Perspective | How to Identify and Eliminate the Obstacles of False Leasing in the Execution Phase

In practice, false leases are mainly manifested in two typical models: backdated long-term lease contracts and disguised debt-offset leases. First, backdated lease contracts: the debtor, knowing that the property is about to be seized, signs a long-term lease contract with a third party that predates the mortgage registration or seizure date, creating the illusion that the lease relationship predates other rights. Second, debt-offset lease agreements: to avoid paying money, the debtor signs an ultra-long-term lease with other creditors or related parties, leaving the real estate to the other party for long-term use, offsetting the debt with rent. These agreements are called leases but are actually continuations of other creditor-debtor relationships, not legally recognized leases in the true sense, and do not require special protection under civil law; they do not have the effect of resisting enforcement.

Based on judicial practice and relevant regulations, suspected false lease relationships can be identified through the following characteristics:

1. Abnormally Long Lease Term

In the normal market, the lease term for shops and factories is often three or five years, and renewals are usually signed successively. However, false lease contracts often stipulate an unusually long lease term at once, often exceeding fifteen years, or even up to the maximum twenty years allowed by law. The purpose of the ultra-long lease term is to ensure that the third party can occupy and use the subject matter for a long time, forcing the court to conduct a "leased auction," greatly reducing the enthusiasm of bidders and the transaction price, directly harming the interests of the applicant for enforcement.

2. Suspicious Contract Signing Time

False leases often claim that the contract was signed before the establishment of the mortgage right or the court seizure. In actual operation, the debtor and the third party backdate the contract, deliberately making the signing date earlier than the mortgage registration or seizure date. The purpose is to circumvent the restrictions of Article 405 of the Civil Code and relevant enforcement regulations—according to Article 405 of the Civil Code, property that has been leased and delivered for possession before the establishment of a mortgage right is not affected by the mortgage right; while Article 24 of the Supreme People's Court's "Provisions on the Seizure, Detention, and Freezing of Property in Civil Enforcement" clearly states that rights and burdens established after seizure cannot be opposed to the applicant for enforcement. Therefore, backdating the contract attempts to create the appearance of a "prior" lease to oppose the priority right of repayment of the mortgagee and the applicant for enforcement.

3. Abnormal Rent Amount and Payment Method

The rent stipulated in a false lease contract is usually significantly lower than the market price, remains unchanged over a long lease term, and lacks rationality. At the same time, the payment method is often unreasonable: it is common to pay many years' rent in a lump sum in cash, with only a simple receipt as proof, and no bank transfer records to support it. For example, some contracts stipulate that the rent for 20 years is paid in one lump sum and the amount is far lower than the market value, the payment method is cash without any vouchers, which obviously deviates from normal transaction habits. All these unreasonable clauses are important characteristics of the false disguise of the contract.

4. Abnormal Possession and Use of the Subject Matter

A real lease is usually accompanied by the lessee's actual possession and use of the leased property. However, false leases often lack real possession: the debtor only arranges for the third party to "possess" the house when the auction or seizure is imminent, creating the illusion that it has been used all along. In enforcement practice, it is often found that the so-called lessee hastily moves in after the seizure, or only places a small number of items on the scene to pretend to have occupied it. In addition, the false lessee has a close relationship with the debtor, often being relatives, friends, or affiliated companies. Therefore, the authenticity of possession can be verified through various channels: such as checking whether the lessee has renovated the house, whether they have paid property management fees, water, electricity, and gas fees for a long time, and whether they have registered the case-involved house as a business place, etc. If the above traces of use are missing, it often indicates that the lessee has not truly continuously occupied and used the property, and the authenticity of the lease relationship is questionable.

As mentioned above, the above characteristics are often present in false leases, constituting intuitive standards for identifying false leases. For example, in a typical case, the debtor claimed that the property had been leased to a third party for 20 years with a total rent of 400,000 yuan before the mortgage. However, the court found that: the contract rent was far lower than the market price (the annual rent of a house in the urban area is at least 100,000 yuan, but the contract stipulates an annual rent of 20,000 yuan), the payment method was a one-time cash payment without receipts, and there were clauses for the lessor to pay water and electricity fees, and there was no evidence to prove that the third party had actually occupied and used the house. Therefore, it was determined that the contract did not conform to daily leasing habits, its authenticity was seriously questionable, and it was a false lease relationship maliciously fabricated by the parties.

In the face of situations where the debtor and a third party collude to forge lease contracts, the applicant for enforcement should actively take measures, investigate and collect evidence through multiple channels, and promptly expose the authenticity of the lease relationship to provide support for the court to remove obstacles to enforcement:

The applicant for enforcement may request the court to investigate the suspicious lease relationship ex officio. For example, retrieve the bank account statements and payment vouchers of the debtor and the so-called lessee to verify whether there are real rent transactions. If the lessee claims to have paid a large sum of rent at once, but there is no bank transfer record, only a receipt, it is obviously abnormal. The enforcement judge can directly verify the authenticity of the rent payment by checking the financial accounts. Other evidence gathering, such as checking the lease registration of the case-involved house with the real estate registration authority, and obtaining records from the tax authority on whether the lease contract has paid taxes and whether rental income has been declared for tax purposes. This third-party authoritative information can also help verify the openness and authenticity of the lease relationship.

The applicant should cooperate with the court in conducting a field inspection of the property involved in the case: checking whether there are any signs of occupancy or use of the house, whether the indoor furnishings have been used for a long time, whether the doors and windows have been replaced, and the condition of the added locks, etc. At the same time, through street visits and inquiries with property management personnel, community security guards, and neighboring residents, find out who has been actually occupying the house. On-site investigations often reveal flaws: for example, the property management reflects that the house has been vacant for a long time and no one has been seen moving in, or neighbors confirm that the homeowner's family has been living there and no one else has rented it. The above information can be used as important evidence for determining the authenticity of possession.

Obtain the property fee payment records of the property in question from the property management company, as well as the historical usage details of water, electricity, and gas. If water and electricity usage has been zero or far below normal residential levels for a long time, it often indicates that the property is not actually being used. Similarly, if the "tenant" has never registered a vehicle or access card with the property management, nor paid property service fees, the rental relationship may be false.

In response to false leasing obstacles encountered during enforcement, the applicant should make full use of the enforcement objection procedure and relevant legal provisions to break through the appearance of "leasehold rights being superior to seizure rights":

According to Article 227 of the Civil Procedure Law and relevant judicial interpretations, if an outsider claims to have rights over the subject matter of enforcement, they should first submit a written enforcement objection; if the objection is rejected, they can file an outsider's enforcement objection lawsuit within the time limit. When claiming leasehold rights, the tenant's request to exclude forced execution must meet strict conditions. Articles 29 and 31 of the Supreme People's Court's "Provisions on Handling Several Issues Concerning Enforcement Objections and Re-examination Cases" provide guidance on objections based on leasehold rights by outsiders: the tenant must prove that a legally valid written lease contract was signed before the court's seizure, and that they have actually occupied and used the real estate, in order to prevent execution. If these two requirements are not met, the tenant's objection request should not be supported. For example, an outsider, Company A, claimed that it had leased the property of the debtor, Company B, for 20 years two years before the seizure, but upon investigation, it could only provide property payment receipts that began after the seizure, and could not prove continuous and stable possession of the house before the seizure. The court therefore rejected Company A's objection lawsuit request. This shows that "contract first + possession first" is the legal threshold for leasehold rights to oppose execution.

At the same time, judicial interpretations further clarify that if the tenant and the debtor collude maliciously, leasing real estate at a clearly unreasonable low price, or fabricating rent payment vouchers to fabricate a rental relationship, then their request to prevent the transfer of possession of the property will not be supported. That is to say, even if the lease contract is formally established first and the tenant nominally possesses the subject matter, as long as there are abnormal situations such as abnormally low rent, it can be presumed that the two parties colluded maliciously and the leasehold right is not real, and the court can not recognize the validity of the lease relationship. This provision provides the executing judge with a legal basis for substantive review and exclusion of false leasing, preventing illegal parties from obstructing execution under the guise of "priority of leasehold rights".

The correct understanding of "leasehold rights being superior to seizure rights" needs to be combined with the time of seizure and Priority of property rights and other rules. According to Article 24 of the "Provisions on Seizure, Detention, and Freezing of Property", any disposal actions (including new lease agreements) taken by the debtor after the property is seized shall not be opposed by the applicant for execution. Therefore, any lease contracts that appear after the seizure takes effect shall not have the effect of opposing execution, and the court can directly disregard the leasehold right and legally auction and dispose of the subject property. If the outsider is dissatisfied, they can file an objection to the execution behavior, but since the law explicitly prohibits it, this objection is difficult to establish.

For lease relationships that already existed before the seizure, there is also a conflict with priority rights such as mortgage rights. Article 405 of the Civil Code stipulates the principle of balancing the interests of the mortgagee and the lessee: property that has been leased and transferred possession before the establishment of the mortgage right, the lease relationship is not affected by the mortgage right; conversely, if the mortgage is prior and the lease is later, then the lease cannot oppose the mortgage right, and the secured creditor's right can be realized without being restricted by the lease. This rule of the Property Law is one of the specific manifestations of the principle of "lease not being broken by sale". At the same time, Article 28, paragraph 2, of the Supreme Court's "Provisions on Auction and Sale of Property in Civil Enforcement" further requires that existing leasehold rights, etc. Beneficial property rights generally do not disappear due to auction, but if their continued existence affects the realization of prior secured rights or priority rights, the court should remove them before auctioning. This means that in the execution procedure, if the existence of the leasehold right conflicts with a priority right such as a mortgage right, the court has the right to suspend the effectiveness of the lease and auction the vacant property to protect the interests of the mortgagee. In short, leasehold rights are not absolutely unbreakable; under certain conditions (such as the lease being later than the mortgage or clearly harming priority rights), they must also give way to higher-ranking rights.

According to the basic norms of the Civil Code, civil legal acts that maliciously collude and harm the legitimate rights and interests of others are invalid (see Article 154 of the Civil Code). The debtor and the outsider collude to forge a lease contract in order to infringe on the realization of the applicant's creditor's rights, which is exactly the "malicious collusion" situation referred to by the law, and therefore the lease contract is invalid from the outset. Once the lease contract is determined to be invalid, the so-called lessee does not enjoy the legal right to occupy and use the subject matter, and therefore cannot claim the application of "lease not being broken by sale" and other rules to oppose execution. It can be seen that using false leasing to oppose execution is just a "legal appearance" game: it seems to have grasped the principle of lease priority, but because the contract is invalid, it fundamentally loses legal protection.

It should be noted that in the execution procedure, there has been a long-standing controversy over the intertwining of procedure and substance in the examination of the authenticity and validity of lease contracts. One view is that the execution stage should focus on procedural matters and has no right to deal with the substantive validity of the contract, and should guide the parties to resolve it through an objection lawsuit in the trial procedure; another view is that the executing judge can and should conduct a substantive review of obviously false leases to promptly eliminate obstacles. From recent judicial practice, the latter is more in line with legal principles and practical needs: if the evidence has fully exposed the falsity and invalidity of the lease contract, the execution agency should dare to make a decision to auction without the lease and order the property to be vacated based on the existing evidence, and confirm through an execution ruling that the leasehold right will not be protected. If the lessee is dissatisfied, they can file an objection lawsuit, and the court will ultimately determine the validity of the contract. This avoids prolonged execution and also preserves the parties' channels for redress. In short, attaching equal importance to substance and procedure and flexibly using the enforcement objection procedure is an effective path to breaking the deadlock of false leasing and balancing the interests of all parties.

To prevent the execution obstacles that may arise from false leasing, the applicant for enforcement should proactively prevent and actively respond to risks during the execution phase, controlling risks from the outset:

Before entering the execution procedure, the applicant for enforcement can use methods such as property record checks and on-site inspections to determine whether the property to be executed has a lessee. If an occupant is found on the property or rumors of leasing are heard, an on-site inspection should be conducted and evidence preserved. When applying for property preservation during the litigation stage, the applicant can request the court to ascertain and record the occupancy and use of the property, and if necessary, request the judgment debtor to provide a declaration of no leasing (just as many mortgage loan contracts require the debtor to promise that the property is not leased). These measures help prevent the judgment debtor from suddenly signing a lease with a "tenant" during the period between the judgment becoming effective and the filing of the enforcement case.

Article 241 of the Civil Procedure Law and judicial interpretations have established a property reporting system for judgment debtors. The applicant for enforcement can urge the court to order the judgment debtor to report on the existing leasing situation when reporting property. The law requires the judgment debtor to truthfully report any other rights established on their property or situations where the property is occupied or used by others, otherwise they will face fines and detention. Through this procedure, on the one hand, it forces the judgment debtor not to dare to falsely report, and on the other hand, even if a so-called leasing relationship appears later, the authenticity can be questioned by comparing it with the reported content (if the judgment debtor did not mention the lease in the previous report, but suddenly a long-term lease appears during the execution, it is clearly contradictory).

Before the court seizes and auctions the property, the applicant for enforcement should actively cooperate with the court to control the scene. Even if the judgment debtor privately signs a lease, it will be difficult for a third party to claim ignorance. In addition, in the auction announcement, the court usually discloses whether the property is leased or occupied. The applicant for enforcement should ensure that they provide the court with the information they have truthfully, prompting the court to announce "no lease" or "lease not protected by law," etc., to reduce the concerns of bidders and increase the success rate of the auction.

For acts with clear indications of false leasing and malicious obstruction of enforcement, the applicant for enforcement can apply to the court for judicial sanctions or report clues to the procuratorial organs. According to Article 114 of the Civil Procedure Law, if the judgment debtor resists or obstructs enforcement, the court may impose fines or detention; if the circumstances are serious enough to constitute a crime, criminal responsibility will be pursued according to law. For example, the court can be requested to impose judicial detention on the third party who provides false leasing evidence or refuses to vacate the property, forcing them to cooperate with the court's enforcement. For cases with serious collusion and large amounts of money involved, they can be transferred to the public security organs for investigation for the crime of refusing to execute judgments and rulings or false litigation. Some cases show that some parties, seeing that false leasing may lead to criminal liability, retreated and voluntarily withdrew their objections. Therefore, fully utilizing civil compulsory measures and criminal sanctions can increase the illegal cost of false leasing behavior and have a deterrent effect.

In summary, when faced with obstacles from false leasing, the applicant for enforcement should adhere to the approach of "proactive investigation, legal defense, reliance on the court, and strict punishment of violations." They should actively collect evidence and cooperate with the court's review, while resolutely using legal weapons to protect their own rights, in order to minimize the interference of false leasing on enforcement work.

Case Source: Zhoukou Municipal People's Procuratorate

Sun and his wife mortgaged their property to a bank for a loan and then defaulted, entering the enforcement procedure. During the auction, a third party, Zhao, suddenly raised an objection, claiming that he had signed a 10-year lease contract with Sun in 2018, paying 50,000 yuan in rent, and requesting confirmation of his leasehold right, using the principle of "lease not broken by sale" to prevent the court from delivering the property. The court's review found that the lease contract had many unusual aspects: the rent was significantly lower than the market price (5,000 yuan per year, while the market price of similar properties was about 15,000 yuan), the payment method was cash without any evidence, and there were unreasonable clauses such as the landlord paying utility bills, and there was no evidence that Zhao had actually occupied or used the property. Based on this, the court determined that the authenticity of the contract was questionable and ruled to reject Zhao's execution objection. Zhao appealed to the court, and the final judgment rejected his appeal. Subsequently, Zhao applied to the procuratorial organs for supervision, and the procurator, after investigation and evidence collection, also found that: when the property was mortgaged for a loan, Sun had declared that it was "not leased," but the contract was "coincidentally" signed on the eve of the mortgage registration; the property had been occupied by Sun's family for many years; the so-called lease was clearly a malicious collusion and forgery. Based on this, the procuratorial organs believed that the lease contract between Sun and Zhao was a malicious collusion and an invalid contract, and Zhao's claim of rights based on the invalid contract could not be supported. In the end, the effective judgment of the court did not support Zhao's claim, and the property involved was auctioned and transferred as scheduled. In addition, because Sun and Zhao fabricated a lease contract and filed a false lawsuit, obstructing enforcement, their actions constituted a crime. At the suggestion of the procuratorial organs, the public security organs filed an investigation, and the court sentenced Sun and Zhao to fixed-term imprisonment and fines for the crime of false litigation, forming a strong deterrent against false leasing that obstructs enforcement. In this case, the procuratorial organs fully exercised their legal supervisory functions, accurately identifying and severely cracking down on false litigation, accurately judging the validity of the contract, legally rejecting the unreasonable claims of the parties, and forming a strong deterrent through criminal accountability, upholding judicial justice and social integrity.

Case Source: Yichang City Xiling District People's Court

In the enforcement of a financial loan dispute between a certain bank and Company B, the court seized the property under the name of Company B in August 2015. An outsider, Company A, filed an objection, claiming that it had leased the property for 20 years in 2013, with an annual rent of 100,000 yuan, and had paid the 20-year rent in a lump sum by offsetting it against the engineering payment owed by Company B. In other words, Company B used a long-term lease to settle its debt to Company A (a typical case of "debt-for-rent"). After the executing court rejected the objection, Company A filed a third-party objection lawsuit. During the trial, the court, based on Article 31 of the judicial interpretation, first examined whether Company A's lease met the two requirements of a prior written contract and actual possession before the seizure. Company A submitted the 2013 lease agreement and several property fee receipts as proof, but the court found that these property fee receipts were from 2019 at the earliest, only proving that Company A may have managed and used the property after 2019, but not proving that it had continuously and stably possessed the property before the seizure in 2015. In other words, Company A could not prove that it was the lessee and actually used the property at the time of the seizure. Therefore, the court ruled that Company A did not meet the conditions for the objection and dismissed its lawsuit to exclude enforcement. The second instance upheld the judgment. This case shows that even if an outsider produces a lease agreement signed before the seizure, if it cannot prove that it had actually possessed and used the subject matter before the seizure, it cannot exclude enforcement. A formally backdated contract cannot overcome the legal threshold of actual possession.

Case Source: Jiangbei District People's Court, Chongqing

Hu mortgaged his property to a bank for a loan. After failing to repay the loan, the property was included in the court's judicial auction process. During the auction appraisal, Zheng, an outsider, suddenly applied as the lessee, requesting the court to auction the property with the lease in place. Zheng claimed that he had signed a lease with Hu before the property was mortgaged to the bank (January 2017), for a period of 10 years (until January 2027), and had already paid over 2 million yuan in rent. On the surface, Zheng provided a written lease agreement and a large bank transfer voucher to prove his rent payment. However, the careful executive judge found flaws in the transfer voucher: the amount was precise to the cent, but it was insufficient to cover the total rent stipulated in the contract; Zheng was evasive, changing his statements about the rent payment method, revealing numerous loopholes. These anomalies alerted the presiding judge. The court immediately formed a collegial panel to review Zheng's objection application and summoned Zheng, pointing out the legal consequences of forging a lease contract and obstructing justice. Under strong legal pressure and further investigation and evidence gathering, Zheng finally admitted that the real lease contract was signed in October 2018, after the property was mortgaged, and therefore did not have the effect of resisting the mortgage right. He admitted to forging the contract signing date and providing false evidence to interfere with the auction. Given Zheng's timely confession, the court dealt with him leniently: a fine of 2,000 yuan and an order to write a letter of repentance. Zheng then withdrew his objection lawsuit, and the auction of the property proceeded smoothly. In this case, the judge, through careful identification of the details of the rent voucher, promptly exposed the false lease, protecting the legitimate rights and interests of the applicant for enforcement.

Case Source: Qingshanhu District People's Court, Nanchang

In an enforcement case involving a huge debt, Duan, the person subject to enforcement, conspired with his wife and others to sign a false house lease contract to prevent the court from auctioning his property, and fabricated rent payment vouchers, after which an outsider filed an objection to enforcement and a lawsuit. The court of first instance initially recognized the lease relationship and suspended the disposal of the property. After intervention and supervision by the procuratorial organs and investigation by the public security organs, it was found that the lease contract was completely forged. Finally, the court corrected the enforcement judgment, resumed the auction of the property, and transferred the relevant personnel suspected of the crime of false litigation for criminal prosecution. After trial by the court, Duan, the person subject to enforcement, and Huang, an outsider, and others were found guilty of the crime of false litigation and sentenced to fixed-term imprisonment ranging from three to two years, and fined. It is evident that the establishment of the principle of "lease not broken by sale" is intended to protect the rights of lessees, and lease relationships that comply with the law should naturally be protected by law. However, for buyers, lessees, and original owners, everything must be done within the legal framework; otherwise, not only will the fictitious lease relationship not be protected by law, but they may also be punished for perjury or false litigation.

In summary, the judicial practice experience in various places shows that false leases are not impossible to identify; their false nature often cannot escape strict evidence review and legal analysis. By examining the formal requirements of the contract and the actual performance, combined with market common sense and the relationship between the parties, the court can, to a certain extent, identify and eliminate false leases. For lease contracts that are clearly maliciously colluded, they should not only not be protected, but in necessary cases, the legal responsibility of the parties should be pursued to protect the legitimate rights and interests of the creditors.