Lease Dispute Over Unpaid Rent – CNY 167,250
Mr. Xu, a property owner, and Ms. Yao, a tenant, entered into a lease agreement for a restaurant location in an Eastern China City. The lease also included a joint venture arrangement. A dispute arose when Ms. Yao failed to pay the second year’s rent in full. The landlord locked the premises, and both parties took legal action. The appellate court upheld the lower court’s decision requiring Ms. Yao to pay the outstanding rent of CNY 167,250 plus interest, but denied the landlord’s claim for a large fixed penalty.
The facts showed that on December 21, 2009, Ms. Yao signed a six-year lease with Mr. Xu for a two-story commercial space of about 500 square meters. The first year’s rent was CNY 365,000, payable by January 1, 2010, with a 5% annual increase. The second year’s rent of CNY 383,250 was due in December 2010. Ms. Yao paid the first year but only a partial sum for the second. On January 5, 2011, the parties agreed that Ms. Yao would pay CNY 216,000 immediately and the balance of CNY 167,250 by July 10, 2011. She failed to pay this balance. On July 17, 2011, Mr. Xu locked the restaurant’s roll-up door, triggering litigation.
During the hearing, both parties appealed the trial court’s judgment. Mr. Xu argued that the court should have ordered the lease to continue and should have awarded the full CNY 250,000 penalty for breach of contract. Ms. Yao contended that the CNY 167,250 was a prepayment for future rent, not an arrears, and that Mr. Xu’s act of locking the store excused her from paying. The appellate court examined the evidence presented, including a receipt from January 5, 2011. The court found that Mr. Xu’s new evidence did not qualify as new under procedural rules and therefore gave it no weight.
The court held that the lease agreement was valid and binding. The modification of payment terms signed on January 5, 2011, was a voluntary and lawful change. Ms. Yao’s failure to pay the CNY 167,250 by the agreed deadline constituted a breach. According to relevant law, the tenant must pay rent. However, the court found that the daily penalty of 0.3% for late payment was excessively high. The trial court had reduced the penalty to four times the central bank’s benchmark lending rate, and the appellate court agreed. The court also ruled that the CNY 250,000 penalty clause applied only to a fundamental breach that made the contract’s purpose impossible. Since Ms. Yao’s delay in payment did not amount to such a fundamental breach, the fixed penalty was not triggered.
The evidence showed that Ms. Yao had filed a separate lawsuit to terminate the lease, so the trial court properly declined to rule on whether the lease should continue in this case. The court rejected Ms. Yao’s claim that the joint venture entity should be the party responsible for rent, stating that the lease was with Ms. Yao personally under the principle of privity of contract. The court also found no evidence that Mr. Xu had caused the delay. The legal analysis confirmed that modifying a payment schedule does not waive the original contract’s other provisions, and that penalties must be proportionate to actual loss.
In summary, the appellate court affirmed the trial court’s order that Ms. Yao pay CNY 167,250 in overdue rent plus interest at four times the benchmark loan rate from July 10, 2011. Mr. Xu’s claims for specific performance and the CNY 250,000 penalty were rejected. The court noted that the question of whether the lease should continue would be addressed in Ms. Yao’s separate case. This decision underscores that partial payment agreements modify only the terms explicitly changed, and that courts will reduce contractual penalties when they are excessive. Landlords and tenants should document any modifications in writing and understand that locking premises may create additional legal complications.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.