Lease Contracts of Urban Premises Case Interpretations - 最高人民法院关于审理城镇房屋租赁合同纠纷案件具体应用法律若干问题的解释
Released on June 22, 2009, and effective on September 1, 2009
The Supreme People’s Court (SPC) on June 30, 2009, promulgated a Judicial Interpretation (“JI”) on law application regarding several issues on hearing cases of lease contract of urban premises, which was effective on September 1, 2009. The following points need our particular attention:
· A Pre-Lease Is Invalid Where the Premises Infringe Planning Regulations
The Interpretation has made it clear that a lease contract shall be invalid if there is no construction planning permit for the development of the premises pre-leased under the lease contract or the premises are not developed in accordance with the construction planning permit.
· An Invalid Pre-Lease May Not Be Worth the Paper It Is Written On
If the tenant negotiated favorable representations, warranties and indemnities concerning the landlord’s compliance with planning regulations, these terms would also be invalid. The Supreme Court does not suggest that any of these terms could be severable from the rest of the invalid terms of the contract and the tenant must, therefore, rely on general law remedies.
· General Law Remedies for Invalid Contracts Are Uncertain
The Interpretation confirms that whoever pays for the wasted fit-out will depend on the parties’ respective fault, but this is often difficult to assess. If both landlord and tenant sign a lease knowing that the planning permit has not yet been issued, they both are probably at fault.
· The Interpretation Provides Further Remedies
The Interpretation provides that where a lease contract is found to be invalid, the landlord and tenant may agree that the tenant’s fit-out of the premises be assigned to the landlord. However, if they cannot reach an agreement on the assignment of the fit-out of the leased premises, the fit-out shall be dealt with as follows:
- if it is economically impractical to remove the fit-out from the premises, the landlord and tenant shall share the costs of the fit-out based on fault (see “Bullet 3” above).
- if it is economically feasible to remove the fit-out from the premises, the tenant shall be responsible for doing so.
· If you do lease uncompleted premises, it is recommended that you do not start fit-out before the premises are certified for occupation. If you wish to commence early fit-out, it is recommended that you perform due diligence to confirm that the premises have a construction planning permit and that the landlord gives clear representations and warranties that the premises have been developed according to the construction planning permit.