China has announced special treatment for rent during the COVID-19 period, these incentive policies are highly localised however and individual cities and provinces have their own implementing rules and timelines.
The most pertinent question to assess the possibility of receiving rent reductions during COVID-19 is whether the landlord is a privately owned entity or a state-owned enterprise?
If the landlord is a State-owned enterprise, there have been several incentive policies issues detailing how much rent shall be reduced by during the epidemic control period which make it an easy process for companies to reduce their rent obligations.
However, if the landlord is subletting a SOE property to other tenants, there is no guarantee that the landlord will pass these incentive policies onto the sublease tenants. Rather in the policy documents, private landlords are encouraged but not obligated to pass the refunds/deductions onto their tenants, and if the landlord chooses to pass these policies on, they may be accompanied by some additional terms from the landlord.
The following are some examples of rent reductions for SME’s throughout China.
In Shanghai, the rental fee is exempted for February and for March;
In Jiangsu Province, the rental fee is exempted for February and halved for March and April;
In Beijing, the rental fee is exempted for February
In Chongqing, the rental fee for SME’s will be reduced or exempted for one to three months depending on the financial situation of the enterprise.
There are also reductions in real estate taxes, SMEs which are greatly affected by the outbreak may apply for a reduction or exemption of the real estate tax.
The real estate tax is the tax levied on the ownership of a property and it is calculated either:
By applying the rate of 1.2% to the value of the property after a deduction of 10%-20% set on a local basis; or
By applying the rate of 12% to the rental fee received from the lease of the property.
It may be possible for a tenant to negotiate a reduction of rent paid based upon these tax policies, however there is not obligation on the landlord to pass on the savings to the tenant.