CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian and Liangqian Ying, JunHe LLP
• construction land mainly includes land zoned for the construction of buildings and other structures; and • unused land refers to land other than farmland and construction land. The use right to farmland may be obtained through a contracting arrangement, whereby contractors may enter into an agreement with a landowner or other entities with delegated authority to engage in agri - cultural production such as planting, forestry, animal husbandry, and fishery on the land, and benefit from such production. The use right to construction land may be obtained by entering into a land grant contract (with land premi - ums to be paid) or a land allocation contract (no land premiums to be paid) with the competent local land authorities if it is stated-owned or the relevant collec - tive if it is collectively owned. In addition, real estate owners are entitled to use the land or buildings adjacent to their own real estate for the purpose of obtaining and draining water, pas - sage, ventilation and lighting, etc that are necessary for their life or production. Such neighbouring right is mandatory and no agreement between the parties is required. Parties may also create easement through execution of agreements to obtain the right to use another party’s real estate. 6.2 Types of Commercial Leases In practice, commercial leases may be divided into the following categories depending on the different rent payment methods: • lease with a fixed rent, often seen in office leases, under which the rent is a fixed amount as agreed by the parties; • lease with a turnover rent, under which the rent is cal - culated at an agreed percentage of the tenant’s gross turnover generated from the leased property; or • lease under which the rent is the higher of a fixed base rent or a turnover rent. 6.3 Regulation of Rents or Lease Terms PRC laws stipulate that the term in a lease agreement cannot exceed 20 years. If the term exceeds 20 years,
the excess period will be invalid. When the lease term expires, the parties may renew the lease agreement for up to 20 years from the date of renewal of the lease agreement. Lease agreements with a term longer than the remaining term of the land use right to the land located beneath the property may be at risk because it is uncertain whether the landlord will still have the right to use the land after the land use term expires. The rent for a commercial lease is generally nego - tiable and subject to agreement between tenant and landlord. However, rent for affordable housing such as public rental housing ( 公共租赁住房 ) and low-rent hous - ing ( 廉租房 ) may not exceed the guiding rental rate promulgated by the local government. 6.4 Typical Terms of a Lease Generally, the length of a lease term is subject to the agreement between the landlord and the tenant but shall not exceed 20 years (see 6.3 Regulation of Rents or Lease Terms ). The landlord and tenant may agree in the lease whether the term may be renewed and, if so, how the lease may be renewed. PRC law provides that the landlord shall be responsible for the maintenance and repair of the leased premises, unless otherwise agreed by the parties. The tenant has the right to require the landlord to maintain and repair the leased premises within a reasonable time limit when necessary. Where maintenance and repair affect the use of the leased premises, the rent may be reduced, or the lease term extended accordingly. The frequency of rent payment is, subject to the agree - ment between the landlord and the tenant, generally on a monthly, quarterly or yearly basis. 6.5 Rent Variation The tenant shall pay rent in the amount and manner as agreed in the lease agreement. If agreed in the lease, the rental rate may be adjusted based on the agreed adjustment mechanism. Parties are not allowed to unilaterally change rent payments, unless otherwise agreed by the parties or provided for by PRC laws, such as the occurrence of a force majeure, or an unforeseeable material change (other than commer - cial risks and force majeure) of circumstance.
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