Tenant Ordered to Vacate and Pay CNY 1,512 Monthly Rent in Lease Dispute

A commercial tenant who refused to vacate after the lease expired has been ordered by a Chinese appellate court to return the premises and pay monthly rent arrears of CNY 1,512.50. The dispute arose when the landlord, Mr. Zhang A, sought to reclaim a restaurant property in Eastern China City after the three-year lease ended. The tenant, Mr. Shen, argued he had a right to renew the lease and claimed compensation for alleged losses from a transfer fee and renovations. The court upheld the trial court’s decision, ruling that the tenant must vacate and pay rent for the period of continued occupation.

In June 2008, Mr. Zhang A leased two adjacent shop units in Eastern China City to Mr. Zhang B for three years, from July 2008 to July 2011. The rent escalated annually, with the final year set at CNY 18,150 per unit. The lease required the tenant to pay the next year’s rent 90 days in advance and provided that failure to pay within 45 days would result in automatic termination. It also allowed subletting only with the landlord’s consent. In November 2009, Mr. Zhang B’s relative, Mr. Xing, transferred the lease and a restaurant business to Mr. Shen for a total of CNY 185,000, which covered the transfer fee and rent through July 2010. Mr. Zhang A’s relative, Mr. Zhang C, signed the transfer agreement as giving consent. Mr. Shen then operated the restaurant until the lease expired in July 2011. He sought to renew the lease and offered higher rent, but Mr. Zhang A refused, leading to a standoff.

At the trial, the court reviewed the original lease, the transfer agreement, and testimony. Mr. Shen argued that he had been a lawful subtenant with the landlord’s consent, that he had paid a deposit of CNY 15,000, and that he had consistently paid rent. He claimed a right of first refusal to renew the lease and also a right of first refusal to purchase the property. He further argued that if the landlord insisted on eviction, he should be compensated CNY 500,000 for the transfer fee and renovations. The landlord did not appear at the hearing and did not submit a defense. The trial court found that the sublease was valid but that after the lease expired, Mr. Shen had no right to remain. The court ordered him to vacate and pay monthly rent at the rate of CNY 1,512.50 from July 4, 2011, until the property was returned, plus costs.

The appellate court affirmed the trial court’s decision. It held that under the Contract Law, when a lease ends, the tenant must return the property. Mr. Shen, as a subtenant, assumed the original tenant’s obligations, including the duty to vacate upon expiry. The court found that Mr. Shen’s claim of a right of first refusal to renew the lease was unsubstantiated. The evidence showed that the landlord had not decided to re-lease the property or sell it. Without such a decision, the right of first refusal remained a mere expectation, not an enforceable right. As for the claim for compensation for the transfer fee and renovations, the court noted that Mr. Shen had not filed a counterclaim in the trial court, so the issue was not properly before the appellate court. The court therefore rejected all of Mr. Shen’s arguments and upheld the eviction order and rent award.

The key legal point in this case is the distinction between a tenant’s expectation of renewal and an actual right of first refusal. Under Chinese contract law, a tenant may have a contractual right to renew on the same terms if the landlord decides to re-lease the property. However, that right only crystallizes when the landlord manifests an intention to lease to a third party. Here, the landlord simply wanted the property back, not to re-lease it, so no such right arose. Additionally, a tenant who fails to assert a counterclaim for damages (such as compensation for improvements) during the trial cannot raise it for the first time on appeal. The court also clarified that the transfer fee paid to a prior tenant is a matter between those parties and does not create an obligation for the landlord absent special agreement.

This case serves as a practical reminder for both commercial landlords and tenants. Tenants should carefully review lease renewal clauses and understand that a right of first refusal is contingent on the landlord’s decision to re-let the property. Tenants who make significant improvements or pay transfer fees should seek explicit written agreements with the landlord regarding compensation at the end of the lease. For landlords, the case confirms that once a fixed-term lease expires, they are generally entitled to possession without needing to justify the decision not to re-lease. Procedural diligence is also important: any claim for damages must be formally raised in the trial court, or it will be waived on appeal.

Disclaimer: This article is for informational purposes only and does not constitute legal advice.