CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian, Qian Gu and Liangqian Ying, JunHe LLP
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 calculated 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 inva - lid. 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 negotiable 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 housing ( 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 land -
lord 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 agreement 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 man - ner 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 unfore - seeable material change (other than commercial risks and force majeure) of circumstance. 6.6 Determination of New Rent When deciding the price adjustment mecha - nism, 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.
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