I. Particularity and Risk Overview of Pig Farm Lease Contracts

Against the national backdrop of reducing live pig production capacity, large-scale pig farming enterprises that primarily operate leased pig farms can only achieve the goal of production capacity regulation by rescinding contracts to terminate part of their pig farm leasing relationships. However, the large-scale phase-out of pig farm production capacity involves complex adjustments to legal relationships, and the handling of legal issues such as contract rescission, liability for breach of contract, and damages directly determines the success or failure of an enterprise’s strategic adjustment. In this round of substantial production capacity reduction, the phase-out of leased pig farm production capacity has become the most prominent source of conflicts and is highly likely to trigger disputes.

Under the leasing cooperation model, lessors invest huge funds (tens of millions or even over 100 million RMB) to build modern large-scale pig farms in accordance with lessees’ requirements, and the lease term is relatively long (10 to 15 years) to recover investment costs. Lessees are required to pay millions or even tens of millions of RMB annually for leasing and environmental protection treatment fees. Most pig farm lessors cooperating with modern pig farming enterprises are partners in local government investment promotion projects, and many are local enterprises with considerable influence. In the current period of profound industrial adjustment, legally and compliantly handling such leasing relationships has become a major legal task for every large-scale pig farming enterprise.

Modern large-scale pig farms are fundamentally different from ordinary factory buildings and shops, as they feature high professionalism and complexity in process layout, equipment configuration, environmental protection, and epidemic prevention requirements, with corresponding legal risks bearing distinct industrial characteristics. Based on current legal provisions and judicial practice, this paper systematically analyzes the legal risks faced by large-scale pig farming enterprises in pig farm lease contract disputes and puts forward targeted risk prevention and control suggestions.

II. Legal Analysis of Disputes over Lease Fitness of Leased Property

1. Determination and Dynamic Adjustment of Lease Fitness Standards

Pursuant to Article 708 of the Civil Code of the People’s Republic of China, a lessor shall deliver the leased property to the lessee as agreed and maintain the leased property in conformity with the agreed purpose during the lease term. This provision establishes the lessor’s obligation of lease fitness, i.e., the lessor’s statutory obligation to ensure the leased property meets the agreed purpose of use throughout the lease term. Nevertheless, the standard for "lease fitness" of large-scale pig farms is notably complex and dynamic.

On the one hand, the lease fitness requirements for modern large-scale pig farms cover not only the physical condition of buildings but also professional configurations such as epidemic prevention facilities, environmental protection treatment systems, and automated feeding systems. Such requirements are constantly evolving with the update of laws and regulations and the improvement of industrial technical standards. For instance, the "four-level protection" standard for biosecurity and epidemic prevention, as well as environmental protection requirements for resource utilization of manure and sewage, have been upgraded multiple times in recent years. Following the implementation of the Ecological Environment Codeon August 15, 2026, environmental compliance standards will be further elevated, and the lease fitness assessment of existing pig farms must incorporate the new requirements of the Code.

On the other hand, under the competitive pressure of "cost reduction and efficiency enhancement" in the industry, modern pig farming enterprises have imposed higher technical standards on pig farm infrastructure, including intelligent environmental control systems, precise feeding equipment, and high-efficiency environmental protection facilities. To meet operational needs and mandatory provisions of laws and regulations, modern pig farming enterprises may put forward multiple rectification requirements to lessors; however, lessors often refuse or delay performing rectification obligations on the grounds that "the pig farm has passed acceptance and delivery" or "rental income is insufficient to cover rectification investment". The two parties have major differences in determining the boundary of the "obligation of lease fitness", resulting in a performance deadlock.

2. Legal Dilemma of Rectification Cost Sharing Mechanism

From a legal perspective, the core of lease fitness disputes lies in two key issues: first, the basis for determining the lease fitness standard – whether it shall be the industrial standard at the time of contract conclusion, or the updated laws, regulations and industrial standards during the lease term; second, the reasonable sharing mechanism of rectification costs – who shall bear the rectification expenses arising from standard upgrades if the contract does not explicitly stipulate. At present, there are no clear judicial interpretations or typical cases for reference on the above issues, leading to considerable uncertainty in the application of law.

In judicial practice, courts usually make comprehensive judgments based on contractual agreements, industrial practices, and the degree of fault of both parties. If the contract explicitly stipulates that the lease fitness shall be judged according to the laws, regulations and industrial standards during the lease term, the lessor is obligated to carry out rectification in accordance with the latest standards. However, if the contract does not make clear provisions and the two parties fail to reach a consensus, judicial authentication may be required to determine the lease fitness of the pig farm, which will significantly increase the time and cost of dispute resolution. Therefore, clarifying the dynamic adjustment mechanism of lease fitness standards when signing lease contracts is the key to preventing such risks.

III. Legal Obstacles to Contract Modification and Rescission

1. Dilemma of Modification under the Principle of Consensus Through Consultation

Article 543 of the Civil Code of the People’s Republic of China stipulates: "Parties may modify a contract if they reach consensus through consultation." This provision establishes the "consensus through consultation" principle for contract modification, meaning neither party has the right to unilaterally modify the contract, and contract modification shall only be established upon the unanimous expression of intent by both parties. In the actual operation of modern pig farming enterprises, due to sharp fluctuations in live pig market prices and rising breeding costs, some pig farms have suffered serious losses, and enterprises hope to suspend leasing for rectification or reduce rental standards through consultation.

However, given that lessors have invested huge construction funds and some projects involve financing arrangements such as bank loans, lessors strongly oppose rent reduction or suspension of contract performance. From the perspective of legal practice, the negotiation of contract modification faces the following dilemmas: the interests of both parties are severely opposed, and lessors lack willingness to negotiate for investment recovery; some projects involve local government investment promotion commitments, and lessors may have received implicit support from local governments; even if a temporary adjustment agreement is reached, disputes may arise again due to subsequent market changes. Therefore, relying solely on negotiation to achieve contract modification before litigation is extremely ineffective.

2. Conditions and Defects in the Exercise of Agreed Right to Rescind

The agreed right to rescind refers to the right of one or both parties to rescind the contract under specific conditions as pre-agreed by the parties in the contract. Paragraph 2 of Article 562 of the Civil Code of the People’s Republic of China stipulates: "Parties may agree on the causes for one party to rescind the contract. When the causes for rescission occur, the party entitled to rescind may rescind the contract." Nevertheless, when some pig farming enterprises signed lease contracts with lessors several years ago, the industry was in a period of rapid expansion, resulting in overly brief contract texts that focused mainly on core clauses such as rental standards and lease terms, failing to foresee new situations that might arise in subsequent industrial development.

Common defects in contract texts include: no agreement on the right to rescind the contract in case of policy changes in production capacity regulation; no right to rescind when the live pig price remains depressed to a specific threshold; no right to rescind when the pig farm fails to meet compliance requirements due to elevated environmental or epidemic prevention standards; no right to rescind when the lessor refuses to perform necessary rectification obligations. Due to the above defects in contract texts, modern pig farming enterprises find it difficult to invoke contractual agreements to exercise the right to rescind and are forced to turn to the statutory right to rescind, with significantly increased burden of proof.

3. Burden of Proof Challenges for Statutory Right to Rescind

The statutory right to rescind refers to the right directly prescribed by law for parties to rescind the contract under specific circumstances. Paragraph 1 of Article 563 of the Civil Code of the People’s Republic of Chinaestablishes the statutory rescission standard where "fundamental breach" leads to "failure to achieve the purpose of the contract". In judicial practice, to invoke the statutory right to rescind, it must be proven that the lessor has committed a "fundamental breach" and that such breach has resulted in "failure to achieve the purpose of the contract". However, the fixation and collection of relevant evidence face the following difficulties:

First, lack of procedural documents. During contract performance, modern pig farming enterprises have not formed complete written records of the lessor’s breach of contract, and key documents such as rectification notices, confirmation letters of breach facts, and meeting minutes are missing or defective in form.

Second, non-standard evidence forms. For breach facts such as biosecurity hazards and substandard environmental protection facilities of the pig farm delivered by the lessor, evidence has not been timely fixed through effective means such as notarization preservation and third-party testing, resulting in insufficient probative force of existing evidence materials such as videos and photos.

Third, incomplete negotiation records. Communication between the two parties on rectification mainly relies on oral consultation or instant messaging tools, lacking formal written negotiation records and failing to form a complete evidence chain.

Fourth, difficulty in proving causality. Even if the lessor’s breach can be proven, it is still necessary to demonstrate a direct causal link between the breach and "failure to achieve the purpose of the contract", which is usually difficult to prove in judicial practice.

IV. Special Legal Risks in the Exercise of Contract Rescission Right

1. Legal Consequences of Expiration of the Period of Exclusion

The exercise of the contract rescission right is subject to the period of exclusion. Article 564 of the Civil Code of the People’s Republic of China stipulates: "If the law prescribes or the parties agree on a time limit for exercising the right to rescind, the right shall be extinguished if it is not exercised within such time limit. If the law does not prescribe or the parties do not agree on a time limit for exercising the right to rescind, the right shall be extinguished if it is not exercised within one year from the date when the person entitled to rescind knows or ought to know the cause for rescission, or if it is not exercised within a reasonable time limit after being urged by the other party." In cases involving modern pig farming enterprises, the issue of the period of exclusion for the rescission right is prominent in some projects.

Specific manifestations are as follows: first, the long decision-making chain of enterprises leads to a long time from the identification of problems by business departments to management decision-making, which may miss the optimal time for exercising the rescission right.

Second, although rescission notices have been sent for some projects, improper statements by lessee’s staff in subsequent communications may mislead the other party into believing that the contract can still be performed, possibly constituting withdrawal or waiver of the exercise of the rescission right.

Third, defects in the time node and formal requirements of urging for matters requiring urging procedures affect the validity of the exercise of the rescission right. Enterprises shall establish a time limit monitoring mechanism for the exercise of the rescission right to ensure timely exercise of the right within the period of exclusion.

2. Potential Adverse Impact of Judicial Jurisdiction

Pursuant to Article 34 of the Civil Procedure Law of the People’s Republic of China, an action brought due to a dispute over real property shall be under the exclusive jurisdiction of the people’s court where the real property is located. Disputes over pig farm lease contracts shall be subject to the exclusive jurisdiction rule, under the jurisdiction of the people’s court where the leased subject matter is located. This jurisdiction rule brings significant litigation risks to modern pig farming enterprises.

First, most pig farm projects entered by modern pig farming enterprises are local government "investment promotion projects", and enterprises may face an unfavorable litigation environment in local courts.

Second, some cases involve group disputes, and local courts may tend to protect the interests of local enterprises based on social stability considerations.

Third, cross-regional litigation increases litigation costs and coordination difficulties, bringing additional challenges to case management and evidence organization. To address this risk, enterprises are advised to agree on arbitration jurisdiction as much as possible when signing contracts to avoid adverse impacts.

V. Procedural Risks in Litigation Disputes

1. Complexity of Counterclaim Procedures

In cases where the lessor sues first to demand continued performance of the contract, modern pig farming enterprises must file a counterclaim to request rescission of the contract. The counterclaim procedure involves the consolidated trial of the principal claim and the counterclaim, making the formulation of litigation strategies more complex. If the claims of the principal claim and the counterclaim are contradictory, the court may prioritize the trial of the principal claim based on the principle of litigation economy, prolonging the trial period of the claim for contract rescission.

In addition, procedural matters such as the allocation of burden of proof for counterclaims and advance payment of litigation fees increase the uncertainty of litigation. In some cases, lessors may adopt strategies such as filing separate lawsuits and adding claims to delay litigation proceedings, imposing greater litigation pressure on enterprises. Therefore, enterprises need to formulate thorough litigation strategies when responding to lawsuits, and rationally use procedural means such as jurisdictional objections, evidence preservation, and interlocutory execution to strive for a favorable litigation position.

2. Risks of Evidence Preservation and Judicial Authentication

Disputed focuses such as the current status of pig farm facilities and equipment and whether they meet the agreed standards often rely on judicial authentication conclusions. However, the judicial authentication procedure carries the following risks:

First, the selection of authentication institutions may be affected by local factors, leading to uncertainty in the impartiality of authentication conclusions.

Second, whether the pig farm’s biosecurity and environmental protection meet standards involves highly professional issues, and no professional authentication opinion can be formed on the causality between pig farm losses and defects in pig farm facilities and equipment.

Third, the long authentication period may lead to prolonged delay of cases, and enterprises still need to pay rents and other fees during litigation, further increasing financial burdens.

Fourth, high authentication costs increase litigation expenses.

For obstacles to pig farm delivery: the lease contract does not specify in detail how to deliver the pig farm upon contract rescission, making the lessee’s delivery obligation unclear; as special facilities, pig farms involve cumbersome rectification and maintenance obligations before delivery, such as cleaning of manure ditches and maintenance of facilities and equipment; to claim site occupation fees, lessors may raise delivery standards or obstruct/delay the completion of delivery.

VI. Construction of Legal Risk Prevention and Control System

1. Standardization of Contract Texts

Establishing a standardized and professional contract text system is a fundamental project to prevent legal risks. It is recommended to improve contract texts from the following aspects:

First, clarify the dynamic adjustment mechanism of lease fitness standards, and agree that the lease fitness shall be judged according to the laws, regulations and industrial standards during the lease term.

Second, set clauses on conditions for contract modification and rescission, including handling rules for scenarios such as market price fluctuation thresholds, production capacity policy changes, and elevated environmental protection standards.

Third, establish a linkage adjustment mechanism between rents and market prices/breeding costs, and set reasonable rent adjustment cycles and ranges.

Fourth, refine the constituent elements and compensation standards for liability for breach of contract, and clarify the legal consequences of delayed rectification, refusal of rectification and other breach scenarios.

Fifth, specify the "delivery obligation" upon contract rescission, define the rights and responsibilities of both parties, and agree on specific delivery standards, allocation of rectification and maintenance obligations, calculation methods of site occupation fees, etc. Through refined design of contract texts, potential disputes shall be eliminated in contract clauses as much as possible.

2. Performance Risk Monitoring Mechanism

Establish a full-process performance risk monitoring mechanism to ensure timely and effective fixation of breach facts. Specific measures include:

First, establish a regular inspection system to periodically check the compliance status of pig farm facilities and equipment and form written records.

Second, promptly notify the lessor in written letters of any discovered breach or potential safety hazard, clarify rectification requirements and time limits, and retain service certificates.

Third, prioritize traceable methods such as EMS express delivery and notarized service for communication on important matters.

Fourth, for the lessor’s refusal of rectification or inadequate rectification, promptly entrust a third-party testing institution to issue a testing report and preserve evidence through notarization.

Fifth, establish a performance file management system to completely preserve procedural documents such as correspondence, meeting minutes, on-site photos and video records. Cultivation of evidence awareness is the key to performance risk prevention and control; front-line business personnel shall fully recognize the importance of procedural documents and develop the work habit of written retention.

3. Phase-Out Project Evaluation and Implementation Strategy

For pig farm projects to be phased out currently, implementation is recommended in accordance with the following steps:

First, conduct a comprehensive inventory to establish a list of projects to be phased out, and collect basic information such as project basic information, contract performance status, and lessor background.

Second, entrust a professional legal team to conduct legal analysis of each project, evaluate the feasibility, legal risks and expected costs of rescission, and fill in a special legal risk self-inspection list.

Third, classify projects to be phased out according to the evaluation results, prioritize negotiation for projects with low rescission difficulty, and formulate litigation plans for projects with high rescission difficulty.

Fourth, formulate a phased phase-out implementation plan, and determine the phase-out sequence based on comprehensive consideration of legal risks, operating costs, social impacts and other factors.

Fifth, pay attention to communication and coordination with lessors during the phase-out process, resolve disputes through reconciliation as much as possible, and reduce litigation confrontation. For cases that have entered litigation procedures, strengthen the sorting and presentation of legal facts to ensure clear case facts and complete evidence chains, enabling adjudicators to accurately determine facts and correctly apply laws.

VII. Conclusion

The live pig breeding industry is in a period of profound adjustment, and the production capacity optimization strategy of large-scale pig farming enterprises is an inevitable choice to respond to industrial changes. However, the large-scale phase-out of pig farm production capacity involves complex adjustments to legal relationships, and the handling of legal issues such as contract rescission, liability for breach of contract, and damages directly determines the success or failure of an enterprise’s strategic adjustment. Based on current legal provisions and judicial practice, this paper systematically analyzes the legal risks faced by large-scale pig farming enterprises in pig farm lease contract disputes and puts forward targeted risk prevention and control suggestions.

It is particularly emphasized that legal risk prevention and control is a systematic project requiring high attention from enterprise management and coordinated cooperation of all departments. Large-scale pig farming enterprises are advised to promptly establish a long-term mechanism for legal risk prevention and control, embed legal review into the entire process of business decision-making, and prevent legal risks from the source. Meanwhile, given the high professionalism and complexity of the legal issues involved in such cases, and that some cases have entered litigation procedures, large-scale pig farming enterprises are advised to cooperate closely with professional legal teams to ensure the full protection of the enterprise’s legitimate rights and interests, providing a solid legal guarantee for the smooth implementation of the production capacity optimization strategy.