Defending interests in financial leasing contracts through litigation

Q: If a lessee does not pay rent pursuant to a financial lease contract, how could a lessor institute proceedings?

A: According to article 248 of China’s Contract Law and the Interpretation by the Supreme People’s Court of the Applicability of Laws to the Hearing of Disputes over Financial Lease Contracts, if a lessee does not pay the rent as agreed, and still fails to pay the rent within a reasonable time after receiving a reminder from a lessor, the lessor may request the payment of the rent in full or the termination of the contract, recovery of the leased property and claim for damages.

Q: Could the above two requests be made together?

A: The above two requests cannot be made simultaneously because the claim to the payment of the rent in full is, in essence, a request to continue performing the contract. It is just a way to make the rent due early. If a lessor requests to terminate the contract or recover the leased property at the same time, this means the lessor chooses two claims that reject each other simultaneously. It is logically infeasible.

Accordingly, article 21 of the interpretation specifies that if a lessor requests a lessee to pay the outstanding rent in full as well as requests to rescind a financial lease contract, the court should tell the lessor to make a choice in accordance with article 248 of the Contract Law. During case filing and review, if the lessor still insists on making the two claims after the court gives an explanation, the court will not accept the claims. If the court finds this situation after accepting the claims, it can dismiss the action.

Gao Ping is a partner and Zhang Miao is a lawyer at AnJie Law Firm