How to Achieve Favorable Terms When Signing a Property Lease Agreement in China

We discuss how to avoid potential risks and disputes when signing a property lease agreement in China and key points that companies can manage better.

A lease agreement, to some extent, is a “must-have” agreement for all companies, unless they own real estate properties that are qualified for commercial use by themselves.

A company should at least rent a space, even if it is very small or shared with others, basically for the purpose of having it registered as its official address, and subsequently use it as a valid address to receive mails and notices from commercial partners as well as governmental authorities.

The lease agreement will “live” with the company until the company relocates to another place or till it is deregistered.

Therefore, whether the lease agreement is concluded properly or not will have significant impact on a company’s operation for its whole life.

Signing a property lease agreement in China: Key considerations and points of review

To avoid potential risks and disputes, this article summarizes the major aspects companies should pay attention when signing a lease agreement in China, as illustrated in the table below.

In this article, the terms have the meaning as defined below:

• “Building” refers to an office building with multiple rentable units, space, or rooms.
• “Lessor” refers to the legal entity or individual, which/who acts and signs the lease agreement as the party letting the premises and receiving rentals from the Tenant, regardless of whether it is a sole owner or joint owner, an authorized party, or subletting party.
• “Premises” refers to the target unit, space, or room that the Tenant rents.
• “Tenant” refers to the legal entity or individual, which/who acts and signs the lease agreement as the party using the premises and paying the Lessor.

In addition to the above attention points, it is more important that you have a bargaining ground to start up the negotiation with the Lessor. In most cases, Lessors are hard and may refuse negotiating. The scenarios in our experience where a Lessor is willing to negotiate include:

• The Lessor is a reputable company/group with reasonable in-house legal team.
• The Building is new, and the Lessor wishes to attract new Tenants.
• The Tenant is renting a large area for a reasonable long term.
• The Tenant can introduce other potential Tenants into the Building.
• The Tenant is a famous or reputable group/company.
• The Tenant can point out several obvious faults of the Lessor or flaws of the Building to push the Lessor negotiate on other conditions.

Negotiating with the Lessor in China can be difficult. We hope this article informs you of some of the traps and risks associated with signing a lease agreement, and how to mitigate against those risks or avoid them.