On 1 January 2013, Xiao and Chen signed a lease contract, under which Xiao let his business premises to Chen as a sports store for five years, with a yearly rental of RMB 600,000 payable on the last day of every year. Because Chen could not make substantial profits from his sports shop, on 1 January 2015, he assigned the lease contract to Sun for the remaining lease term and received RMB 500,000 paid by Sun as an assignment fee. Sun then renovated the premises and used it as a Sichuan cuisine restaurant. Xiao did not know about the assignment between Chen and Sun and Sun's restaurant business until 1 July 2015; he did not object and received the yearly rental paid by Sun on 31 December 2015. 

However, Sun failed to pay the annual rental payable on 31 December 2016, although Xiao sent him a notice to demand the payment. Xiao then discovered that Sun's business had been encountering intense competition from two newly opened Sichuan cuisine restaurants on the same street and running in deficit for at least six months. On 12 February 2017, Xiao sent a notice of termination of the lease contract to Sun and let the premises to a third party with a market yearly rental of RMB 550,000. Sun soon filed an action against Xiao, arguing that Xiao had no right to terminate the lease contract.

 

Advise Xiao under the PRC law (refer to Chinese Civil Code, Chinese Contract Law, etc).