate court or arbitration proceedings against the tenant pursuant to the lease agreement, to recover rent or other sums due under the lease. The process can be expensive and protracted. A court or arbitration hearing may not be set for several months and the tenant may not feel any impetus to pay the arrears in this period, unless the landlord applies for ​property preservation measures​ during the lengthy proceedings.

Draw down on rent deposit: The landlord may be able to draw down from a rent deposit if one exists to recover the rent arrears or other sums due under the lease. In such cases, the lease agreement typically stipulates that the tenant must replenish any shortfall in the rent deposit.

Pursue guarantor: The landlord may be able to recover rent arrears and other sums due under the lease from any guarantors under the lease, subject to certain limitations.

Termination: Under the PRC Civil Code, in the event that a tenant fails to pay rent or delays in doing so, the landlord may request payment within a reasonable time frame. Should the tenant still fail to pay the rent thereafter, the landlord may terminate the lease. Additionally, a lease agreement usually stipulates a termination right for the landlord to terminate the lease if the tenant breaches certain obligations (such as rent payment obligations) as set forth in the lease agreement.

Last modified 13 Mar 2025

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

A security deposit and deposits for utilities and/or management fees may be required.

Last modified 13 Mar 2025

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

These costs are usually included in the management fees and are paid by the lessee.

Last modified 13 Mar 2025

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

Unless otherwise agreed, the lessor is responsible for the maintenance and repair of the premises. If the lessor fails to fulfil his obligations, the lessee may maintain or repair the premises on his own but at the lessor's expense.

If the lessee's use of the premises is impaired due to failure to maintain or repair, the lessee is entitled to withold rent or extend the lease term accordingly.

Last modified 13 Mar 2025

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

These costs are usually included in the management fees and are paid by the lessee.

Last modified 13 Mar 2025

What types of arrangement does the law recognize which allow occupation and use of real property for a limited period of time?

The cost of insurance for the premises is usually met by the lessor and the insurance policy is taken out in his name. The types of insurance usually include property all risk insurance and public liability insurance.

In most commercial leases, there is a rent-free decoration period, which allows the lessee to perform interior decoration on the leased premises (subject to certain conditions) to make it suitable for the lessee's business needs. During this decoration period, the lessee must purchase fire and third party insurance and assume the liability for damage to the common facilities of the leased premises and the property of other lessees caused by the decoration.

Last modified 13 Mar 2025