A restaurant or bar owner can bring a case to court for rent reduction if no agreement can be reached with his landlord.
We write this article for two purposes.
One is to help restaurant and bar owners understand under what circumstances and reasons they can ask their landlords to reduce their rent, and how to proceed?
The other is to help landlords and their tenants reach amicable agreements on the renegotiation of contract terms by understanding the law, although this may currently seem very difficult.
The 2020 coronavirus pandemic has hit everyone hard except for mask factories. One of the most affected industries is the catering and bar industry, as a result of being ordered to shut down, as well as restrictions on dining, one table serving one client etc., and lack of customers.
We have been asked by many Chinese and foreign restaurants & bar owners in Shenzhen “Can we ask the landlord to reduce the rent? ”
The answer is yes. It is the right of a tenant to change the contract.
Under PRC laws, there are two principles both of which could lead to either a change or termination of a contract. The two principles are Force Majeure and Change of Circumstances.
Force Majeure applies to a situation in which a party to a contract is impeded from performing his obligations due to unpredictable and unconquerable difficulties.
Under Force Majeure the affected party can be relieved from his obligation to perform the contract and liabilities of the non-performance.
In a lease agreement, the tenant’s major obligation is to pay the rent, if banking services are in operation. It is not acceptable for a tenant to cite Force Majeure as a defense for non-full payment of rent, or an excuse to terminate the contract.
A poor business environment as a result of the pandemic is a far cause to the inability of payment, this causation is difficult to be recognized under Force Majeure.
Change of Circumstances
Change of Circumstances gives the right to the affected party to change originally fair contract terms, which are now unfair, to new and fair terms in the Changed of Circumstances to balance the interests of the contract parties.
There is no impediment for the affected party to perform the contract, but to perform the contract will put the affected party in an obviously unfair and biased position.
Change of Circumstances applies to the current pandemic.
In the current pandemic, paying full rent of a restaurant or bar premises is obviously unfair for restaurant & bar owners, given business is materially affected by the pandemic.
The affected restaurant & bar owners can ask for a reduction of rent, prolong a free lease term or even terminate the contract if termination can only balance the interests of both parties within the principle of Change of Circumstances.
As for how much the rent can be reduced, and to what extent the contract can be terminated, different cases will have different answers.
Steps to Follow
The affected restaurant & bar owner shall first notice the landlord of the affected facts as a result of the pandemic, for example, closure of shops, shortage of foodstuffs, lack of customers or lack of staff.
With this notice, the restaurant & bar owner shall raise proposals or demands to change the original contract terms for renegotiation, like the amount of rent to be paid, or request to terminate the contract if that has to be done.
During the negotiation period, restaurant & bar owners shall have the right to cease rent payment with notice to the landlord (Refusal Right); Although there are no clear law provisions under PRC contract laws about this right, in many court cases it is recognized.
If your landlord refuses to renegotiate or no new terms can be reached after negotiation, it will be the responsibility of the restaurant & bar owner to bring the case to court or to a arbitration committee if the contract so states in order to get your proposed new terms to be binding, or to have the contract terminated by law.
When to bring up a legal case depends on the contract terms and what will be claimed.
Please bear in mind, if you claim for termination of contract, you should also consider the penalties for breach of contracts, severance payments of employees and also other possible debts to suppliers and loss of your restaurant fixtures etc.
There are a number of policies from different levels of Shenzhen government to support qualified restaurants & bars with respect to rent payment. Restaurant & bar owners should get to know all of these helpful policies.
This article does not constitute our legal advice, we will not be responsible for any action taken by relying on it without consulting a lawyer.
Should you wish to understand more, please contact :
Beijing Yingke Law Firm (Shenzhen Office) 深圳律师–北京盈科（深圳）律师事务所
Phone Number：18682339010 (Phone & Wechat)
Email: [email protected]
Address: 3F, Rongchao Business Building, Yitian Road No. 6003深圳市福田区益田路荣超商务中心B座3楼