If you've been relying on anecdotal evidence about what happens during lockdown with rent and / or salary reductions, read on for what the law says. SmartShanghai talked to Erex Chen, a Shanghai-based lawyer with MyLink Law Office about the new relationships between landlords and tenants, employers and employees during the new normal.
Rental reductions for residential spaces
I'm renting my apartment. Am I entitled to any kind of rent reduction during the lockdown? How does that work? What are the typical amounts?
There is no legal framework in place that mandates that your landlord has to give you any kind of rent reduction during lockdown. Your lease, however, is an agreement between the two of you. Depending on your own shared situation, you might be able to negotiate some form of reduction or delayed payment.
But it's within your landlord's purview to agree to it.
I've decided to leave Shanghai and want to end my lease early. Is there a penalty? Am I able to get my deposit back?
The right to terminate the lease contract is subject to the terms of the lease contract. The lockdown in Shanghai itself does not grant additional statutory rights to either party to terminate the lease contract unilaterally.
So, basically, again, it is a matter of negotiation between the parties.
I'm trapped outside of Shanghai and am not even using my apartment. Can I qualify for a rent reduction?
In this case, the law does have some say in the matter. If the property cannot be used because of restrictions imposed by the government, the lessee shall be entitled to some form of rental reduction or a complete exemption, as negotiated between the two parties.
If no agreement can be reached with the landlord, the lessee can file to the appropriate court.
Rental reductions for commercial spaces
Is it possible to get some kind of rent reduction for the commercial space I'm leasing? Does a "force majeure" clause affect me for the office, F&B venue, shop I'm paying rent on? For people who are getting a rent reductions on commercial spaces, what are the typical amounts?
It depends on who owns the property you're renting: a state-owned company or a private party. There are different situations for each group. Before we get into what those are, if you aren't exactly sure who owns the property you are leasing, you can visit the Shanghai Stated-owned Assets Supervision of Administration Commission websiteand search on the list of state-owned enterprises in Shanghai.
If you're renting from a state-owned enterprise:
If you're leasing from a state-owned enterprise, the latest policy in Shanghai states that you're allowed to get a rental exemption for 3 months for the year of 2022, regardless of your operational situation. If your lease is for less that 12 months, however, the rental exemption is granted on a pro-rata basis.
In addition to that, if the location of the property is listed in a high or middle epidemic risk region by the government, or the property is in lockdown, or the property is expropriated by the government — or the final lessee operates at a loss in the year of 2022 — the final lessee shall be granted a rental exemption for another 3 months for the year of 2022, thus totaling 6 months.
To get this all sorted you can contact the office of Shanghai Stated-owned Assets Supervision of Administration Commission for help. The hotline phone number is 5418 6103.
If you're renting from a private party:
If the property is owned by a non-state-owned company, and the property cannot be used for operation due to the epidemic / lockdown, which leads to the result of substantial reduction of business income on the side of the lessee, the lessee is entitled to request for rental reduction / exemption for the period affected. In terms of amounts, it's up to a negotiation between the two parties, in the range of three months rental exemption or less.
If the landlord doesn't agree to this, the lessee can file to court.
So, the landlord can simply reject the request? On what ground would a lessee then go to court and sue the landlord for rent reduction?
The high court in Shanghai just issued policy on the application of legal issues relating to the epidemic in April, 2022. This is the relevant section dealing with rental issues.
If the negotiation with the landlord for rental reduction or exemption is not successful, or is outright rejected by the landlord, the lessee can file to the court and ask for rental reduction or exemption through the court.
What about if I'm renting a service office for freelance work?
In case of service offices like WeWork, usually the contract signed is defined as "service contract" instead of "lease contract". The above policy does not apply. For service contracts, refunds are dependent on the terms in the given service contract. In our opinion, if services are not carried out due to the lockdown, it's likely that some form of refund or exemption is coming your way but you have to check with the provider.
It's looking like I'm going to end business operations in Shanghai. What are the penalties for terminating my rental contract before my lease ends?
Some good news here with this issue. Back in 2020, the Supreme Court issued a ruling on the matter, which is still valid for the time being:
"If the lessor requests cancelling the lease contract on the ground that the lessee fails to pay the rent within the agreed time limit, and requests that the lessee shall bear the liability for breach of contract, the people's court shall not upload such request."
Translation: If you can't pay your rent, the landlord 1) can't end the lease and 2) can't penalize you. Some other arrangement more beneficial to you will be determined through negotiation.
This ruling is specifically for commercial property renters whose businesses are suffering due to the epidemic. Usually, in a typical lease contract, the delay or failure in paying the rent will grant the lessor the right to request for penalty, or even the right to terminate the contract unilaterally. This regulation restricts the lessor to enforce that clause or enact that penalty.
Salary and termination issues during lockdown
My company is trying to cut my salary because my job can't be done remotely. Do they have the right to do that?
To balance the interest of the employee and the company, the official policy is as follows:
- For employees who cannot satisfy their job requirements remotely, the company is allowed to use the annual leave or other paid leave for the employee, and the salary during the leave days shall be paid according to the employment contract.
- In any case, the company is liable to pay salary as usual during the first salary payment cycle. In most cases, as the salary is paid on a monthly basis, the employee shall receive the salary as usual for the first month starting from the first day of lockdown. However, from the second month, if the employee continues not being able to work, the company is only liable to pay a living fee, which is RMB 2,072, until the resumption of work.
Does the current lockdown / quarantine situation give an employer any special rights to let go employees?
Actually, the right of the employer to terminate the labor contract under the quarantine situation is restricted, which includes:
- No termination is allowed solely relying on the fact the employee is a COVID patient, asymptomatic patient, close contact, or is not able to provide working service due to the lockdown imposed by the government. However, if the employee is pursued for criminal liability for non-cooperation of epidemic control imposed by the government, the employee can be dismissed by the employer;
- If the term of labor contract expires while the employee is a COVID patient, asymptomatic patient, close contact, or is not able to provide working service due to the lockdown imposed by the government, the term of labor contract shall be extended accordingly until the end of treatment, isolation, or lockdown is lifted.
In short, the employer is not allowed to terminate the labor contract solely relying on the fact of the outbreak or existing of covid situation, or the financial difficulty arising therefrom. The rights of termination by the employer under the labor contract law is strictly restricted. Employers, however, can still terminate a labor contract if the situation related is in line with another breach of the contract.
This article was created in collaboration with:
MyLink Law Office
Located in Pudong, MyLink Law Office is a one-stop legal service provider focusing on personalised service regarding corporation, employment, IP, family and criminal law. They have experience working with both international companies and individuals living in China.