Many foreign nationals have flocked to China’s largest cities in recent years, only to find that both the property market as well as Chinese landlord-tenant law are substantially different than in other jurisdictions. By typing “renting an apartment in China” into any Internet search engine you will find that the first results are stories about how different the experience of renting an apartment in China is different than in Sydney, London, Tokyo or New York. Usually, the comparisons are unfavorable and contrast an expatriate’s experience renting an apartment in their home country of Australia, Britain or the United States with China.
However, despite whatever horror stories an expatriate may have heard about the difficulties of renting an apartment in China, China’s property market is simply different than in most Western countries. The legal regime is completely distinct and the sources of landlord tenant law are different as well. Custom also is simply different. It is not a system like the United States where a tenant has to pass a background check, pay a security deposit and the first and last month’s rent like New York, Los Angeles or Miami. Instead, rent is usually required to be paid up front for months.
The comparisons are unfavorable and contrast an expatriate’s experience renting an apartment in their home country
Considering that there exists no separate legislation concerning the landlord-tenant relationship in China, the court and arbitration institutions refer to the Civil Law, the Contract Law and related Interpretation of the Supreme People’s Court when it comes to conflicts. Similarly, Chinese law does not offer many of the tenant protections that are available in certain Western jurisdictions. For instance, rent control laws do not exist in China and many landlords prefer to receive large portions rent payments in Shanghai it is not unusual for a landlord to require up to three months’ rent in advance. Landlords in China can get away with these kinds of practices due to the high demand in big cities. This may leave a Western expatriate feeling quite exposed, and queasy about parting with so much money, even if it is pursuant to a written lease agreement.
The aspect of the Chapter 13 of the Contract Law will likely come as the greatest surprise to expatriates
Nonetheless, and despite some misconceptions about property law in China, Chinese landlord-tenant law does protect tenants in some meaningful ways. For instance, landlords are required to repair the leased premises and landlords who refuse a tenant request to repair a leased premise can find themselves receiving less than the agreed-upon rent if the tenant ends up having to repair the premises him or herself. Finally, a tenant is free to pursue legal remedies against an unscrupulous landlord who refuses to live up to his or her obligations under the written lease. In addition, lease longer than six months are required to be in writing. This means that tenants have traditional contractual remedies, like the ability to pursue breach of contract claims against a landlord who breaches a written lease agreement. However, even these remedies are not as powerful as some of the breaches of contract that a landlord can pursue legal action against a tenant over. Therefore, a wise tenant in China will always insist on a written lease and take all necessary steps to ensure that their landlord adheres to that lease as closely as possible lest China’s generally unfavorable landlord-tenant law be used against the tenant by the landlord.
Sources of Chinese Landlord-Tenant Law
The main source of property law in the PRC as it relates to residential lease contracts is the Contract Law of the People’s Republic of China (the Contract Law). Chapter 13 of the Contract Law specifically governs leasing contracts in the PRC.
According to Article 215 of the Contract Law, if the lease is for six months or more it must be in written form or else it is considered an “unfixed lease.” Where the lease term is above 6 months, the lease contract is required to be in written form. Under Article 221, a tenant may request that a landlord repairs the leased premises when the property is in need of repair. The landlord is then required to repair the premises within a reasonable time period and, if the landlord fails to do so, the tenant can pay for the necessary repairs him or herself and then deduct that amount from the rent. Under Article 233 of the Contract Law, “where the leased property endangers the safety or health of the lessee, even if the lessee knows the leased property does not meet the quality requirements when concluding the contract,” a tenant may rescind the lease agreement at any time. Finally, if a tenant holds over at the end of his or her lease term, and the lessor does not raise an objection, the original lease contract shall remain effective, provided that the lease becomes a non-fixed term lease.
The aspect of the Chapter 13 of the Contract Law that likely will come as the greatest surprise to expatriates renting an apartment in China for the first time is that, in the absence of a contrary provision in the lease, the rent shall be paid at the expiration of the lease term if the lease term is less than one year, or shall be paid at the expiration of every one full year if the lease term is more than one year. Therefore, tenants better have saved up their money, or else they may find themselves short a substantial amount when it comes time to pay the landlord for that year’s rent.
Fundamental and Non-Fundamental Breaches of Chinese Lease Contracts
As a general principle as laid out in Article 107 of the Contract law, in the case of a breach of contract by a party to a contract, which includes residential leases, the other party to the contract may sue to request the breaching party for performance of the breaching party’s obligations under the contract or damages. In particular, Article 109 of the Contract Law provides that where a party fails to pay contract price or remuneration, the other party to the contract shall have the right to ask the breaching party to pay.
Under China’s Contract Law, breaches of contract are classified into basically two categories according to the severity of the breach: fundamental breaches, and non-fundamental breaches. Fundamental breaches of contract render the purpose of the contract unable to be fulfilled the non-breaching party. A fundamental breach gives the non-breaching party the power to terminate the contract and claim damages suffered from such breach.
In the landlord-tenant relationship, so long as the landlord provides a habitable apartment to the tenant, generally speaking, the tenant is required to pay the rent. Though the landlord has the obligation to fix any problems with the equipment or appliances in the apartment, failure to fix such problems does not constitute a fundamental breach so long as the apartment is still generally considered to be in livable condition. Thus, for example, if the heating system stops working in the middle of the summer, then tenant likely cannot claim a fundamental breach of the lease has occurred if the landlord refuses to fix the heating system for system. In such a case, the tenant would not be permitted withhold rent payments because the landlord has not committed a fundamental breach of the lease agreement. Unless expressly stipulated in the leasing contract, a tenant’s refusal to pay any rent will make the tenant in more serious breach of contract than the landlord’s failure to repair appliances.
Renting an Apartment in China: Make Sure to Take Adequate Protections
The PRC’s rental laws are very pro-landlord. Landlords have more rights than tenants do and can control not only the amount of rent that is charged but how much the rent increases on an annual basis and when the rent payments are due. They can also control what term payments are made as well as a host of other issues relating to the renting of apartments in China. As is the case in any city in the world, having a well-drafted residential lease agreement is an absolute must when renting an apartment or other property in China. Although China’s Contract law does provide tenants certain protections under Chapter 13, those rights are not as strong as they seem at first glance. Instead, landlords are often able to breach leases in ways that are in contravention of China’s Contract Law but tenants do have some recourse. Therefore, the Chinese expatriate who rents an apartment should follow the old Roman saying and caveat emptor, or in this case let the tenant beware.
About IPO Pang Xingpu: IPO Pang Xinpu is a premier international law firm that has been representing clients in China since the early 1990’s. We’ve been here longer than the vast majority of corporate law firms, and have helped hundreds of companies across a wide spectrum of industries securely and quickly establish operations in China, and then provide follow-on services for their ongoing legal needs.