Starbucks Enforced to Pay Over 10.87 Million Yuan in Rent Arrears?!

Starbucks found itself trending again today. The reason: Tianyancha, a Chinese corporate information platform, showed that Guangdong Starbucks Coffee Co., Ltd. had newly registered as a party subject to enforcement, with an enforcement target of 10.877142 million yuan. The executing court was the People's Court of Tianhe District, Guangzhou, and the case involved a lease contract dispute.

Could a company as large as Starbucks really fall behind on rent? So we looked up the judgment in this case. Opening it, we were immediately overwhelmed — the case file is enormous. You can find the details on China Judgments Online if you're curious; we won't walk through all of it here.

Importantly, Starbucks was not the defendant in this case, nor was it sued. The whole dispute basically arose from "successive subletting." Summarizing the judgment: Starbucks rented a shop space from a third landlord, but because that third landlord was locked in a lawsuit with the second and first landlords, Starbucks withheld rent for the duration. This enforcement application was simply a demand that Starbucks pay the outstanding rent.

The property rights to the Starbucks space in question belong to Bank of Guangzhou. The bank first rented the space to Company A, which subleased it to Company B. After taking over the bare space, Company B invested heavily in renovation and partitioning, then subleased units to multiple merchants, including Starbucks. The case stemmed from Company A falling into rent arrears with Bank of Guangzhou. If Company B's lease were terminated, it would suffer heavy losses, so it agreed to repay the money on Company A's behalf. But partway through repayment, Company B decided the rent and interest demanded by the bank were excessive, and after paying a portion, refused to continue. The bank then went through the courts to require Company A, Company B, and the subleasing merchants to settle the outstanding rent and vacate the space for return.

In its defense, Starbucks stressed that it had always paid rent on schedule. The reason it didn't pay during this period was that, with the lease possibly about to be terminated, it didn't know who to pay. It wanted to wait until the lawsuit concluded, confirm the rightful recipient, and then pay. For that reason, Starbucks invoked its right of insecure defense and suspended rent payments.

In the end, Bank of Guangzhou terminated its lease contract with Company A. Company B and the subleasing merchants were ordered to pay the rent outstanding from the litigation period to the bank. With Company A out of the picture, Company B and the merchants would need to sign new leases with Bank of Guangzhou to keep using the space — otherwise they would have to move out.

Theoretically, this lawsuit had little to do with Starbucks. It was only a third party with an obligation to assist in the return of the property. But Starbucks apparently did not proactively pay the outstanding rent once the judgment came down, which is why Bank of Guangzhou applied to the court for enforcement.

Image source: Network, Starbucks Guangzhou Weibo

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