Rent abatement/rent exemption policy for Shanghai enterprises - What are the current requirements and conditions?
In the first half of 2022, the Corona Virus broke out again in many places in China. From early March to early June, the infection numbers in Shanghai had also developed rapidly. For this reason, massive lockdown measures were issued by the local government, which resulted in the closure of almost all companies in Shanghai. After the lockdown was released, general support policies have now been introduced in various regions, including Shanghai, which include rent reduction/exemption measures for locally based companies.
We would like to summarize the current framework for obtaining this rent reduction/rent exemption in Shanghai for you below:
- Which enterprises can apply for rent reduction/rent exemption?
- What rental properties are covered by the policy?
- For what period and to what extent can the rent reduction be applied for?
- What is the legal situation for rental properties that are privately owned?
Small enterprises from all industries as well as special medium/large enterprises from the "industry" and "trade" sectors are eligible to apply.
The implementation of the policy applies to all buildings owned or used by government/government-funded enterprises under the supervision of Shanghai City or Shanghai County.
The period for which the rent reduction/rent exemption can be applied for is three to a maximum of six months. The rent reduction/rent exemption refers to the main rent (excluding administration/management fees, etc.).
In this respect, a general exemption of three months' rent can initially be applied for in the first step. In a second step, a further exemption of up to three additional months' rent can be applied for if, among other things, one of the following conditions is met: (1) the rental address has been classified as a high-risk area during a relevant period in 2022, or (2) the rental premises have been closed and sealed during a relevant period due to an official order.
The policy does not apply to rental premises in buildings that are privately owned. Nevertheless, it is worthwhile to enter into appropriate negotiations with the landlord for an amicable agreement on a rent reduction.
Support is provided by the Shanghai Supreme People's Court, which recently issued the following directive on this topic (rent reduction/rent exemption for privately owned buildings):
“If the tenants of rented premises of a non-government-owned building who use such premises for business purposes have been unable to obtain business income due to the outbreak of the pandemic or due to measures taken to prevent and control the pandemic, or if the income has seriously decreased, continued payment of rent in accordance with the provisions of the tenancy agreement is manifestly unjust.
If an amicable settlement between the parties fails (and the requirements of Article 533 of the Civil Code of the People's Republic of China are met), the tenant may request that the lease be adjusted accordingly, taking into account the actual situation of the case and in accordance with the principle of fairness. If the tenant asks the landlord to reduce the rent for a certain period of time because the rental property cannot be used normally due to the pandemic situation or the pandemic prevention and control measures, the landlord shall support the tenant in accordance with the circumstances.”
Even though there is no specific case law on this yet, it can be assumed that landlords will generally be willing to cooperate on the basis of this directive when it comes to negotiating appropriate rent reductions.