After you’re done viewing umpteen different Shanghai properties you are probably at a stage of short-listing one of two places that best fit your needs. Your agent will start discussion with the landlord and should hopefully get you the best deal.
Knowing what is standard practice here can empower you to manage your own negotiations. I’ve written up what are standard Terms & Conditions and practices here as best as I can. Getting EVERYTHING documented is the key so you don’t end up with a “he said/she said” situation.
LEASE TERMS AND CONDITIONS
Private Landlords should provide a standard “Lease Agreement” in Chinese and English. The Shanghai Government has a standard lease that can be used if preferred. The agreed terms and conditions are included in the “Lease Agreement”. To fully secure the property, it is recommended that a deposit be paid so that the property is taken off the market. Check ownership documentation before signing the “Lease Agreement”. Make sure there are 3 copies and that your agent registers the “Lease Agreement”. In the event of any disputes, the Chinese version of the Lease Agreement will prevail.
All basic terms and conditions are written in an “Offer Letter” and submitted to each party. Once these are agreed upon the document is signed by both parties and the terms and conditions are added to the lease.
The typical lease term is two to three years. Longer lease term rentals should be agreed upon at market prices. Generally, the longer the lease the more flexibility you have. You can sign a two or three years lease with one year fixed and two years optional.
Short-term leases are below 6 months. Landlords generally don’t agree to short term contracts as they wish to keep turnover to a minimum. There are renovation expenses, empty periods and inspections of prospective tenants. If a landlord does agree to a short term lease, terms will be less flexible, the rent will be more expensive and the full amount should be paid upfront. Serviced apartments are the best option if short term tenancy is needed.
Rents are usually quoted in US dollars but usually paid in RMB. The payment of the rent is paid monthly or quarterly in advance in RMB cash or by money transfer to the landlord’s bank account. Some landlords or developers prefer you to pay into an overseas bank account so that they either don’t have to transfer the money from China or they may be avoiding tax.
A security deposit equivalent to 2 or 3 months rent is paid in cash or bank transfer to the landlord’s account. It should be paid prior to moving into the property and should be held in non-interest earning account. This money protect landlords from potential damages to the property, it’s furnishings and fittings and unpaid bills and rent. The entire amount is refundable at the expiry of the lease once the tenant has returned the property and equipment in good condition save wear and tear and paid all outstanding bills. In Shanghai, bank guarantee letters by a registered business in China are accepted by some large compounds. Deposits are sometimes not needed for leases of less than 6 months if the full rental is paid in advance. In our experience, it is more common for tenants to break their lease than for landlords not to return security deposits.
A standard receipt called a “shouju” is given for the deposit. Landlords are required to pay a 5% tax on rentals and issues a receipt called a “fapiao”. Your company will need a “fapiao” (tax receipt) if tax deduction claims are made in China.
Break lease clause
A break lease clause or early termination clause can be included after a set period of time. The term will then be considered as up to the date of break lease. It doesn’t assist in negotiations and most landlords won’t accept it. It is best to negotiate a penalty if early termination occurs and benefits if the tenant finds a new tenant to lease on the same terms and conditions.
If the landlord breaks the lease before lease end the deposit should be refunded along with compensation of two months rental.
Diplomatic clause – This is for tenants who are transferred from Shanghai by their company. A letter of transfer from the company must be submitted and no penalty should be incurred.
Sublet clause – A tenant may not be able to finish their full lease term for whatever reasons. A sublet clause allows them to find another tenant who can fulfill the same terms and conditions without incurring a penalty.
Right to renewal
There is no mandatory right to renewal of premises. Renewal terms should be discussed during initial tenancy agreement negotiations. Renewals of leases are commonly paid by the tenant and are usually equivalent to 0.5 to 1.0 month’s rent.
Landlord’s must take out structural building insurance which covers the property itself and common areas. They do not have to buy insurance for their furniture and appliances however damages caused by faulty equipment is their responsibility. Tenants should insure their own belongings especially in the event of damage done by poor construction
A property tax of 0.1% of the rent received during occupancy should be covered by the landlord.
Sub-letting is agreed by some landlords if suitable tenant is found. Sharing apartments is acceptable.
Management fee are either paid by the landlord or the tenant. In high end properties they are included in the rent. They cover the management office administration, maintenance, cleaning and repairs of properties, grounds, common areas and facilities.
Utilities such as water and electricity with a cap on amount, health club membership, extra telephone line (maximum of 2), car parking, housekeeping, car and driver etc. These inclusions are discussed between the agent and the landlord. Please keep in mind that these additions will affect the amount of the final agreed rental.
A basic fully furnished property should include the following:
White goods – Water dispenser, Microwave, Refrigerator, Washing machine
Living & dining – Sofa & sofa chairs, Coffee table, TV set, TV stand, DVD player, Dining table & chairs
Bedroom – Bed &mattress, Bedside stand, Drawers, Wardrobe
One or two IDD telephone lines and ADSL
NOTE: Higher rental properties will include Dryers, Dishwashers, Lamps, Buffets, Cabinets, Dressing tables, Bedroom sofas, Study chairs, Desks, more TV sets etc.
If the apartment is unfurnished and you want to choose the furniture, make sure you are given a fair and reasonable budget. If a client wants to take an apartment unfurnished it can be around 10% cheaper. However, if the apartment is furnished and furniture has to be stored it will not be beneficial to the landlord. The more expensive property compounds may allow some or all of the furniture to be changed or removed.
Landlords should paint walls, finish floors, and ensure all electrical appliances are in good working order. If the property is to undergo major renovations, tenants should be able to choose their own décor and furnishings.
You can check-in to your new home on the date the lease term commences. The agent, landlord/representative or management staff and yourself should have a copy of check in forms which should include a furniture list, utilities meter list, key list and general condition list. All parties should be involved in the check-in process and sign each form.
Give a copy of your passport to the management office so they can register you with the police. If they do not provide this service, go to the local police station with your lease and passport and register within 30 days. If you fail to do this you will receive a hefty fine which accrues on a daily basis.
End of lease term
One or two months before the lease expires, write to the landlord of your request to cancel or renew the lease. On the day the lease expires, the premises should be handed back in original condition allowing for reasonable wear and tear. Ensure that the agent, landlord/representative or management staff and yourself have a copy of the original check in form to clarify the original condition.
The Chinese legal system is still evolving and people generally resolve conflicts through mediation with 3rd parties. Should there be a dispute, the agent should be contacted as soon as possible to assist with mediation. It is possible to take your complaint to the Shanghai Arbitration Commission however this process is costly and time consuming and is not a recommended way to resolve disputes in China.
If you are in any need of assistance with negotiations we have a Tenants Consultancy Service that can help out.
Just mail me at firstname.lastname@example.org for more information.
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Adrienne Farrelly is one of Shanghai’s most experienced expatriate Property Agents helping expats find new homes since 1994. You can reach her at +86 13122 810 421 or firstname.lastname@example.org. Connect with her on Skype at shanghaiproperties8. Shanghai Properties