Professor of Law, Co-director, Centre for Real Estate Law, Coordinator, Commercial Law Section, Peking University Law School
Lou Jianbo had earned both Bachelor and Master in Law from Peking University Law School and a PhD in Law from the University of London. He taught 5 years at University of Cambridge and has been teaching and doing research on commercial law, property law, and financial law at Peking University Law School since 2003. He has published extensively in both Chinese and English.
Property management service contract with Chinese characteristics: an exception to PSS- pacta sunt servanda?
The property management service (PMS) contract in Mainland China creates an exception to the principle of sanctity of contract (Pacta Sunt Servanda). It is pervasive that homeowners refuse to pay property management fees. Moreover, China’s new Civil Code provides that homeowners may rescind the PMS contract without cause.
The Chinese characteristics of the PMS in Mainland might be what behind the “soft” binding force of PMS contract in Mainland China. First, the right to rescind without cause is justified by the long-term and trust-based nature of the PMS contract. Second, residential communities in Mainland China are often big and populous where numerous homeowners share large common spaces. Consequently, property management companies are mandated to provide comprehensive management, even some quasi-public services which are normally provided by the Government. Thirdly, property management contracts normally are not negotiated by the homeowners directly, giving homeowners’ excuses to disregard the contract. Last but not least, property management contracts are between many homeowners and one property management company, resulting to rent-seeking and free rider problems at the homeowners’ side, just as tragedies of commons of other kinds.
The theory of path dependence sheds light on the Chinese characteristics of PMS in Mainland China. In spite of its soft binding force, however, it might be safe for the authors to argue that property management contract is still in line with the principle of sanctity of contract generally, given that at least some defaulted homeowners are forced to pay property management fees, and that to rescind a property management contract, homeowners will have to notify the property management company in due course and give the company proper compensation.