In the early spring of 2022, novel coronavirus broke out again in Shanghai. The prevention and control measures taken to prevent the rapid spread of the Omicron virus also had an inevitable impact on the production and operation of most enterprises. On April 10, 2022, the Shanghai Higher People's Court issued the Third Series of Questions and Answers on the Application of Law in Cases Involving the COVID-19 (2022 Edition), explaining the core issues in disputes over commercial housing lease contracts during the epidemic. To help you gain a deeper understanding, this article briefly analyzes relevant judicial cases in this city before, and hopes to correct any shortcomings.

1、 Comparison of two Q&A content of Shanghai High Court on disputes over commercial housing rental contracts during the epidemic period

2、 Judgement Cases in Shanghai

Case 1: Shanghai Shishuiyi Catering Co., Ltd., Shanghai Hongmei Technology Development Co., Ltd. and other housing lease contract disputes

Case No.: (2021) Hu 01 Min Zhong No. 877

Trial court: Shanghai First Intermediate People's Court

Referee gist:

The Court believes that the appellant is Shuiyi Company, and the "Housing Lease Contract" and "Supplementary Agreement" signed by Guo Mou and the appellee Hongmei Company are the true representations of the parties, and the content does not violate mandatory legal provisions. The appellant is the housing lease contract relationship established between Shuiyi Company and the appellee Hongmei Company, and the guarantee contract relationship established by Guo Mou as the guarantor of the lessee and Hongmei Company should be valid according to law. A valid contract legally binds the parties to perform as agreed. Regarding the termination of the contract in this case, based on the verified facts, Shanghai has adjusted the emergency response for major public health emergencies in Shanghai from Level 1 response to Level 2 response on March 24, 2020, which should be considered as a force majeure condition. The lessee is Shuiyi Company. Due to the lack of legal basis in notifying Hongmei Company of the termination on April 4, 2020, the original judgment was rejected in accordance with the law and should be confirmed. On May 6th of the same year, the lessor informed the lessor of the termination of the contract. The confirmation of the original criteria and the agreement reached by both parties on the termination of the contract on May 6th, 2020 should be reasonable, and the judgment on the time of such termination should be maintained by the court.

Regarding the liability for breach of contract under this case, it was found that the lessee was Shuiyi Company, who returned the lease in advance and failed to pay the rent within the time limit during the performance of the contract, which constituted a material breach of contract. Therefore, it should be lawful and valid to impose the liability for breach of contract according to the contract. According to the agreement between the two parties, the department's liability for breach of contract includes the confiscation of the deposit (three month rent) and the penalty (six month rent). The original judgment was adjusted to confiscate the deposit and pay a penalty equivalent to two month rent according to the "principle of fairness and good faith". It should be pointed out that the liability for breach of contract of the Division is based on the principle of compensation for losses. Under the existing factual conditions, the loss of termination in this case involves losses such as rent incurred by the lessor during the period of delay in re signing the contract. Considering that neither party has adduced evidence in this section, the penalty for breach of contract by the judge is relatively high relative to the amount of five months' rent; The dispute between the two parties is due to the operational conditions and deterioration caused by the epidemic. In line with the principle of common prevention, common risk sharing, and corresponding fairness of the entire society in the fight against the epidemic, our court has considered adjusting the amount of liability for breach of contract to a three-month rent standard as more appropriate. In contrast to the contract in this case, the liability for breach of contract shall not be subject to the agreed penalty except for the absence of a deposit.

Case 2: Dispute over Housing Lease Contract between Shanghai Yonghai Hotel Co., Ltd., Huang Mou, and Shanghai Yedao Enterprise Development Co., Ltd

Case No.: (2021) Hu 02 Min Zhong No. 7990

Trial court: Shanghai Second Intermediate People's Court

Referee gist:

The Court believes that the lease contract signed by the parties is a true and valid expression of the parties' intentions, and should be strictly observed and performed by all parties. During the lease period, Yonghai Hotel said that it was unable to operate due to the COVID-19, so it was unable to pay the rent as agreed and moved out of the disputed house without authorization. Coconut Island Company has now taken back the disputed house and leased it separately, so the lease contract involved in the case is objectively unable to continue to be performed. Both parties have agreed to terminate the contract, so it is not improper to order the lease contract to be terminated in the first instance. Although the COVID-19 objectively has a certain impact on the business activities of Yonghai Hotel, it does not necessarily lead to the inability to continue to perform the lease contract. Therefore, the move of Yonghai Hotel from the disputed house is an unauthorized termination of the contract, which constitutes a fundamental breach of contract and should bear the corresponding liability for breach of contract. Regarding the unpaid rent, the Coconut Island Company actually controlled and recovered the disputed house on April 25, 2020, so the rent of Yonghai Hotel should be paid until April 25, 2020. Yonghai Hotel has paid the rent in full until February 1, 2020. According to the contract, the monthly rent for the period from February 1 to April 25, 2020 is 1852721.56 yuan, so the rent payable during the above period is 5228227.87 yuan. During the above period, Yonghai Hotel has paid the rent of 1.95 million yuan, and the overdue rent is 3278227.87 yuan. Since the above period was under the strict control of the COVID-19, the operation of Yonghai Hotel was greatly affected due to the limited mobility of personnel. Based on the principle of fairness, the rent loss of the above period could be shared by both parties. Therefore, the Court reduced the rent of Yonghai Hotel for one month at its discretion, so Yonghai Hotel still had to pay the rent of Yedao Company of 1425506.31 yuan. Regarding liquidated damages, Yonghai Hotel's unauthorized early termination of the contract constitutes a fundamental breach of contract and should pay liquidated damages to Coconut Island Company as agreed. In view of the actual situation of the contract performance and the degree of fault of the parties in this case, and based on the application of Yonghai Hotel, the court of first instance lowered the amount of liquidated damages and ordered Yonghai Hotel to pay a liquidated damages of 3705443.12 yuan to Coconut Island Company. There was no mistake.

Case 3: Disputes over the Housing Lease Contract between Lvpu Hotel Management (Shanghai) Co., Ltd. and Cui Mou

Case No.: (2021) Hu 01 Min Zhong No. 6390

Trial court: Shanghai First Intermediate People's Court

Referee gist:

The court of first instance held that the "Shanghai Housing Lease Contract" signed by Cui and Lvpu Company is a true expression of intent by both parties, and both parties should perform according to the agreement. In this case, as the lessee, Lvpu Company, as the lessor, has a basic contractual obligation to pay the rent and other expenses to Cui as the lessor. However, during the actual performance process, Lvpu Company failed to pay the rent after April 1, 2020 to Cui Xinhua as agreed in the contract, and should bear the corresponding payment and liability for breach of contract. Currently, the breach of contract by Lvpu Company complies with the provisions of Article 7 (3) (5) of the housing lease contract, and Cui has the right to unilaterally exercise the right to terminate the contract. To claim termination of the contract, the other party should be notified. The contract will be terminated when the notification reaches the other party. Therefore, the contract involved in this case will be terminated upon receipt of a copy of the complaint from Lvpu Company, that is, the contract will be terminated on October 30, 2020.

Regarding the lawsuit filed by Cui Mou requesting Lvpu Company to pay the rent from April 1, 2020 to the date of the judgment to terminate the housing lease contract. The court of first instance held that after the termination of the contract, if the contract has not yet been performed, the performance shall be terminated; "If the contract has already been performed, the parties may, depending on the performance and the nature of the contract, request restitution or take other remedial measures, and have the right to claim compensation for losses.". In this case, Cui Xinhua confirmed that Lvpu Company had paid the rent until March 31, 2020, so Lvpu Company should pay Cui the unpaid rent from April 1, 2020 to October 29, 2020. In addition, Lupu argued that the epidemic had led to a poor hiring situation, and that it had no income and was unable to pay the rent. Considering that the novel coronavirus epidemic did occur during the performance of the contract between Cui and Lupu Company, although Lupu Company had paid the rent for the period, the epidemic had a certain impact on the hotel service industry. In combination with the actual use of the disputed house by Lupu Company, the court of first instance exempted Lupu Company from one month's rent at its discretion during the subsequent rent arrears period. Therefore, Lupu Company shall pay the 6-month rent of the disputed house at the standard of 5833 yuan per month, totaling 34998 yuan.

The court of second instance held that the lease contract signed by both parties was legal and valid, and both parties should perform according to the contract. "The appellant's failure to pay the rent as agreed has constituted a breach of contract. The court of first instance determined that the appellant's payment and breach responsibilities were correct, so it dismissed the appeal and upheld the original judgment.".

3、 Brief analysis

1. Legal application level

By comparing the questions and answers on disputes over commercial housing rental contracts in the 2020 edition of the Shanghai High Court and this newly revised edition, it can be seen that this revision specifically adds the question of rent reduction and exemption for state-owned commercial housing, clarifying that rent reduction and exemption for state-owned housing should be implemented in accordance with national policies; For the lease of non-state operated houses, this amendment clarifies that under the conditions of "no operating income or significant decrease in operating income of the lessee due to the impact of epidemic or epidemic prevention and control measures", in accordance with Article 533 of the Civil Code, it is added that (1) the lessee can request rent reduction, extension of lease term, or extension of rent payment based on the fact that it is obviously unfair to continue to perform the lease contract; (2) The court can guide the parties to negotiate and mediate with reference to the rent reduction and exemption policy of this city.

In addition, this revision specifically adds a question and answer to disputes over commercial housing rental contracts, namely, whether the lessor can request termination of the contract and require the lessee to assume liability for breach of contract based on the lessee's delay in paying the rent during the epidemic period. This amendment clarifies that the court will not support the lessor's claim to terminate the contract and the lessee's liability for breach of contract on the premise that the lessee has "difficulty in capital turnover or significantly reduced operating income due to epidemic or epidemic prevention and control measures.". Of course, we understand that it is necessary for the lessee to provide sufficient evidence to the court regarding "difficulties in capital turnover or significant decrease in operating income due to epidemic or epidemic prevention and control measures.".

2. Judgment practice level

As the current epidemic has not yet ended, the cases currently searched are all cases of disputes over commercial housing rental contracts in this city that occurred during the epidemic in 2020. Although the court mainly applies the Series of Questions and Answers II on the Application of Law in Cases Involving the COVID-19 (2020 Edition), it is still worth our reference as follows:

(1) In the adjudication process, the court will fully consider the impact of the epidemic on tenants, and based on the principle of fairness, make adjustments to the rent as appropriate. The court will decide to appropriately reduce the rent payable. The period of the reduced rent actually takes into account the period of the epidemic containment. If the period during which the lessee claims rent reduction or exemption has actually been unaffected by the epidemic control, the rent for that period will not be supported.

(2) The court did not easily rescind the lease contract between the two parties. Due to the impact of the epidemic, the lease contract cannot be performed periodically rather than at all, and both parties shall continue to perform the contract after the termination of force majeure. Therefore, in general, the court does not support a lessee's unilateral claim to terminate the lease contract due to the impact of the epidemic, resulting in business damage and reduced income. On the contrary, although the lessee is affected by the epidemic, it cannot be equated to being exempted from its liability for breach of contract. The court will still determine the lessee's liability for breach of contract according to the specific facts of breach of contract, but the court will also adjust the amount of liquidated damages based on the impact of the epidemic.