In February 2022, a prominent U.K.-based hospitality chain, specializing in luxury hotels and resorts, sought legal assistance as it expanded its operations into China’s major cities, including Beijing, Shanghai, and Guangzhou. The client aimed to lease prime real estate for several high-end hotel developments, but encountered difficulties with landlords over lease terms, compliance with local property laws, and construction regulations.

The client faced several significant challenges in securing and enforcing commercial lease agreements, including:

Disputes Over Lease Terms: Negotiating and finalizing long-term commercial leases that provided favorable terms for the client while complying with Chinese property laws.

Construction and Development Delays: The client faced construction delays due to unclear responsibilities between landlords and developers, which threatened the timely opening of the hotels.

Compliance with Local Laws: Ensuring that lease agreements complied with local land use, zoning laws, and building regulations, particularly for foreign-owned businesses.

Landlord Disputes: Several landlords attempted to modify agreed-upon lease terms, including rental price increases and shifting maintenance responsibilities to the client, necessitating legal intervention.

Legal Remedies for Breach of Contract: Enforcing the lease agreements and seeking remedies for breach of contract, particularly in instances where landlords failed to deliver properties within agreed-upon timeframes or specifications.

In March 2022, our legal team began by reviewing the draft lease agreements proposed by the landlords for the client’s hotel developments in Beijing, Shanghai, and Guangzhou. We identified several clauses that were unfavorable to the client, including provisions for rent increases and undefined maintenance obligations. We successfully renegotiated the lease terms, ensuring fixed rental rates for the duration of the lease and clarifying the landlord’s responsibilities for maintaining the structural integrity of the buildings. By May 2022, we had finalized the leases with favorable terms for the client, securing long-term control over premium locations in China’s most desirable markets for their luxury hotel chain.

Our team ensured that the lease agreements complied with local zoning and land use laws, verifying that the properties were appropriately zoned for hospitality use and that all required permits were in place for the construction and operation of luxury hotels. In June 2022, we conducted a thorough review of local regulations regarding foreign investments in real estate, ensuring that the client’s agreements complied with China’s Property Law and Land Administration Law. We worked closely with the local planning commissions in each city to ensure that all building codes and construction standards were met, especially for high-rise developments in city centers.

In July 2022, disputes arose with the landlords in Shanghai and Guangzhou regarding construction delays. The landlords attempted to shift responsibility for these delays onto the client, which could have led to significant financial losses due to postponed hotel openings. Our team initiated formal negotiations and drafted amendments to the lease agreements that clearly outlined the landlord’s responsibilities for completing construction within specific timelines. We also added provisions for penalty clauses, ensuring that the client would be compensated for any future delays or breaches. When one landlord in Shanghai refused to honor the agreed-upon construction timeline, we filed a breach of contract lawsuit in August 2022 in the local court. By October 2022, we had secured a favorable ruling, forcing the landlord to complete the necessary work and cover the client’s legal costs.

To further protect the client’s interests, we established periodic lease reviews in November 2022 to ensure ongoing compliance with the agreed-upon terms, including regular inspections of the properties to verify that landlords maintained their obligations for structural upkeep. We provided the client with ongoing legal support, creating a dispute resolution mechanism that allowed for mediation in the case of any future conflicts, minimizing potential disruptions to the client’s business operations.

Our team advised on tax-efficient lease structures in December 2022, helping the client minimize tax liabilities related to property leases under China’s tax laws. This included advice on withholding tax for rental payments made to local landlords and VAT compliance for real estate transactions. We also assisted the client with structuring financial arrangements to ensure smooth payment schedules and clear communication channels with local landlords, reducing the risk of misunderstandings or late payments.

Successful Lease Finalization: By May 2022, we had successfully renegotiated all lease agreements, securing favorable terms that protected the client’s interests, including fixed rental rates and clear landlord obligations for property maintenance and structural repairs.

Legal Victory in Landlord Dispute: Our legal action in October 2022 forced the landlord in Shanghai to complete construction as per the original agreement and covered the client’s legal costs, preventing further financial losses from construction delays.

Smooth Hotel Openings: Despite initial delays, the client successfully opened three luxury hotels in Beijing, Shanghai, and Guangzhou by January 2023, meeting their expansion timeline and establishing a strong presence in China’s hospitality market.

Ongoing Legal Support: We provided the client with a long-term lease management framework to ensure compliance with the lease terms and facilitate future negotiations with landlords, protecting their operations in China’s highly competitive real estate market.