Rent Dispute Leads to Contract Termination and CNY 171,260 Award
A commercial landlord in Eastern China City filed a lawsuit after its tenant failed to pay rent for more than a year. The court ruled in favor of the landlord, ordering contract termination, property return, and payment of overdue rent and reduced late fees. The case illustrates how Chinese courts handle lease defaults and excessive penalty clauses.
In March 2008, the plaintiff company, which manages state-owned assets, entered into an eight-year lease with the defendant company for a building and land located in Eastern China City. The lease ran from May 1, 2008, to April 30, 2016. The annual rent was CNY 100,000 for the first three years, increasing by 5 percent each year thereafter. Rent was payable semi-annually on May 1 and November 1, within five days of each period. The contract also stated that if the tenant failed to pay on time, the landlord could charge a late fee of 1 percent per day and terminate the lease. The tenant made some payments but fell behind. Between 2009 and 2010, it paid only about CNY 100,000 in total. The landlord sent multiple reminders and a formal lawyer’s letter in July 2011 demanding payment and warning of termination, but the tenant did not comply.
The court held three hearings in February and March 2012. The plaintiff company appeared through its attorney, Ms. Wang. The defendant’s legal representative, Mr. Li, attended the first two hearings but failed to appear for the third after proper notice. The plaintiff submitted the lease agreement, property title certificates, rent receipts, cash payment slips, the lawyer’s letter, and courier delivery records. The defendant argued that it had paid over CNY 198,000 by April 2010 and that the parties had agreed to offset the rent with dining expenses incurred by the plaintiff, as well as repair and sewage management costs. The defendant claimed only CNY 119,000 remained due.
The court found that the lease contract was valid and binding on both parties. The evidence showed that the tenant had paid only CNY 100,000 in rent by July 2010. The plaintiff also owed the defendant CNY 75,024 in dining expenses and CNY 23,716 for digging a well, which the parties had agreed to deduct from the rent. After these offsets, the tenant still owed CNY 171,260 in rent through December 30, 2011. The court rejected the tenant’s claim that unpaid repairs and sewage fees justified non-payment, as the tenant did not provide sufficient proof. The court held that the tenant’s failure to pay constituted a material breach, entitling the landlord to terminate the lease and demand possession.
The court applied relevant provisions of the Contract Law and the Civil Procedure Law. It noted that the contractual late fee of 1 percent per day was excessively high compared to the actual loss suffered by the landlord. Under Chinese law, a court may reduce a penalty that is manifestly disproportionate to the damages. The court adjusted the late fee to four times the bank loan interest rate for the same period, calculated from May 1, 2011, until full payment. This adjustment balances the landlord’s right to compensation with the tenant’s right not to face a punitive charge.
The court ordered the termination of the lease contract and required the defendant to vacate the property within one month of the judgment. The defendant must pay overdue rent of CNY 171,260 plus ongoing rent at CNY 105,000 per year from December 31, 2011, until the property is returned. The defendant also must pay late fees at four times the bank loan rate on the overdue amounts. The plaintiff’s other claims were dismissed. This case reminds landlords and tenants to document all communications and offsets clearly. Courts will enforce lease terms but will not enforce penalties that far exceed actual losses.
Disclaimer: This article is for informational purposes only and does not constitute legal advice.