In January 2011 Mr Fang, the owner of a private enterprise, entered into a loan agreement and a mortgage agreement with a local credit association (Credit Association) to borrow RMB 2 million yuan for one year to meet the needs of his business operat

In January 2011 Mr Fang, the owner of a private enterprise, entered into a loan agreement and a mortgage agreement with a local credit association (Credit Association) to borrow RMB 2 million yuan for one year to meet the needs of his business operation, and provided his own house as the subject matter under the mortgage agreement. After the conclusion of the mortgage agreement, Mr Fang and Credit Association went to register the mortgage agreement with the local real estate registration centre.

In June 2011 Mr Fang leased the same house to Ms Lee for a period of two years.

Due to the sudden change of the market and poor operation of his enterprise, Mr Fang was unable to repay the principal and interest as agreed when the loan matured at the end of January 2012. Credit Association filed a lawsuit in the people’s court and obtained a judgement in favour of its claim for the principal RMB 2 million yuan plus interest.

Credit Association then advised Ms Lee to leave the house, as it has been authorised by the people’s court to organise a public auction to sell the house for the enforcement of the judgement. Ms Lee refused to leave the house on the grounds that the lease agreement was an effective one between Mr Fang and herself and would last until the end of June 2013. In addition, Credit Association’s right of mortgagee should not affect her right under the lease agreement.

Required:

Answer the following questions in accordance with the relevant provisions of the Property Law, and give your reasons for your answer:

(a) state whether Ms Lee’s grounds for refusal to leave the house can be established.

(b) state how Ms Lee should deal with the current situation.