CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian and Liangqian Ying, JunHe LLP
6.6 Determination of New Rent When deciding the price adjustment mechanism, a fixed yearly increase rate, the consumer price index or fair market prices are often taken into consideration. 6.7 Payment of VAT The landlord is responsible for the payment of VAT on the rent income generated from leasing real estate. 6.8 Costs Payable by a Tenant at the Start of a Lease Generally, in addition to rent, a refundable security deposit, equal to rent plus a management fee of three to six months in most cases for commercial leases (or one to three months for residential leases), is required to be paid to the landlord at the start of a lease. If the tenant wishes to improve or fit out the property, the tenant may be required to pay a security deposit for the fitting-out or improvements, refundable after the completion of the work. 6.9 Payment of Maintenance and Repair Unless otherwise agreed by the parties, the landlord is responsible for the maintenance and repair of the leased premises. In practice, small maintenance and repairs of common areas and shared equipment, machinery and facilities are generally conducted by the property manager engaged by the landlord, and covered by the management fees, which are payable to the property manager by either the landlord or the tenant, subject to the lease agreement. 6.10 Payment of Utilities and Telecommunications In practice, the tenant pays their own utilities and telecommunications fees incurred in respect of, or consumed at, the leased premises. Utilities and tel - ecommunications fees incurred in respect of common areas, and public equipment, machinery and facili - ties are often shared and charged to the end user (ie, the tenant in most cases, or the landlord if otherwise agreed in the lease, or if the premises are vacant) in proportion to the floor area of the leased premises. 6.11 Payment of Property Taxes The landlord typically bears property tax and urban land use tax relating to rental property, and stamp duty is equally borne by the landlord and the tenant.
6.12 Insurance Issues The landlord will usually take out and maintain, at their own cost, property all risks insurance for the leased premises, which covers physical loss of or damage to the insured property arising from any natural hazards or accident. Damages caused or expenses incurred by intentional acts or gross negligence, confiscation, requisition, destruction or damage by any action or order of any government or public authority, war, coup d’état, or strike are generally excluded. On the other hand, the tenant is usually requested by the landlord to take out and maintain through the lease term con - struction/installation works all risks insurance for the tenant’s fitting-out or improvement works, and public liability insurance for the tenant’s business operations in the leased premises. Business interruption insurance, an insurance ancil - lary to the property all risks insurance, generally only covers losses incurred by business interruption result - ing from property damage. 6.13 Restrictions on the Use of Real Estate In practice, the landlord commonly imposes various restrictions in the lease agreement on how a tenant shall use the leased property, including but not lim - ited to restrictions on the permitted use, subleasing, assignment, and fitting-out of the leased premises. Applicable PRC laws also require that use of the leased premises shall be in accordance with the zoned usage, and the tenant shall not change the load-bear - ing structure or demolish indoor facilities without the landlord’s approval. 6.14 Tenant’s Ability to Alter and Improve Real Estate Typically, the tenant must obtain the landlord’s prior consent if the tenant intends to improve or fit out the leased premises. A fitting-out plan is typically required in order to obtain the landlord’s written consent. To ensure the safety of the leased premises, the land - lord usually requires that the tenant takes out insur - ance for such improvement or fitting-out works and engages qualified contractors. As discussed in 6.13 Restrictions on the Use of Real Estate , the tenant may not change the load-bearing structure or other main structure of the leased premises without approv - al. Furthermore, it is common practice for the landlord
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