• Commercial leases

The national and local authorities have published model form contracts (in Chinese only) for real estate leases for reference by landlords and tenants. Generally, the provisions of these model leases are quite simple and fairly balanced between the interests of both landlord and tenant.However, these model leases would not be legally adequate for leasing transactions of substantial value. In a few cities, the parties must use the locally published model leases to satisfy local lease registration requirements, but the parties are permitted to attach a supplemental agreement to these model leases. Depending on local government practice, it will be practically difficult to register warehousing leases and industrial leases in some localities.

The level of detail and sophistication of lease agreements in the Chinese market vary significantly and largely depends on the background of the parties and the nature of the property involved. 

• Residential leases

The leasing practices for commercial property are basically similar to those for residential properties. Therefore, the foregoing comments regarding commercial leases are also generally true for residential leases. Local citizens usually use the model leases for simple residential leases and they often do not file their leases with the local authorities.

Generally speaking, lease provisions are not much regulated and the parties are free to negotiate most of the lease provisions. Nevertheless, lease agreements are subject to certain basic legal rules. For example, national leasing regulations provide that a lease agreement with a term longer than six months must be in written form. A lease with a term longer than six months will not be invalid if it is not in written form, but its term will be changed to indefinite term by operation of law and either party may terminate the lease by reasonable advance notice to the other party.

The maximum term for a lease is 20 years. If a lease term exceeds 20 years, the portion of the lease period beyond the initial 20-year period is invalid. When the lease term expires, the parties may renew the lease for another term not exceeding 20 years.

The lease terms vary in practice depending on the type of property involved and general market conditions. Landlords generally have become more flexible and accommodating on lease terms since the outbreak of the COVID-19 pandemic. Nevertheless, the typical lease term for office and retail properties in major cities are as follows:

• Office property: three to five years
• Retail property: two to five years

The national law does not give a tenant a legal right to renew the lease at its expiry, but it gives the tenant a priority right to renew the lease on terms no less favorable than those offered by other potential tenants. If the tenant wants to have an assured right to extend the lease at its expiry, it must negotiate for a renewal right in the lease agreement.

A landlord may terminate the lease if the tenant breaches any of its basic legal obligations as the tenant. Likewise, the tenant may terminate the lease if the landlord breaches any of its basic legal obligations as the landlord. A summary of the basic legal obligations of landlords and tenants are set out in our response to "What are the basic obligations of landlords and tenants".

The lease agreement may stipulate additional contractual grounds of termination exercisable by the landlord and the tenant.

Further, the lease may be terminated by either the landlord or the tenant if the use of the property is substantially frustrated due to force majeure or government action not caused by the fault of either party.

PRC law requires property rent to be denominated and paid in the local currency, renminbi yuan.

The parties are free to negotiate the rent payment terms, but monthly or quarterly payment in advance is fairly common.

There are no statutory limits on rent increases upon lease expiry. It is fairly common that the parties will negotiate the rent for the extended term by referring to the prevailing market rate for comparable properties. Some substantial leases may provide for an elaborate mechanism or limits for rent review.

Under national laws and regulations, landlords have a number of basic legal obligations, including the following:

• Ensure that the tenant’s use of the property is not affected by third parties’ claims or actions (except for those which are beyond the control of and not attributable to the landlord’s fault, such as government actions)
• Deliver the property to the tenant in the condition required by the lease and maintain the property to a condition fit for the use stipulated in the lease
• Not to lease out property which does not meet safety, hygiene or other applicable statutory requirements
• Unless the lease provides otherwise, maintain and repair the property

Under national laws and regulations, tenants have a number of basic legal obligations, including the following:

• Pay rent in accordance with the lease and the law
• Use the property in accordance with the lease provisions
• Take proper care and custody of the property
• Not to alter the structure of the building
• Not to sublet the property without the consent of the landlord unless the lease provides otherwise
• Upon the expiration of the lease, return the property to the landlord in the condition stipulated in the lease

It should be noted that local regulations may impose additional obligations on landlords and tenants.

Under national laws and regulations, a tenant must obtain the landlord’s prior consent before it may sublet the leased property or assign the lease to a third party. The landlord typically will require the head-tenant to be responsible for any breach committed by the sub-tenant before giving its consent. Many leases allow the tenant to carry out intra-group lease subletting or transfer without being subject to landlord’s consent.

Under national laws and regulations, if the leased premises are destroyed or substantially damaged due to force majeure or other reasons not attributable to the landlord or the tenant, either party may terminate the lease.

Landlords are usually responsible for insuring the leased premises.

Generally, a lease will survive and be binding on the buyer if the owner sells the leased premises.

The law gives the tenant a priority right to acquire the property on terms no less favorable than those offered to the landlord by other potential buyers. However, if the landlord fails to honor this right of the tenant, the tenant can only seek compensation from the landlord but cannot invalidate a completed sale of the property to a third party.

It depends on whether the lease was entered into effect prior to the property mortgage. If the property mortgage was registered prior to the lease, then the mortgagee may evict the tenant and carry out an enforcement sale of the property free of the lease. If the property mortgage was registered after the lease, then the mortgagee can only carry out an enforcement sale of the property subject to the lease.