171,260 Yuan Commercial Rent Arrears: Court Terminates Eight-Year Lease After Tenant Stops Paying

A state-owned grain company won a judgment terminating an eight-year commercial lease and ordering the tenant to vacate the premises and pay 171,260 yuan in accumulated rent arrears, after the court reduced the contractually stipulated late fee from a daily one percent rate to four times the bank lending rate as an excessive penalty.

In March 2008, the property owner leased a commercial building and grounds near a bridge to an investment company for an eight-year term through April 2016. Annual rent was set at 100,000 yuan for the first three years, increasing five percent annually thereafter. Rent was payable semi-annually at the beginning of each period, with a contractual penalty of one percent per day for late payment and the owner’s right to terminate for non-payment.

The tenant made only three partial payments totaling 100,000 yuan between 2009 and 2010. The owner’s dining expenses at the tenant’s establishment of 75,024 yuan and a water well construction cost of 23,716 yuan were offset against the rent by mutual agreement. After deductions, the tenant still owed 171,260 yuan in rent through December 2011, with ongoing obligations continuing until the premises were vacated.

The tenant claimed the unpaid rent was due to unresolved disputes over building repair costs and sewage management expenses that the owner had allegedly agreed to deduct. The court rejected this defense for lack of evidence, noting the tenant provided no documentation supporting any offset agreement for these amounts.

The court confirmed the lease was valid and the tenant’s persistent non-payment constituted a material breach justifying termination. However, the court found the daily one percent late fee, amounting to over 250,000 yuan in claimed penalties, was grossly disproportionate to the actual loss. Applying the principle that penalty clauses excessively higher than actual damages may be reduced, the court substituted a rate of four times the bank’s contemporaneous lending rate. The owner was also ordered to bear 1,900 yuan of the 5,900 yuan court fee due to the partially unsupported penalty claim.