Real Estate Perspective | Key Points for Reviewing Housing Rental Contracts

In a house rental contract, the first thing to consider is the issue of house ownership. Only the legal owner or authorized representative of the house has the right to rent it out. In addition, if the house does not have a property certificate and no planning permit, according to the Supreme Court's judicial interpretation on the trial of urban house rental contracts, the house rental contract signed under such circumstances is invalid. Therefore, to avoid situations such as contract invalidity affecting house rental and subsequent use, the lessee should strictly review the issue of house ownership. Specifically, when reviewing the contract, the lessee needs to carefully check the following materials: (1) House ownership certificate, house real estate registration certificate, or property certificate (if there is co-ownership, the opinions or authorization of the co-owners need to be reviewed); (2) If the lessor is not the actual owner, it is necessary to review whether there is a legal letter of authorization or subletting right document; (3) Pay attention to whether the house has any encumbrances such as mortgages. If so, it is necessary to understand the opinions of the mortgagee or relevant right holders to avoid the lessee's rights being damaged due to "mortgage first, then rent".

The nature of the house and land is also important information that needs to be confirmed. The lessee also needs to confirm the planned Applications of the house, such as residential, commercial, office, industrial plant, etc., especially if the lessee intends to use the house for business. If the actual Applications of the house does not match the registered Applications, or if the lessee intends to use the house for a scenario that is significantly inconsistent with its registered Applications, it may lead to regulatory risks and affect the performance of the contract.

The structure, area, floor, orientation, decoration condition, and basic infrastructure such as water, electricity, gas, and heating are all related to subsequent rent, maintenance obligations, and breach of contract determination. The lessor and lessee should clearly state the above information in the contract and clarify whether it is linked to the rent. It is best to make a detailed record of the current status of the house (such as photos, text descriptions, and equipment lists) in the appendix, clarifying the state of delivery and acceptance to avoid subsequent disputes.

The house and its surrounding environment will also affect the lessee's use of the house and thus affect the performance of the house rental contract. For the lessor, they should fulfill their obligation to provide a suitable property for rent and list environmental factors that may affect the use of the house in the contract. For the lessee, they should Confirm that the house environment meets their intended use. For example, if the lessee plans to rent a house to open an internet cafe, but the house is located at the school gate, due to relevant regulations, the house cannot be used to open an internet cafe. In this case, the lessee not only cannot achieve the purpose of the contract but will also suffer economic losses due to their negligence. Therefore, the environment of the house and its surroundings is also a factor to be considered and reviewed when signing a house rental contract.

If the lessor is a natural person, the lessee needs to verify whether the property certificate and identity documents are consistent; if it is a corporate legal person or other organization, it is necessary to check its business license, the unit's external contract signing authority, etc. If the house is public housing or has a government background, it is necessary to further Confirm that the relevant unit's internal approval procedures and authorization documents are compliant and legal.

The lessee's subject qualification is particularly important for commercial leasing. The lessor should pay attention to the lessee's qualifications, business license, and business scope, and combine the intended use of the leased house and the relevant policies of the administrative region to evaluate the legality of the lessee's business operations, avoiding the lessee using the house for illegal operations that may adversely affect the lessor.

If the house involves multiple joint lessees, the rights and obligations of each lessee should be clearly defined to avoid unclear responsibilities. In the case of subletting, the lessor needs to clarify in the contract whether the lessee is allowed to sublet and what conditions need to be met for subletting.

Both parties to the contract should pay close attention to whether the rent clause is reasonable and legal when reviewing the contract. Market-oriented leasing behavior is usually determined by both parties based on market conditions, but in some cities or specific properties (such as public rental housing), it may be subject to government-guided rent or upper limit control. It is recommended to make clear agreements on the rent and its adjustment mechanism, such as "how much the rent increases annually" and "how the two parties coordinate after market changes".

Common payment methods include monthly, quarterly, semi-annually, or annually, as well as different models such as "deposit one, pay three" or "deposit two, pay one". Both parties should clarify in the contract: the payment cycle and payment date; whether to pay by bank transfer or cash (if cash payment, receipts should be kept); how to define breach of contract and the standard of liquidated damages if payment is delayed.

House rent may involve value-added tax and other taxes, especially in commercial leasing. Both parties should clarify in the contract which party bears the tax and whether to issue an invoice. If the lessor fails to provide a legal invoice as agreed, the lessee may have subsequent disputes over claims or rent deductions.

The Civil Code has relevant provisions on the lease term, which generally should not exceed twenty years; any excess is invalid. If the lessor is state-owned assets or special real estate, stricter approval procedures may also need to be followed. When reviewing, both parties should focus on Confirming: whether the lease term starts from delivery or signing, and clarify how to handle the situation if the lessee continues to occupy the house after the lease term expires.

According to the relevant provisions of the Civil Code, under equal conditions, the lessee has the right of priority to lease after the lease contract expires. In practice, it is often necessary to make specific agreements in the contract on the renewal procedure and the method of determining the rent. When both parties are reviewing, if they wish to retain the pricing space during the renewal, it is best to clearly define the specific conditions of the priority right to lease.

To prevent the house from being misused, affecting safety, or creating illegal business risks, both parties should clearly agree on the house's Applications in the contract. If the lessee needs to change the internal structure of the house or engage in business that may involve public safety, environmental protection, or other special approvals, they should obtain the written consent of the lessor in advance and handle the necessary procedures. For the lessee, if the lease Applications are clearly defined in the contract, the lessee also has a corresponding obligation to use the house appropriately, which is also a guarantee for the lessee.

The cost of maintenance and upkeep of the house is often a focal point of rental disputes. Generally, the lessor is responsible for the major repairs and renewals of the main structure and major equipment of the house, while the lessee is responsible for the daily maintenance during daily use. It is recommended to list the specific scope of the maintenance responsibilities of both parties in the contract and stipulate the notification and handling procedures in case of necessary repairs.

If the lessee needs to renovate the house, they should obtain the consent of the lessor. Both parties should clearly state in the contract: (1) Who bears the renovation costs; (2) Whether the renovation project requires approval (such as fire inspection); (3) How to dispose of the decorations and fixtures at the end of the lease term.

In many lease contracts, the lessor will require the lessee to pay a certain deposit or security deposit to ensure that they can fulfill their obligations to return the house, repair it, and pay rent as agreed. When reviewing, both parties should note: (1) The deposit amount should not be too high; (2) The contract should clearly state the purpose, deduction conditions, and return period of the deposit; (3) If a security deposit or quality assurance deposit is established, the method of use and supervision should be clear.

The penalty clause is an important protection mechanism in house lease contracts. Both parties to the contract should clearly state in the contract: (1) Determine the standard of liquidated damages in a fixed amount or as a percentage of the rent; (2) Clarify the relationship between liquidated damages and liability for compensation; (3) Note that the standard of liquidated damages should not be too high or too low to avoid subsequent adjustments by the court.

The right to terminate a contract is divided into statutory termination rights and agreed termination rights. For agreed termination, it is recommended that both parties clearly stipulate the following circumstances in the contract: (1) The lessee's overdue payment of rent for a certain period of time; (2) The lessor's overdue delivery of the house or the existence of major defects or flaws in the main body of the house; (3) The house cannot be used due to force majeure or administrative actions; (4) Clearly stipulate other circumstances agreed upon by both parties for termination.

After the contract is terminated or expires, both parties need to inspect the condition of the house, settle water, electricity, and gas expenses, and check the condition of the fixtures. Therefore, it is recommended that both parties clearly stipulate the relevant rules in the house lease contract, and then use text and photos to secure evidence and clearly define the return deadline and the time for returning the deposit or security deposit.

Based on the above contract review points, we will further analyze several typical and critical issues in judicial practice.

Case No.: (2024)冀01民再305号

Case Analysis: For lessors who have not obtained a construction project planning permit or have not constructed the house in accordance with the construction project planning permit, the lease contract entered into with the lessee is generally invalid. The focus of this case is the validity of the house lease contract in question. Although this project once obtained the "Construction Project Planning Permit," the nature of the permit is industrial land permit, and the developer has arbitrarily converted it into commercial offices. By the end of the first-instance court debate, it has not yet obtained a commercial land construction project planning permit or relevant proof approved by the competent authority. Therefore, according to the law, the lease contract in question is invalid.

Case No.: (2024)陕0103民初18873号

Case Analysis: In the house lease contract, the specific area is not stipulated, nor is the rent calculated according to the area. The lessor's claim to the lessee for the difference in area is not supported by the court. The focus of this case is whether the lessor's claim for the difference in area can be supported when the area in the house lease contract is a rough estimate rather than an actual number, and both parties have not explicitly agreed to calculate the rent according to the area. The court held that the lease contract signed by both parties shows that the leased house is rented out to the lessee as a whole, and both parties have not agreed on the specific area of the leased property in the contract. Therefore, the lessor's claim for the area difference is not supported by the court.

Source: "Supreme People's Court Bulletin" 2022 No. 11

Case Analysis: The lessor shall provide leased property that complies with the purpose of the lease. Lessors engaged in the business of leasing houses shall conduct testing and treatment of indoor air quality to meet national environmental protection standards. If the lessor provides leased houses with excessive harmful gases, infringing on the lessee's life, health, and safety and rendering the lessee's leasing purpose unattainable, the people's court shall support the lessee's request to terminate the contract and return the rent and other expenses.

Case No.: (2016)黑05民终744号

Case Analysis: When a lessee renovates without the lessor's consent, the relevant legal consequences are as follows: If the lessee decorates and renovates the leased house with the consent of the lessor, the handling principle of the decoration and renovation materials differs according to the validity status and termination reason of the lease contract: If the contract is invalid, and no combination is formed, the discounted price will belong to the lessor; If a combination is formed, and the lessor does not agree to use it, each party will bear the loss of current value according to the degree of fault; At the end of the contract term, the lessee cannot request the lessor to compensate for the decoration and renovation costs; If the contract is terminated, the breaching party shall bear the loss of the residual value of the decoration and renovation materials. Therefore, it is recommended that both parties clearly stipulate the decoration matters in the contract.

Case No.: (2023) Yue 13 Min Zhong 4991

Case Analysis: If a house is requisitioned during the lease term, and the contract does not stipulate or ambiguously stipulates the allocation of requisition compensation, the lessee's request for payment of compensation for the value of house decoration and renovation, relocation, and temporary resettlement from the requisition compensation should be supported. If the lessee requests payment of business interruption loss compensation from the requisition compensation, considering factors such as the lessor's loss of rent and the lessee's business losses, it should be supported appropriately based on the principle of fairness. For the lessor, the requisition of the house in question also means that they stop renting the house for profit, and the lessor's right to share the business interruption compensation based on their loss of rental income should not be easily denied.

Case No.: (2021) Yu 04 Min Zai 5

Case Analysis: 1. The lessor, in performing the housing lease contract, shall ensure that the leased property conforms to the agreed Applications. When the leased property has title defects and the purpose of the housing lease contract cannot be achieved, the lessee has the right to terminate the housing lease contract. 2. If the termination of the housing lease contract is caused by a title dispute between the lessor and a third party, and the lessee has incurred expenses for decorating the leased property for other business activities, the lessee has the right to demand compensation from the lessor for the corresponding losses.

Case No.: (2021) Jing 02 Min Zhong 2444

Case Analysis: 1. If the lessor has the intention to continue leasing the property and has determined the content of the lease contract with a third party, the lessor shall fully and promptly notify the lessee of the relevant content to ensure that the lessee can exercise the right of first refusal stipulated in Article 734 of the Civil Code. 2. Upon expiration of the lease term, the "equal conditions" on which the lessee's right of first refusal is based should be limited to key elements that directly affect the lessor's benefits in the lease contract, such as the Applications of the leased property, rent, lease term, payment term, and method.