The Consul at Shanghai (McKenna) to the Secretary of State

643. Prolonged discussions with landlord regarding new realty taxes which were in process and are now imposed plus uncertainty as to possible exemption of American Government have delayed signing of lease on Development Building consular quarters until present (Shanghai’s serial 643 repeated to Chungking as 356, April 15) authorization of $17,075 per annum (Deptel 268, December 74). We have had to agree to new paragraph 11 reading as follows:

“Taxes. The lessee shall hold the lessor harmless and free from payment of the assessments on the leased premises of the Shanghai Commission and also for the rent tax assessed by the National Government of China upon the lease of real property. The lessor shall pay all other charges of a public nature which are, or may be, assessed against the property of which the premises covered by this lease form a part; provided, however, that if additional taxes or public levies, at present unforseen, over and in addition to those above stated, are imposed upon either the lessor or the lessee in connection with the demise or the leased premises to the extent that such taxes or levies aggregate more than 10% of the total yearly rental payable by the lessee, then either the lessor or the lessee, whichever is the burdened party, reserve the right to require a revision of the terms of this agreement”.

Reference exemption from taxes, see Deptel 409 for March 18.5

Moving of clause and 10% figure arrived at after seeking advice of experienced army leasing officer and real [estate?] men.

Present terms of 75 cents per square foot abnormally low for Shanghai. Army with all its bargaining resources paying $1 per square [Page 1337] foot for exactly similar premises in same building. Rates in neighboring Hamilton House across street $2 per square foot for comparable space with landlord being held harmless for all municipal house taxes now amounting to a total of 28% which is based on 180 times 1937 rentals. Reference Deptel 514 of March 29. Hamilton House rates and conditions considered average for Shanghai.

Request approval for paragraph 11 in Development Building lease and tax provisions in Hamilton House lease. Refer Shanghai serial 511, March 26.6

  1. Not printed.
  2. See footnote 2, p. 1335.
  3. Not printed.