Foreign chain stores and the leasing of premises

The Top 100 Chinese Chain Stores 2010 survey released by the China Chain Store & Franchise Association in March shows that the number of new shops opened by foreign-invested chain stores and their sales growth were higher than those of domestic Chinese chain stores in 2010. But what legal issues should foreign-invested chain stores consider when leasing commercial premises?

Clarify title

To avoid disputes and ensure that their business can run smoothly after a property is leased, foreign-invested chain stores should look for property with clear title. Property with a title certificate should be their preferred choice. Due to intense competition for quality premises, some have been leased without such a certificate – often before construction of the premises has been completed. However, a lease contract is invalid if a planning permit has not been obtained for a property under construction.

Foreign investment enterprises (FIEs) can lease temporary buildings which comply with building regulations, but the term of the lease must be within the usage period of a temporary building; any portion of the lease term exceeding the usage period will be void. Clearly, this would expose the business to risk. A people’s court will determine that a lease contract for commercial premises is valid only if a construction project permit has been obtained or the construction has been approved by the relevant authorities pursuant to the Supreme People’s Court Hearing of Disputes over Contracts for the Leasing of Urban Premises Judicial Interpretation and Application.

Hansen Zhao is a partner at Martin Hu & Partners (MHP Law Firm)