The Secretary of State to the Ambassador in China (Johnson)

No. 185

Sir: Reference is made to your despatches Nos. 3557,37 353 and 404 of May 10, 1935, April 7, 1936, and April 24, 1936, respectively, in regard to the registration of land titles at Nanking involving a new lease agreement which the Nanking municipality proposes to issue to foreign holders of perpetual leases in exchange for the title documents which they now hold. The new lease agreement contains the following provision: “Owner: If the land is leased in perpetuity, and when in future the perpetual lessee does not need to use the land or when he dies and has no heir, the Nanking municipal government will purchase the land at the original price.”

You refer to apprehension felt by American missionary societies holding property under perpetual lease that the new lease agreement might involve impairment of the right long enjoyed by them to dispose of their leases to Chinese citizens or associations authorized to hold them under perpetual lease at the price obtainable by agreement of the parties. You express the view that the action taken by the municipal authorities at Nanking represents the attitude of the national government and may be expected to be applied to the question of the use and ownership of land by American citizens throughout the territory of China and you request an expression of opinion by the Department as to the rights possessed by American missionary societies holding land under perpetual lease by virtue of the provisions of Article XIV of the Sino-American Treaty of 1903, the pertinent part of which reads as follows:

“Missionary societies of the United States shall be permitted to rent and to lease in perpetuity, as the property of such societies, buildings or lands in all parts of the Empire for missionary purposes…”

[Page 661]

The Department appreciates that the situation disclosed by the Embassy’s despatches of May 10, 1935, and April 7, 1936, and their enclosures, reasonably warranted the apprehension felt by the missionary societies and the Embassy. However, the situation appears to have been materially changed by the facts reported by the Consulate General, Shanghai, in its despatch of April 2, 1936, to the Embassy, Peiping38 (enclosed with your No. 404, April 24, 1936), from which it appears that the Mayor of Nanking has given definite oral assurances to American consular representatives that holders of leases in perpetuity covering property in Nanking will be permitted to transfer their holdings to Chinese, who upon such transfer will be given valid Chinese title deeds, and that holders of such leases will also be permitted to transfer their rights to others entitled to hold leases in perpetuity, and that the only circumstance under which the municipal government will insist upon purchasing the land will be where the municipality desires the land for some specific purpose, in which event it will be expropriated. It also appears that written confirmation of these assurances was being drafted by the municipal authorities and would soon be despatched to the Consulate General. As stated by the Consul General at Shanghai, these admissions on the part of the municipal authorities at Nanking would appear to place the rights of American holders of perpetual leases on substantially the basis claimed by the leaseholders, and if those admissions are confirmed in writing in accordance with the Mayor’s oral promise or, irrespective of such written confirmation, by the action of the municipal authorities, there would not appear to be any further ground for apprehension respecting the effect of the new lease agreement on the rights of missionary societies holding land under perpetual lease.

For this reason and because of uncertainty as to the precise legal rights claimable by missionary societies under the provisions of Article XIV of the Sino-American Treaty of 1903, the Department is of the opinion that it would be inadvisable to insist at this time on a reply to the Embassy’s notes to the Foreign Office of April 26, 1935, and April 7, 1936, or to encourage perpetual lease holders to refrain from reregistering their titles in accordance with the municipal regulations under reference, unless, of course, the action of the municipal authorities should not substantially conform with their declarations.

For the purpose of complying with the Embassy’s request for its views as to the rights possessed by American missions holding land under perpetual leases, the Department has made a fairly comprehensive examination of available material on the subject, but its examination has not disclosed a satisfactory basis for consideration of the question of legal grounds. The Department is not aware of any Chinese law or regulation which defines perpetual leases or the extent [Page 662] of the rights or obligations incident to such documents. Neither the treaty provision quoted herein nor the texts of perpetual leases throw any clear light on the question. There appears to be no express grant of a right of alienation of such lease nor any express prohibition of such right. The limitations or conditions stated in the treaty article might be held to be incorporated by reference in any perpetual lease issued to an American missionary society, and the continued validity of the lease might, therefore, be held to depend on the strict observance of the stated limitations or conditions with right of reversion in the lessor upon failure or violation of those conditions. From this point of view the treaty article in question does not seem to afford a very strong basis for claiming the right of free alienation of title, but a determination of this question on legal grounds is rendered difficult by the apparent absence of authoritative provisions establishing how or in whose behalf any possible reversionary right may be exercised. However, the repeated approval by the Chinese authorities over a long period of time of transfers of perpetual leases from missionary societies to Chinese citizens or foreign associations and the issuance of valid deeds of sale or of perpetual leases to the transferees reasonably warrants the conclusion that the Chinese authorities have never regarded such transfers as raising the question of reversion and accordingly it would seem reasonable to hold that the long-continued practice of the Chinese authorities constitutes clear recognition of the right of free alienation of perpetual leases held by American missionary societies. Since that now seems to be the attitude of the municipal authorities at Nanking, it would seem prudent to avoid any further discussion of the question at this time.

Very truly yours,

For the Secretary of State:
William Phillips