I. Things that you need to know before signing a Tenancy Agreement or a Lease

As an overviewa Tenancy Agreement is a binding legal document which has important implications on the committed rights and obligations on the part of both landlord and tenant. The terms of a Tenancy Agreement must be carefully considered before signing.

Contrary to the common belief of many lay partiesthe potential consequences of breaching a Tenancy Agreement by a tenant may not be only limited to the ‘loss’ in the amount of the deposit paid to a landlord.

The same also applies to a landlord where he may become liable or responsible to third parties for any breaches committed by the tenant.

The contents of a Tenancy Agreement will normally include the period/length of the tenancyrentpayment perioddeposituse (e.g. residenceofficeor factory etc.)renewal termstermination terms and other usual terms that will be described in the other parts of this topic.

Depending on the period of the tenancy and the capacities of the parties entering into the agreement (whether a party to an agreement is an individual or a limited companyetc.)different formalities for execution may be required.

While the terms "Tenancy Agreement" and "Lease" are often casually used as if they are synonyms in modern times and that both are generally bindingeffective and enforceable in Courtthere may still be some technical differences between them in their legal meaning.

a) Period/length of the tenancy

b) Capacities of the parties

c) Implied covenants

d) Deed of Mutual Covenant

e) Interests affecting the tenancy

f) Tenancy without a written tenancy agreement

Episode 1: Regulations on Tenancies of Subdivided Units

In this episodewe will explain the Hong Kong government's amendments to the Landlord and Tenant (Consolidation) Ordinance in 2021 for subdivided units for residential useand how these new amendments protect tenants of subdivided units.

We will explain what a "regulated tenancy" is and whether tenants who have newly entered into tenancy agreements are already protected under the tenancy control.

The video will explain the key points of the tenancy control of subdivided unitsincluding security of tenurerent regulationprohibition of excessive charging of utility billsetc.

In additionthe video will also discuss the rights of existing tenants under the new amendments.

To learn more about the regulation of subdivided unitsplease browse the content of "Sub-divided Flats and Tenancy Regulation".

II. After signing a Tenancy Agreement (or a Lease)how should the parties handle the document?

A tenancy document is usually executed in counterpartsboth of which are forwarded to the Stamp Office of the Inland Revenue Department for stamping within 30 days after the date of execution.

If the tenancy document is a Leasethen it should also be registered at the Land Registry within 30 days of the date of executionotherwise it will lose priority under the Land Registration Ordinance (Cap.128 of the Laws of Hong Kong). For more information on the registration of tenancy documentsplease go to the relevant question and answer.

The landlord of a domestic property should also submit a Notice of New Letting or Renewal Agreement (Form CR109) to the Commissioner of Rating and Valuation for endorsement within 1 month of the execution of the tenancy document. A landlord is not entitled to maintain a legal action to recover rent under a tenancy document (in case the tenant fails to pay rent) if the Commissioner does not endorse the Form CR109. Howevera landlord who does not submit the form within the one month period may later do so after paying a fee of $310.

Episode 2: Applicability and Commencement of Regulated Tenancies

In this episodewe will look at which tenancies will be included in "regulated tenancies" and when regulation will start under the amended Landlord and Tenant (Consolidation) Ordinance.

We will explain the difference between a fixed-term tenancy and a periodic tenancyand clarify when a fixed-term tenancy and a periodic tenancy will start to be protected by tenancy control. Additionallywe will discuss tenancies of subdivided units in industrial or commercial buildings and how to determine whether they qualify as "regulated tenancies".

The video will also cover how to determine whether a tenancy is a "regulated tenancy" through the Lands Tribunal or the Rating and Valuation Department.

To learn more about the regulation of subdivided unitsplease browse the content of "Sub-divided Flats and Tenancy Regulation".

III. Rent

Episode 3: What is a "Standard Tenancy Agreement"?

In this episodewe will explore the concept and details of the prescribed tenancy agreement for subdivided units.

We will explain the difference between oral and written tenancy agreementsand emphasize the importance of following the standard tenancy agreement. We will also discuss the potential conflicts between the tenancy agreement and the ordinance relating to the tenancy control of subdivided unitsas well as the consequences that may arise from such conflicts.

Furthermorewe will discuss how to avoid conflicts between the tenancy agreement and the ordinanceand suggest that landlords proactively sign written tenancy agreements with tenants. We will explain how to download the standard tenancy agreement as a reference from the Rating and Valuation Department's website.

To learn more about the regulation of subdivided unitsplease browse the content of "Sub-divided Flats and Tenancy Regulation".

IV. RatesManagement Fees and other charges

A better drafted lease/tenancy agreement shall also deal with the issues as to whether the tenant shall be responsible for payment of management feesratesgovernment rent or other charges (such as utilities and telecommunication services).

In the absence of any express provision in dealing with such mattersit may generally mean that the ‘rent’ payable by a tenant covers all existing or ongoing expenses of the unit to be borne by the landlord and the tenant may not be liable to pay anything further.

Thereforeif the landlord so wishesit would be a better practice to expressly set out under a lease/tenancy agreement as to the following areas:-

1. Who shall be responsible for payment of ratesgovernment rentmanagement fees and/or other charges;
2. Whether the tenant shall open and/or maintain an account with the utility/service company themselves for the unit (e.g. water supplies departmentdrainage services departmentsewage scavenger services (applicable to village houses)electricitytelephonetowngasinternet services andTV subscription) until the termination of the lease;
3. Who shall be responsible for payment of any deposits and their return upon termination of the lease/tenancy agreement;
4. When such payment shall be effected (i.e. pre-payment or when the fall due) and how tenant shall be given notice about the amount due;
5. How such payment shall be made (i.e. directly to the payee (i.e. the GovernmentManagement Office or utility company) and whether such payment obligation shall form (or be separated from) part of the rent;
6. The consequences for non-payment of such fees/charges.

If existing utility account(s) are maintained by the landlord in respect of the unitthe landlord should make arrangements as to whether such accounts shall be transferred or replaced by another account under the tenant’s name. The tenancy agreement should also state as to upon termination of the lease (1) how outstanding amount(s) due should be paidsuch as deduction from the rental deposit; and (2) if the tenant has paid any ‘deposit’ to such accounts maintained by the landlordwhen and how such deposit shall be returned.

Landlords should note thatas the registered owner of the propertyhe/she remains to be primarily liable to the Government for any default on payment of government rent/rates.

The same also applies to management fees or other forms of contributions (e.g. renovation costs and contribution to litigation funds) to be made pursuant to the Deed of Mutual Covenant (“DMC”) or the Building Management Ordinance (Cap. 344) (the “BMO”).

Notwithstanding that a lease/tenancy agreement may provide that a tenant shall be liable to effect payment of management fees directly to the management officesuch payment obligation is only privy between the landlord and tenant and is not binding on the manager or other co-owners. Moreoversince an obligation to pay money under the DMC/BMO is ‘positive’ in natureby the effect of section 41(5) and (6) of the Conveyancing and Property Ordinance (Cap. 219)it is prima facie not directly enforceable by the manager/incorporated owners against a tenant so that the landlord remains to be liable for any tenant’s default on payments.

Episode 4: What is a "Cycle of Tenancy"?

In this episodewe will explore the procedures and requirements during the regulated cycle of tenancy under the ordinance relating to the tenancy control of subdivided units.

We will provide a detailed explanation of the transition from the first term tenancy to the second term tenancyas well as the procedures and considerations that need to be addressed during the regulated cycle. Additionallywe will discuss the renewal arrangements after the regulated cycle endsas well as the legal regulations that landlords and tenants need to adhere to throughout the entire regulated cycle.

To learn more about the regulation of subdivided unitsplease browse the content of "Sub-divided Flats and Tenancy Regulation".

V. How to recover the outstanding rent and get back the property?

A tenancy agreement may contain a clause that entitles the landlord to forfeit the tenancy (i.e. to terminate the tenancy and to re-enter the property) if the tenant fails to duly pay rent.

Even if the tenancy document does not contain a forfeiture clausethe law generally implies such a right of forfeiture upon non-payment of rent.

Regarding tenancies of domestic properties that were created on or after 27 December 2002, section 117(3) of the Landlord and Tenant (Consolidation) Ordinance implies in such tenancies a covenant on the part of the tenant to pay the rent on the due date and a condition for forfeiture if that covenant is broken by virtue of non-payment of rent within 15 days of the due date.

Regarding tenancies of non-domestic properties, section 126 of the Landlord and Tenant (Consolidation) Ordinance provides that in the absence of any express covenant for the payment of rent and condition for forfeiturethere will be implied in every tenancy a covenant to pay the rent on the due date and a condition for forfeiture for non-payment within 15 days of that date.

Thereforein generalif a tenant is late in paying the rent for 15 daysthe landlord is entitled to terminate the tenancy and obtain an order for possession from the Court (including the Lands Tribunal) to recover vacant possession of the property.

Howeverif the non-payment takes place for the first time during the course of a tenancythe tenant who wishes to “save” the tenancy has a right to do so by paying all of the outstanding rent and the landlord’s legal costs in arrears at a specified time granted by the Court before the landlord could take possession of the property by the Court order. This is commonly known as “relief against forfeiture”.

Episode 5: Utility Bills and Miscellaneous Charges

In this episodewe will explore the relevant provisions of the ordinance relating to the tenancy control of subdivided units regarding the charges for waterelectricitygasand communication services that landlords can impose on tenants.

We will explain the scope of charges that landlords can collect and provide important considerations regarding the apportionment methods. In additionwe will discuss the potential criminal offence of overcharging.

To learn more about the regulation of subdivided unitsplease browse the content of "Sub-divided Flats and Tenancy Regulation".

VI. Regulations on using or occupying a leased property

At first sighta landlord should not have to bother with what the tenant is doing in the property as long as the tenant duly pays the rent and keeps the property in good condition. Howeverthe issue is not as simple as that. A property used for a non-authorised purpose may create trouble for its owner.

Episode 6: Rights and Responsibilities

In this episodewe will discuss the respective rights and responsibilities of landlords and tenants of subdivided units during the tenancy period.

We will explain the maintenance and repair obligations that landlords should fulfillas well as the terms that tenants should abide by. In additionwe will also explore the consequences of landlords unlawfully depriving tenants of occupation as well as the protection of tenancy rights that tenants should enjoy if they abide by the terms.

To learn more about the regulation of subdivided unitsplease browse the content of "Sub-divided Flats and Tenancy Regulation".

VII. Sub-letting

The Nature of sub-letting and its constraints

‘Sub-letting’ (also known as ‘under-letting’) of a property generally means that a tenant further lets out the property (or part of it) to another ‘tenant’ (known as ‘sub-tenant’) by another lease/tenancy agreement (known as the ‘sub-lease’ or ‘underlease’).

At lawa sub-lease executed between a tenant and sub-tenant is a separate and independent contract from the lease with the landlord (i.e. ‘head-lease’). Howevernotwithstanding that a tenant and a sub-tenant are generally at liberty to negotiate and agree upon the terms of a sub-lease to be different from the ‘head-lease’ (e.g. additional restrictive covenants to be imposed)the demised area and the term of a sub-lease are confined by the head lease. This is because the tenant has no right/interest to grant any interest in a sub-lease beyond the interest that he had been granted under the head-lease. For example:-

“A owns Flat A and Flat B. A lets Flat A to B for a term of 1 year. HoweverB entered into a ‘sub-lease’ of Flat A and Flat B to C for a term of 2 years.”

In such scenarioB may be regarded to be in breach of the terms of the ‘sub-lease’ because he had no interest be ‘let’ to C in respect of Flat B and any flat beyond a 1 year period.

Relationship between the tenant and sub-tenant

As between the tenant and the sub-tenanta tenant may incorporate and enforce the terms and covenants of the ‘head-lease’ by incorporating a covenant under a sub-lease that the sub-tenant shall observe certain covenants under the head-lease. It is generally better practice for the tenant to expressly and specifically set out which covenants are to be complied with and provide a copy of the head-lease to the sub-tenant whenever possible (rather than incorporation by general reference to the ‘covenants of the head-lease’). Howeversince the landlord is not a party to the sub-leasesuch covenant may only be binding and contractually enforceable by a tenant against a sub-tenant.

Effect of termination of head lease on the sub-lease

At lawthe right of the tenant to grant a valid estate to a sub-tenant originates from the head lease. This means thatif the head-lease becomes ineffective (e.g. resumption/re-entry by the Government against the landlord or a third party being able to establish that he is the true owner of the land instead of the landlord) or terminated by the landlord for whatever reasons (i.e. non-payment of rentother kinds of breaches committed by the tenant)the leasehold estate under the sub-lease will also become destroyed. In such casenotwithstanding that the sub-tenant might not be involved in any breach under the sub-leasethe sub-tenant will have no legal right or interest to possess and occupy the property vis-à-vis the landlord (or the Government/third party) and must deliver back the property.

The only possible relief of the sub-tenant is to apply for ‘relief against forfeiture’ from the Court of First Instance under section 58(4) of the Conveyancing and Property Ordinance (Cap. 219) for a ‘vesting order’ to vest the remaining term (or any less term) of the head-lease to the sub-tenant with conditions that may be imposed by the Court (e.g. to comply with any outstanding breaches committed by the tenant). If such discretionary relief against forfeiture is grantedthe sub-tenant may be able to ‘stand into the shoes of the tenant’ and continue to occupy the property as if he was the tenant until the expiry of the ‘vested term’.

The inter-relationship between a landlord/tenant/sub-tenant may involve difficult legal concepts and tactical considerations. It is strongly recommended that legal advice should be sought from legal professionals in any of the aforesaid related matters.

Prohibition of sub-letting: If I have found that my tenant has sub-let my property to some other person without my consentthen what can I do to protect my interests?

To prohibit a tenant from sub-lettingit is necessary for a tenancy document to provide for an express clause that prohibits the tenant from subletting the property (or any part of it) to another party. It is also common practice of landlords to extend the prohibition against any act of licensing or sharing/parting of possession or occupation of the property.

If the tenancy document does not contain a clause that restrains a tenant from sublettingthen the mere act of subletting of the unit (or part of it) to another personeven without the landlord’s consentmay not be illegal per se (subject to whether the tenant’s sub-letting has contravened any government regulations as explained above). As a tenancy has the effect of passing the landlord’s interests in the property to the tenant during the tenancy periodthe tenant may deal with the property in whatever manner as if he owns the property (except for any illegal activities or actions which would amount to a breach of the tenancy agreement)including subletting the property to another party.

Based on the same reasoningthe breach of a prohibition clause on subletting may make the tenant liable to the landlord for injunction and/or damages. In certain casesit may also enable the landlord to forfeit the tenancy agreement upon such breach.

In practiceeven if a covenant against sub-letting is in force and without any other kinds of restrictiona tenant is still at liberty to cohabitshare occupation or use the property with other parties (who are often claimed to be guestsrelatives or friends of the tenant). Prima faciethey do not fall within the ambit of ‘sub-letting’.

In the absence of any direct evidence that the tenant is engaging in sub-letting activities of the premises (e.g. copies of signed sub-leasesfurther partitions being madeadmissions made by occupantsadvertisements/ invitations made by tenant and excessive consumption of utilities)it is often difficult in practice for the landlord to prove and enforce restrictive covenants against sub-letting.

VIII. Properties with mortgages

If the property has been mortgaged to a bank/financial institutionthe landlord must obtain the consent of the bank/financial institution before leasing the property. Otherwiseit will have a negative impact on both the landlord and the tenant.

IX. Repair/maintenance obligations

Whether or not a party to the tenancy agreement is legally obliged to improvemaintain or carry out any repairs to a property is a complicated topic.

As an overviewthe obligation to repair/maintain the subject property is mainly a matter of private contract between the landlord and the tenant. This meansin the absence of any express agreement between the parties with the obligation to repair/maintenancethere is generally no implied duty under a tenancy agreement to compel either the landlord or the tenant to carry out repairs or maintain the property in a fit and habitable state. The implied obligation on the landlord to maintain the property to be “fit for habitation” only applies to furnished lettings (e.g. serviced apartments or other leases with extensive furniture or fittings (e.g. sofabedcupboards/cabinets/wardrobesdining tablescurtains and/or electrical appliances) to be provided to the tenant in that the unit was ready for residential purposes without the need of purchasing any further essential fittings).

Very oftentenancy agreements do expressly provide for the landlord’s right to enterinspect and/or carry out repairs to the property. But such right cannot be construed as a duty to be imposed on the landlord. Ratherit is common for tenancy agreements to stipulate that tenants are to be responsible to maintain/repair the internal and non-structural matters of the property and/or deliver back the property at its original handover state to the landlord (with fair wear and tear excepted) when tenancies are terminated.

There is an implied obligation on the part of a tenant to use the property in a tenant-like manner (i.e. to use the property in a reasonable and proper manner) and not to commit waste (i.e. not to destroy/damage the property). Howeversuch duties only relates to the reasonable use of the property and does not impose any duty on the part of a tenant to carry out repairs.

Having said the abovethe landlord may be under other statutory obligations to maintain the property as required by Government departments:-

1. The Buildings Ordinance (Cap. 123 of the Laws of Hong Kong) confers power on the Building Authority to declare a building dangerous and to compel an owner to remedy any structural defects. Howeverthis does not provide much assistance in the case of defects which are non-structural in nature. 
2. The Public Health and Municipal Services Ordinance (Cap. 132) of the Laws of Hong Kong) confers power on specified public officers to require the owner or occupier of a property to cleanse the property or take steps to deal with nuisances which are injurious to health (e.g. water seepage which originates from the property itself). Howeverthis only concerns the hygienic condition of the property and does not provide much assistance in terms of general repairs and maintenanceespecially if any damage caused to the property was originated from by neighbours and/or the common parts of the building.

In respect of demands or orders issued by government authoritiesit is almost invariable that the landlordas the registered owner of the propertywill be responsible for carrying out repairs or maintenance and any failure to comply with demands or orders often attracts penalties or other adverse consequences (e.g. re-entry by the Government). A tenant who receives such an order should duly inform the landlord so that the necessary steps can be taken as soon as possible.

Similarlythe Incorporated Owners of a building (or its management company) may also demand the landlord (or its occupants) to carry out appropriate steps to terminate any nuisance or other damage (e.g. dangerous structureswater seepagedrainage blockage and infestation of pests) caused to other occupants of the building.

For the reasons above and to avoid unnecessary disputesit is most suitable for parties to enter into tenancy agreement which clearly specifies the obligations for repair and maintenance.

X. Termination of tenancies by notice before expiration (without breach)

In usual circumstancesboth the landlord and the tenant cannot terminate the tenancy before its expiration unless either of them has breached the vital terms of the agreement which entitles the other party to forfeit or terminate the tenancy (e.g. the tenant fails to pay rent or the landlord illegally re-enters the property).

Howeverearly termination may be possible with the existence of a valid break clause which may be exercisable by either party by giving prior notice at a certain time during the term of the tenancy.

Landlord's perspective: 15

Tenant's perspective:  234567

XI. Landlord sells the property with existing tenancy

When a landlord intends to sell a property that is let to a tenantthe landlord should make it clear to the estate agentthe solicitors and the potential purchaser that the property will be sold subject to a tenancy (instead of delivering up “vacant possession”).

The landlord shall also state clearly in the sale and purchase agreement (or preliminary agreement) about the apportionment of rent (including unpaid rent as receivable from the tenant) before completion of the sale. The landlord should also notify the tenant about the intended sale and properlythe identity/contact method of the purchaser and the payment method (e.g. bank account of the purchaser) and deal with the deposit paid by the tenant.

To get more information about sale and purchase of propertyplease click here.

XII. Renewal matters

Supposing that an existing tenancy is about to expirethe landlord and the tenant can commence negotiation on whether to renew the tenancy.

For tenancy agreements entered before 9th July 2004a landlord was in most cases bound to renew a tenancy for a domestic property with an existing tenant under the law. Howeverthe law has changed. Tenancy agreements entered after such date no longer offers any statutory right of renewal in favor of a tenant. A tenant could only ‘renew’ his tenancy either through negotiation or contractually exercising an ‘option to renew’ under a tenancy agreement (if so provided).

An ‘option to renew’ clause in the contract usually requires the tenant to give a written notice to the landlord not later than a date specified in the contract. The clause may also contain reference to the terms of the new tenancy documentsuch as on the same terms as the existing tenancy or a slight increase in payable rent over the renewed term of tenancy.

Subject to the agreement between the partiesan "option to renew" clause may look like this (for reference only):

“It is hereby agreed that if the Tenant wishes to take a further term of two years from the expiration of the Term and at least six months prior to such expiration gives the Landlord written notice to that effect and has paid the rent and all monies hereby reserved and reasonably performed and observed the terms and conditions on its part herein contained up to the expiration of the Termthen the Landlord will let the Property to the Tenant for a further term of two years from such expiration at a new monthly rent and subject to the same terms and conditions as are herein contained except this clause for renewal.”

XIII. Termination of tenancies (by non-payment of rent)

For a tenant who fails to pay rent fully or partiallysometimes the tenancy agreement may contain an express clause which entitles the landlord to terminate (or ‘forfeit’) the tenancy agreement upon any extent of non-payment or late payment of rent.

Under sections 117 and 126 of the Landlord and Tenant (Consolidation) Ordinance (Cap.7)it is implied by law that non-payment of rent for more than 15 days of the due date would give rise to a right for the landlord to forfeit/terminate the tenancy agreement.

Alternativelya landlord may also accept repudiation and terminate a tenancy agreement upon persistent non-payment of rent of a tenant for many months or there is evidence to suggest that the tenant has absconded/abandoned the property for good.

Upon termination/forfeiture of the leasethe landlord may claim for an order for possession of the property in Court (or the Lands Tribunal). If the tenant does not oppose such claimsuch order would usually be made.

Howevera tenant whom defaulted in payment of rent for the first time may apply for a grace period and would usually be given a chance by the Court or the Lands Tribunal (i.e. once during the term of the tenancy agreement) to pay up for all outstanding rent and the landlord’s legal costs at the time of hearing of the application or within a specified period after the possession order is made. This is commonly known as ‘relief against forfeiture’ (for non-payment of rent) which is governed under section 21F of the High Court Ordinance(Cap.4).

If ‘relief against forfeiture’ is granted to the tenant and he does pay up the in full all outstanding rent and the landlord’s costs within the stipulated period as imposed by the Courtthe term of the tenancy agreement will become ‘resurrected’ upon the tenant’s compliance and be treated as continuing under its original terms as if there was no default on rental payment before. In such eventthe tenancy will become ‘revived’ notwithstanding that this might be against the landlord’s wishes.

It must be noted that ‘relief against forfeiture’ can only be granted as of right upon the application of the tenant for once the Court during the duration of the tenancy agreement. If there is a repeated instance of non-payment of rentthe Court would decline to grant any relief unless good reason is shown by the defaulting tenant.

XIV. Termination of tenancies (for breaches of the tenant other than non-payment of rent)

In the event that the tenant pays rent on time but commits serious breach(s) of the tenancy agreement (e.g. sublettingconducting illegal activitiescausing nuisanceinstallation of illegal structures or causing enforcement actions by the Incorporated Owners)the landlord may wish to terminate the tenancy and find another replacement tenant.

In such caseit would be necessary for the landlord to rely on any forfeiture/termination clause as expressly provided under the tenancy agreement to put an end to the tenancy and claim possession from the tenant. If the tenancy agreement is silent on such matterthe landlord (for residential premises only) may only rely on section 117(3)(d) to (h) of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) to exercise implied rights of forfeiture as a fallback. Note that the law does not imply such right to terminate the tenancy agreement for tenancy agreements other than residential tenancies.

The landlord who wishes to terminate the tenancy on such ground is also required to give prior written notice to the tenant by specifying the breach and require the tenant to remedy the breach (or compensation payable) before termination and/or claiming possession of the property against the tenant.

When the claim for possession is heard before the Courtthe Court has a discretion in deciding whether or not to grant ‘relief against forfeiture’ in favor of a tenant under section 58 of the Conveyancing and Property Ordinance(Cap. 219) (i.e. continuation of the tenancy by the tenant who already ceased the breach and upon payment of all legal costs incurred by the landlord) by considering the seriousness of the breachwhether the breach was ‘remediable’ and/or whether any permanent damage/stigma was attached to the property.

Table 1

The following table summarises the wording that may be used for the execution clause in a Lease/Tenancy Agreement.

XV. Forfeiture of rental deposit and other consequences following termination by the tenant’s breach

It is common practice in Hong Kong for tenancy agreements to include payment of a ‘rental deposit’ in the amount equivalent to two months’ rent (or more in commercial premises) as security and as an ‘earnest of performance’ of obligations under the tenancy agreement.

Howeverit is often the case that most pro-forma agreements used might not contain an express provision for a right to forfeit the deposit as a consequence of breach. Very oftenit is even more unclear as to the following matters which frequently arose in disputes between landlords and tenants regarding the treatment of the deposit:-

1. Whether the deposit could be ‘used’ or ‘deducted’ by the landlord to satisfy the actual losses suffered as a result of tenant’s breach (e.g. unpaid management fees);
2. Whether the deposit could be forfeited by the landlord absolutely and/or in full regardless of the degree and extent of the tenant’s breach (e.g. partial non-payment of rent for one month only);
3. Whether the landlord must ‘give credit’ to the amount of deposit as forfeited in claiming damages against the tenant for losses sustained as a result of the breach;
4. Whether the deposit shall be construed as ‘liquidated damages’ and/or whether landlord is entitled to recover any extra losses against which was suffered on top of to the deposit forfeited (e.g. repair costs);
5. In the event that the tenancy continueswhether the tenant was obliged to replenishtop-up and pay to the landlord the amount of deposit as forfeited;
6. When disputes arise after termination of the leasewhether the landlord is entitled to withhold return of the deposit until final resolution of Court proceedings.

The resolution of the above issues is case-specific which highly depends on the proper construction of tenancy agreements. There is no standard answers to the above matters. To avoid any unnecessary dispute between partiesit is recommended that the tenancy agreement do expressly address the above matters in relation to treatment of the rental deposit.

More importantlyit is a common misconception on the part of tenants thatafter termination of the tenancy agreement upon breach of the tenant (i.e. non-payment of rent which resulted in ejection)the compensation payable to the landlord shall be confined to the amount of the deposit and there shall be a ‘clean break’ between the parties after termination. This is wrong because a landlord might have sustained further losses (e.g. loss of rent due to the inability to find a replacement tenant for the remainder of the unexpired term of the lease) as a result of the tenant’s wrongful termination (i.e. repudiation).

In such eventassuming the landlord had taken reasonable steps to mitigate his losseseven the tenant did NOT occupy the property after terminationhe may become prima facie liable to compensate the landlord the outstanding rent for remainder term as ‘consequential losses’. This may end up in a very harsh result for the tenant in the event that the unexpired term is a long one (See: Goldon Investment Ltd v. NPH International Holdings Ltd HCA 5457/1999 (10th August 2004) A tenant was held liable to pay to the landlord an amount of HKD 17 million as a result of non-payment of 2 months rent).

For such reasonwrongful termination of the tenancy agreement on the part of the tenant is a very serious matter which must not be taken lightly.

XVI. Handover matters at expiry/termination of a lease

It is another common problem in Hong Kong that tenancy agreements do not explicitly provide for the conditions of the property to be handed over back to the landlord at the time of termination or expiry of the tenancy agreement. This often constitutes a source of litigation between parties as to whether and to what extent a tenant shall be obliged to incur costs in restoring the property back to the ‘original’ state.

Generallya tenant is under no obligation to ‘improve’ the property into a better state than what was given to him at the commencement of the tenancy. It is also expected that the property may suffer from fair wear and tear as result of aging and normal use in which the landlord may have to reasonably accept at the time of handover.

It is common for tenancy agreements to list out the ‘landlord’s fixtures’ that the tenant shall be ‘handed back’ to the landlord at handover of the property at a reasonable status or replacements at equivalent value after depreciation (e.g. air-conditionerselectrical/cooking/heating appliancesbathing and sanitary fittingsbuilt-in closetsdoors and windows etc.).

For renovations carried out by the tenant within the propertyit is a more complicated matter as to whether the landlord would be willing to accept delivery up of the property with such state given that renovations are often a matter of personal preference.

For commercial premisesit is often common for tenancy agreements to include an express obligation to delivery up of premises at a ‘bare-shell’ state to the reasonable satisfaction of the landlord (i.e. removal of all fixturesincluding electrical/drainage appliancesceilingsground layerssanitary fittings and fire-service installationsand leaving behind only the plastering/concrete surfaces).

There is no definitive indicator as to what constitutes ‘reasonable satisfaction of the landlord’ (which denotes a rather subjective and arbitrary standard). The duty to deliver up a ‘bare-shell’ is often an onerous and costly obligation for tenants to comply with. A tenant must quit earlier to allow sufficient time for restoration works to take place.

In practiceto avoid unnecessary disputesit is often desirable for both parties to sign on a written acknowledgement about the state of handover of the property after inspection.

1. Is it necessary to have a solicitor to represent me when I enter into a Tenancy Agreement?

No law requires a party to a contract to be represented by a solicitor. As a matter of factsome people enter into standard form tenancy agreements without obtaining legal advice or even without reading the contents of the agreements.

Depending on the circumstancessome parties may also enter into leases/tenancy agreements with the assistance of estate agents in recording the agreed terms under a standard form provided and including whatever additional clauses that they wish to add.

A template residential tenancy agreement which was drafted by a team of law lecturers and students of the University of Hong Kong is now available on CLIC. Please refer to “E-package: DIY Residential Tenancy Agreement” for reference.

Parties that have the benefit of solicitorshoweverhave their legal interests better protected because their solicitors will draft or scrutinise a written tenancy agreement from a legal perspective with the parties’ interests in mind.

A tenancy document prepared by solicitors typically covers more aspects than standard form agreements because the former tends to identify more issues that can potentially lead to disputes. By identifying and dealing with these issues before the parties commit themselves to the terms of the tenancythe chance of future disputes between the parties may be reduced.

It is more common for parties in commercial or industrial tenancies to be legally represented by solicitors to cater for their specific needs and interests. This is particularly the case when both parties are body corporates (e.g. companies) and that there might be a need for the landlord to require a natural person to act as guarantor on behalf of the tenant to ensure due performance of all obligations under the tenancy agreement.

2. I heard about someone who claimed that they were the owner of a property for let. After the potential tenant had paid the deposit and the rent in advancethe “landlord” disappeared with the money. If I am going to rent a propertythen how can I be sure that the landlord is the real owner?

The Land Registry provides a “Land Search” service to the public. Any person can conduct a search at the Land Registry to ascertain the ownership particulars of any property in Hong Kong. A potential tenant should always conduct a land search before entering into a tenancy document to verify the identity of the landlord (or his/her representatives).

If the potential tenant is renting the property through an estate agent or has retained a solicitor firmthen the agent and the firm are duty bound to conduct such a search to protect the tenant's interests.

To best safeguard one’s interestsit is also appropriate for the prospective tenant to request the landlord to actually enter and view the unit to be let in the presence of estate agents before entering into any tenancy agreements.

1. How is stamp duty calculated on a tenancy document?

Stamp duty is a tax on certain written documents that evidence transactions. Parties to a tenancy document are liable to pay stamp duty on the document according to Schedule 1 of the Stamp Duty Ordinance (Cap. 117 of the Laws of Hong Kong). The rate of stamp duty varies with the term/period of the tenancy. The current rates are as follows.

$5 is also be payable for the stamping of each counterpart of the tenancy document.

A licence does not transfer any interest in land and is not liable for stamp duty. Howeverif there is any doubt as to whether a tenancy document is liable for stamp dutythen it is good practice to seek adjudication from the Stamp Office. The current adjudication fee is $50.

No law specifies whether the landlord or the tenant should pay the stamp duty. Thereforethe parties to a Tenancy Agreement can freely agree between themselves on their respective shares of stamp duty. In most casesthe parties will pay the stamp duty in equal shares.

Example

There is a two month rent-free period in a tenancy with a term of three years and a rent of $10,000 per month. How can the stamp duty be calculated for this Tenancy Agreement?

The stamp duty chargeable on a tenancy document and its counterpart is based on the rent payable or the yearly or average yearly rent. A rent-free period will therefore diminish the base on which stamp duty is calculated. The following examples will serve to illustrate how a rent-free period affects the stamp duty payable.

2. What are the consequences of failing to stamp a tenancy document?

An obvious consequence is that the landlord and the tenant will be liable to civil proceedings by the Collector of Stamp Duty of the Inland Revenue Department. Moreovera tenancy document must be stamped before it can be lodged with the Land Registry for registration.

A more important consequence is that the Court may not accept an unstamped tenancy document as evidence in civil proceedings. In other wordsa party will have difficulties in enforcing the tenancy document against the other party (who has breached the Tenancy Agreement or Lease) in Court.

3. Some tenancy documents must be registered with the Land Registry but some do not. Why?

The major purpose of registering documents at the Land Registry is to notify the public of all documents affecting lands in Hong Kong and to set up a priority system regarding documents affecting a particular property. Once a document is registeredthe public is deemed to have notice of its existence and its content. The date of registration also affects the priority of a party’s rights in a particular property. A written tenancy agreementbeing an instrument affecting landis of course registrable at the Land Registry.

The laws that govern the registration of documents at the Land Registry are contained primarily in the Land Registration Ordinance ( of the Laws of Hong Kong). Strictly speakingthe Land Registration Ordinance does not contain any provision that compels the registration of documents. It only spells out the consequences of non-registration. Thereforethe question should be: why is it that some tenancy documents should be registered with the Land Registry?

Lease and Tenancy Agreement

Although a tenancy document is registrable with the Land Registry, Section 3(2) of the Land Registration Ordinance provides that the principles of notice and priority do not apply to "bona fide leases at rack rent for any term not exceeding 3 years". Thereforea document that creates a tenancy for a term of more than 3 years (i.e. a Lease) should be registeredotherwise it is prone to be defeated by successors in title of the landlord (e.g. purchasers or new tenants) and will lose its priority against other registered documents that affect the same property. In such eventthe existing tenant may become evicted.

In contrasta document that creates a tenancy for a term of 3 years or less (i.e. a Tenancy Agreement) does not gain or lose anything by registration.

Howeverif a Tenancy Agreement contains an option to renew the existing tenancyit should be registered even though the term of the tenancy does not exceed 3 years. An option to renew confers on the tenant a right to continue to rent the property after the expiry of the current termi.e. to renew the existing tenancy. As this exercisable option to renew represents a legal interest in land and affects the principles of notice and competing priority with third partiesthe relevant Tenancy Agreement should be registered.

To play safeparties to a Tenancy Agreement should check with legal professionals to ascertain the necessity of registration.

4. How is Property Tax calculated?

Property Tax is computed at the standard rate of 15% (from 2008/2009 assessment year onwards) on the “net assessable value” of the property. A “Net Assessable Value” is computed as follows:-

Net Assessable Value: [E]-[F]

It is notable that “Rental Income” covers the following:-

1. Gross rent received
2. Payment for the right to use premises under licence
3. Services charges or management fees paid to the owner
4. Landlord’s expenditure borne by the tenante.g. repairs and property tax paid by the tenant
5. Lump sum premium

As explainedthe law imposes a flat rate of 20% as statutory allowance for repairs regardless of the actual amount(s) being spent or incurred in repairing/refurbishment of a property by the landlord.

Further deductions may be made through election on “Personal Assessment” (for properties wholly owned by individuals)

Based on the foregoingit is commonplace for tenants to become responsible for and pay management fees directly under a tenancy agreementwhile it is usually the landlord who shall be responsible for payment of government rent/rates by themselves.

For details regarding the exact computation of Property Taxplease visit the Inland Revenue Department’s website.

1. My tenant has failed to pay rent for two months. What can I do to recover the rent and the possession of my property?

If a tenant fails to pay rentthen the following measures are usually available to the landlord.

a) Action for the recovery of outstanding rent

If landlords intend only to recover the outstanding rent but not to regain possession of the propertiesthen they may make their claim for rent arrears at one of the followings.

- The Small Claims Tribunal: for claims of $75,000 or less (To get more information about how to prepare for the trial (from both the Claimant's and the Defendant's perspective)please click here; 
- The District Court: for claims that exceed $75,000 but do not exceed $3,000,000;
- The Court of First Instance of the High Courtwhich has unlimited jurisdiction.

Landlords of domestic properties domestic propertyshould ensure that they have submitted a Notice of New Letting or Renewal Agreement (Form CR109) to the Commissioner of Rating and Valuation for endorsement within one month of the execution of the tenancy document. Landlords of domestic properties are not entitled to maintain legal action to recover rent under tenancy documents if the Commissioner does not endorse the form. Howeverlandlords who do not submit the form within the one month period can do so at any time after paying a fee of $310.

b) Action for forfeiture (to get back the property) and to recover outstanding rent

In the case of serious default on payment of rent or in the event that landlords believe that their tenants have been absconded or will not be able to pay the rent for the remaining term of the tenancythen they will probably want to get back the property and recover the rent in arrears. In such circumstancesthe landlords are said to be exercising their right of forfeiture and may file their claims at:

- the Lands Tribunal; 
- the District Court if the outstanding rent does not exceed $3,000,000 and the rateable value of the property does not exceed $320,000; or
- the Court of First Instance of the High Court for outstanding rent of any amount.

The landlordif successful in obtaining a judgment against the tenantwill be able to apply to the tribunal/appropriate court for a Writ of Possession. Upon the issue of the Writ of Possessionthe court bailiff will recover the possession of the property on the landlord’s behalf.

Jurisdiction of the High Court

It should be noted that although the High Court has unlimited jurisdiction to handle any of the above claimsit normally will not entertain a claim that falls within the jurisdiction of the District Court or the Lands Tribunal.

Application for Summary Judgment for possession/Interim payment

After commencement of proceedingsit may take some time to wait for trial to take place at Court (especially for the District Court/Court of First Instance). Howeverfor many casesthere may be procedure for landlords to recover possession/rent in a more speedy fashion known as “summary judgment” or “interim payment” if the landlord is satisfied that there is no arguable defence on the part of the tenant to resist an application for an order of repossession and/or payment of outstanding rent.

You must seek legal advice on any grounds for obtaining a summary judgment or an interim payment before you make the relevant application to court.

c) Action for distress

Distress means the seizuredetention and sale of movable chattels/goods found in the rented property to satisfy the rent arrears pursuant to a warrant issued by the District Court upon application by the landlord. Due to the nature of distressit is mostly used in cases in which a tenant is still operating a business at the rented property. Part III of the Landlord and Tenant (Consolidation) Ordinance governs the procedures and formalities for applications for distress.

The application for distress is an ex-parte application (by one party only) to the District Courtmeaning that the tenant will not have the chance to appear before the judge to make any submission (or objection). This is to avoid the tenant knowing of the application and dissipating the available assets.

The landlord must file an affidavit/affirmation to support the application in a prescribed form. If the Court accepts the landlord's applicationthen a warrant of distress is issued. The bailiff then enters the propertyseizes the movable chattels/goods found inside and in the apparent possession of the tenantand sells the chattels/goods to satisfy the rent in arrears.

Note that the bailiff cannot seize land fixtures (e.g. air-conditioning machines andsome built-in appliances)things in usetools and implements or the goods which is apparently owned by parties other than the tenant. The goods as seized will be impounded by the bailiff until the rent is paid or being sold by an auctioneer as the Court may direct.

As distress is complicated both in terms of procedures and legalityit is usually done with the assistance of legal professionals.

2. My tenant has failed to pay rent for several months. Can I regain possession of my property by breaking open the doorthrowing away the tenant's belongings and changing the lock without resorting to Court proceedings?

It must be borne in mind that if the property is still being occupied by the tenant (or some other occupants)any forcible entry by the landlord into the Property without obtaining any court order may amount to criminal offence under section 23 of the Public Order Ordinance (Cap. 245).

The landlord may also face other criminal charges such as ‘harassment’. Section 119V of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) expressly provides that any person who unlawfully deprives a tenant of occupation of the relevant premises commits an offence and may be liable to a fine or even imprisonment.

A tenancy document will usually contain a clause that allows the landlord to re-enter the property if the tenant fails to pay rent. In the event that the landlord is sure that the tenant has deserted and abandoned the property in a vacant state (or only with inexpensive belongings left behind) for a reasonably long timethe law may recognize a right for the landlord treat the tenancy as terminated and quietly re-enter the premises by himself without resorting to court proceedings (i.e. self-help). For some owners in Hong Kongthis might be a convenient and inexpensive way to recover possession against absconding tenants.

Howeverit is generally unsafe for the landlord to rely solely on such method and re-enter the property by self-help. There is always a risk that the tenant may reappear a few months later and allege that the landlord has wrongfully re-entered into the property or that valuables left in the property became misappropriated.

Thereforeeven if it may be quite certain that the tenant has deserted the propertythe landlord should go through the appropriate legal procedureswhich will eventually lead to the recovery of the property with the assistance of the bailiff.

3. My tenant has failed to pay or allegedly 'deducted' the rent for several months by the excuse that he suffered from minor water leakage problems or discomfort/disturbances. Can he/she do so and is that a good defence to the recovery of the payable rent/forfeiture?

Shortly speakingthe issue generally depends on whether the obligation to pay rent was dependent on the fulfillment of any obligations on the part of the landlord (e.g. repair or quiet enjoymentif so agreed) and/or whether the tenancy agreement expressly allowed the tenant to 'deduct' any rent payable by any reason.

In most situations and in the absence of any special clauses under the tenancy agreementthe tenant's obligation to pay rent is independent of other obligations to be performed by the landlord. Simply putno 'rent' is likely to become 'deductible' or 'set-off' as such even if the allegation of the tenant may appear to be true.

This is to saythe complaints by a tenant over the standard/quality/condition of living in the property is unlikely to constitute a sound legal defence to non-payment of rent. As explainednon-payment of rent alone would enable the landlord to exercise his/her right to claim for outstanding rent and even forfeit the tenancy (subject to relief against forfeiture exercisable by the tenant).

The above is only a preliminary analysis of general propositions of the law and whether such principle is applicable to all cases would be heavily dependent on the terms of the tenancy agreement and exact individual circumstances. If you encounter such subject matteryou are definitely recommended to seek assistance from legal professionals.

1. Why is it necessary and how do we ascertain the primary usefor example “domestic” or “non-domestic”of a property?

A tenancy document may contain a clause which specifies that the property is only to be used for domestic or non-domestic purposes (or in accordance with the uses permitted by law/regulations). If the tenant runs a shop in a residential propertythe use may constitute a breach of such covenant.

To support any intended claimthe landlord may obtain evidence/proof of such a breach before proceeding with any further action (e.g. taking of photographs). Sometimes it may be difficult to obtain evidence from the management office (e.g. CCTV records) or ask caretakers/neighbours to give evidence in Court.

Where a question or dispute arises about whether a property is used for domestic or non-domestic purposesone may also ask the Rating and Valuation Department to issue a Certificate of Primary User of Premises for verification. If the dispute has been brought up to the Courtthen you should submit Form TR4 to apply for the Certificate. If the dispute has not yet been brought up to the Courtthen you should submit Form TR4D and pay the application fee of $3,850. Although the Certificate does not provide a conclusive answer to the issueit will be persuasive when the issue is brought to Court. For more details regarding the Certificateplease contact the Rating and Valuation Department at 21520111 or 21508229.

An owner may also check from the Government Lease (including any conditions of grant)the Occupation Permit (issued by the Buildings Department)the Approved Building Plans (by the Buildings Department) and/or the Outline Zoning Plan (from the Town Planning Board) to ascertain the permitted use(s) of the property as under the law. These documentshoweverare technical in nature and might not be easy to read and properly understood without professional assistance.

For owners of multi-storey buildingsit may also be prudent to also check from the Deed of Mutual Covenant for any user restrictions in the unit (or even the common area of the building).

2. I have let a residential property to a tenant and I recently found that the tenant is using the property as an office. Will this affect my interests or cause any liability to me as a landlord? If my tenant conducts criminal activities therewhat further problems will I face?

A property that is used for a unauthorized purpose may create trouble and/or legal liability for its owner (the landlord) in the following ways.

Breach of Government Lease

All lands in Hong Kong (except the piece on which St. John's Cathedral is standing) are owned by the governmentand landowners only lease their land. A typical owner of a flat in a building is therefore only a ‘tenant’ (of the Government) and co-owner of the shares in the land on which the building stands. When the government leases a piece of land to the "owner"a contract is signed. The contractgenerally called a Government Leaseimposes various conditions on the "owners" and their successor in title. One commonly found condition is that the "owners" have to comply with the land use purpose specified in the Government Lease. If there is a breach of this conditionfor example conducting business activities at a property designated for residential usethen the government is entitled to re-enter and take back the possession of the property as its own.

Although such a drastic measure is seldom usedin serious cases the Lands Department has no hesitation in re-entering properties where its occupants continued its breaches in blatant disregard of warnings given. The Government is entitled to exercise its powers under the Government Rights (Re-entry and Vesting Remedies) Ordinance (Cap. 126) by registering a memorial of an instrument of re-entry in the Lands Registry and upon such registrationthe property is deemed to have been re-entered by the Government so that the owner will cease to become an owner of such land with immediate effect. In such eventunder section 8 of the said ordinancethe former owner may only petition to the Chief Executive for the grant of relief (if a breach is admitted to have been committed) or apply to the Court of First Instance if disputes arose.

Breach of the Deed of Mutual Covenant

A deed of mutual covenant is a contract that is binding on all owners of a multi-unit or multi-storey building. It basically sets out the rules for the management of the building.

A standard deed of mutual covenant will state that a unit owner must comply with the terms of the relevant Government Lease and will use the property only for the authorised purpose(s). A unit owner will usually also be required to prevent the tenant or occupiers from breaching the relevant terms. Thereforeeven though it may be the tenant who is in breach of the Government Lease and the deed of mutual covenantthe landlord can still be liable to legal action by the management companythe incorporated owners (if any) or the other unit owners of the building.

Liability to a third party

If a residential property is used for business purposesthen one can naturally expect that more visitors than originally anticipated will frequently enter into the vicinity of the property. The risks of such visitors suffering from accidents related to the property and thus claiming against the landlord will also increase.

A well-drafted tenancy document may contain a clause which specifies that the tenant shall indemnify the landlord from and against all claims and liabilities caused by the tenant’s acts or omissions. Howeverif the landlord does not have a well-drafted tenancy documentthere may be a vacuum in the terms of liability to be borne by the landlord or tenant. In such circumstancesthe landlord may be entangled in totally unanticipated litigation caused by unauthorized uses or accidents which occurs within the property by its occupants.

Criminal liability

If the tenant is merely using the property for purpose(s) other than that authorisedthen the worst that the landlord will face is monetary loss and damages. Howeverif the landlord knows that the tenant is using the property for criminal activitiese.g. as a gambling place or a vice establishmentand does nothing about itthe landlord may face criminal liability.

Any illegal use of the property is also likely to trigger the enforcement of the Government Lease (by the Lands Department) or the Deed of Mutual Covenant (by other co-owners) as explained above against the owner directly.

As a tenancy document is likely to contain a clause that designates the use of the propertye.g. residentialretailor industrial. The tenant's breach of this clause may give rise to the landlord's right of forfeiture. The landlord may also want to seek professional legal advice about the landlord's rights and liabilitiesincluding a possible application for the grant of an injunctive relief. For instancea tenant who uses a residential property as a “home office” may simply be using it as a business correspondence address with all transactions made on a computer. While it may be argued that the use of the property might have included business elementsthere may not be any actual harm to the property or any actual negative effects to the landlord. In such circumstanceseven though the tenant may be technically in breach of the term of the tenancy documentan injunction (whether temporary or permanent) might not lie as of right in favor of the landlord.

3. I am a tenant of an apartment unit who have been disturbed by my neighbour (since he habitually sings karoake at a high volume at night). I complained to the manager of the building and was told that as I was not the owner of the property. He further stated thatas tenantI did not have any right under the deed of mutual covenant. Is he correct and what can I do?

A deed of mutual covenant is a contract binding on all owners of a multi-unit or multi-storey building. It basically sets out rules for the management and regulation of the building. A typical deed of mutual covenant will state that a unit owner shall not cause or permit nuisance either created by the owner or his/her tenant to other occupiers of the same building.

It is technically incorrect to say that a tenant does not have any right under the deed of mutual covenant. In factthe law confers a right to a tenant to enjoy and enforce the benefit of all covenants relating to land under the deed of covenant against other co-owners and their tenants. As suchthe tenant may have the right to sue his/her noisy neighbours directly to enforce the said covenants under the deed of mutual covenant in Courts (e.g. Lands Tribunal). by obtaining an injunction and/or compensation for any harm or damage caused.

The manager of the building is also mostly likely to be under a duty to enforce restrictions under the deed of mutual covenants against all owners and their tenants. If there is an incorporated owners of the building (i.e. an “IO”)the IO will also be under a statutory duty to enforce the provisions under the deed of mutual covenant. In the event that the manager/incorporated owners willfully refuses to take any step to remedy the situationthe tenant may consider commencing a claim to compel such parties to enforce their duties.

Likewisea tenant is also under an obligation to comply with the negative/prohibitive covenants under the deed of mutual covenant (e.g. an owner shall not cause any nuisance or annoyance in his unit). Any breach of the same may be subject to claims to be made by co-ownersthe manager of the building and/or the IO.

In the event the tenant finds himself/herself facing with a deed of mutual covenant which is silent on the issue of nuisanceanother option is probably to sue the singing neighbour under the law of nuisance by obtaining an injunctive relief as well as monetary compensation for the disturbances caused.

As the relevant legal procedures are complicated both procedurally and evidentiallyit is strongly recommended to obtain lawyer's assistance in such regard.

1. I received a letter from a bank claiming to be the mortgagee of the property that I am renting. The bank claimed that the tenancy document between my landlord and me was made without its consent and asked me to move out of the property. What can I do?

All properly drafted mortgages may contain a clause that requires the mortgagor (the landlord) to seek consent from the mortgagee (the bank) before the mortgagor lets the property to another party (the tenant).

If the landlord complies with this requirementthen the bank has notice of and consented to the tenant’s presence and may not evict the tenant even if the bank eventually exercises its power of repossession (or forfeiture) under the mortgage upon any default on repayment. The bankunder such circumstanceswill become the landlord and is entitled to receive rent from the tenant.

If the landlord lets a mortgaged property to a tenant without obtaining the bank's consentthen the landlord is in breach of the mortgage and the property is liable to be repossessed by the bank. When the bank eventually exercises its power of repossession under the mortgagethe tenancy agreement may not be effective to protect the tenant’s interest against the right exercisable by the bank. In such eventthe tenant may become a trespasser on the property and the bank is perfectly entitled to ask the tenant to leave even if the tenant is prepared to pay the rent.

As a mortgage will invariably be registered with the Land Registrythe tenant is deemed to have notice of the mortgage and its terms. If the bank exercises its power of repossession under the mortgagethen the tenant cannot use ignorance as an excuse. Thereforebefore entering into a tenancy documenta tenant should always conduct a land search at the Land Registry to check whether the property is mortgaged. If the answer is affirmativethen the tenant must ensure that the landlord has obtained consent from the mortgagee.

1. In generalwho shall be responsible for maintaining and repairing the property?

As explained abovewhen dealing with the issue of repair and maintenancethe landlord and the tenant must predominantly rely on the tenancy document to ascertain their respective duties on a contractual basis.

A commonly adopted approach under tenancy agreements is that the landlord is responsible for external and structural repairs and maintenanceand the tenant is responsible for internal and non-structural ones. Howeversuch a simple dichotomy may still be problematic because the words internalexternalstructural and non-structural can have different interpretations under different circumstances.

Thereforea well-drafted tenancy document will try to anticipate and accommodate all potential areas of dispute that are specific to the particular propertyand clarify the parties' duties in details.

As a matter of common practice and depending on the parties’ bargaining abilitiesit will also be quite normal for a tenant to become responsible for many onerous duties which includes the carrying out of repair and maintenance works to a certain extent. Such term may be unfair on its face but in realityit is actually quite reasonable because the tenant has full rights of occupying and dealing with the property on an ongoing basis during the term of the tenancy. Naturallya tenant would be in a position to ascertain defects and carry out repair works which are necessary.

It is also common to find in a tenancy document that the tenant's obligations for repair and maintenance are limited by the phrase "fair wear and tear excepted". This excuses the tenant from damage arising from the passing of time and the ordinary and reasonable use of the property. A well-drafted tenancy document should also contain a clause which specifies that the landlord's obligations for structural repairs and maintenance will arise only upon notice of the structural defects. This is reasonable because the landlordnot being in occupation of the propertiescannot be expected to remedy defects or problems of which they are not aware of or not having any control over.

On the whole, the answer to the question of who is responsible for repairs and maintenance is to be found in the terms agreed upon by the landlord and the tenant. If there is no written tenancy document or if the particular issue is not tackled by the tenancy documentthen the outcome of any dispute may turn out to be highly uncertain and costly.

Irrespective of parties’ rights and obligations as agreedthe landlord may also volunteer to carry out repairs and maintenance works out of goodwill and preservation of relationship with tenant. Indeedas most tenancy agreements in Hong Kong are short-termedany state of disrepair or resultant damage caused by defects would most likely be detrimental to the landlord’s interests in the long run. On such basisit is often the case that the landlords do agree to incur expenses to remedy any defects in the property (e.g. patching up of damaged wallsreplacement of faulty air-conditioners/refrigerators andinjection of termite/insect repellents etc.).

In extreme cases (e.g. serious water leakage within the property)the landlord may also exercise a right (if so provided under the tenancy agreement) to enter the property and carry out necessary inspection and repair works by giving prior notice/appointment notwithstanding that the tenancy agreement did not impose any duty on him/her. If the tenant becomes uncooperativethe landlord may even apply for an urgent interlocutory injunction in Court to exercise such right or even terminate the tenancy agreement for such reason.

2. If there was a fire broken out on a leased property and the landlord has suffered some losses as a resultcan the landlord claim against the tenant?

It depends on the terms agreed by the landlord and the tenant in the tenancy agreement. It also depends on the cause of the fire (e.g. the source of the firewas it a pure accident or was it caused by someone's negligence or even willful damage). In practiceit is not easy to determine who was at fault.

A prudent landlord will take out insurance policies to cover the relevant property and household damage. Loss of or damage to household contents such as furnituredecorationelectrical appliances and personal valuables can be insured. A typical example of such kind of insurance is a "Householder's Comprehensive" insurance.

Another important note is that the landlord has a duty to inform the insurance company that the flat/house is rented out to a tenant.

Subject to the terms of the relevant tenancy documentthe tenant may also be required to take out proper insurance for the property.

1. I have let my property to a tenant on a three year term. There are still more than 2 years remaining in the term. HoweverI note that the rental value of neighbouring properties has risen significantly. Can I terminate the tenancy with the existing tenant and re-let the property out for a better rent?

A party to a contract is bound by the terms of that contract. Thereforeunless a tenancy document contains a break clause that allows the landlord to terminate the tenancy before the expiry of its term by giving prior notice at a certain time (e.g. after the expiration of one year from the commencement of the tenancy)or there is mutual agreement for an early terminationthe landlord is bound by the tenancy document and cannot unilaterally terminate the tenancy with the existing tenant. An act of wrongful termination of the lease may render the landlord to be in breach (or even in repudiatory breach) and become liable to the tenant for damages or sometimes an order for ‘specific performance’ of the lease (explained below).

2. I have recently entered into a lease with the Landlord butbefore moving inthe Landlord changed his position and said that he did not wish to let the property to me anymoreterminated the tenancy agreement and refused to let me move in. I considered that the terms of the lease was a good bargain to me and I liked this property a lot. Instead of asking for money compensationcan I ask the Court to compel the Landlord to let the property to me on the original terms despite the landlord has breached it?

Assuming the landlord has breached the tenancy agreement by wrongfully terminating it (i.e. without any ‘break clause’ as further explained below)there may be a chance for the tenant to promptly apply to the Court for the remedy of ‘specific performance’ of the tenancy agreement by ordering the landlord to comply with the terms of the tenancy agreement (instead of payment of damages) by reason that each property is unique and the award of damages for loss of bargain (or other kinds of compensation) is insufficient. If the order for specific performance is grantedthe landlord needs to lease the property to the tenant.

Howeverthe remedy of ‘specific performance’ is discretionary and equitable in nature (rather than as of right). In some casesthe Court may not be convinced that a suitable substitute property is not readily available in the market (especially for residential properties in larger developments). The Court may also be concerned that it may not be in a position to constantly supervise and continually enforce a tenancy agreement against the landlord for years. There may also be third party rights involved if the landlord has already sold the property to other parties which may decline the grant of specific performance. In such eventthe tenant may only be entitled to an award of damages to compensate his/her losses in terms of money.

3. I have rented a property on a three year term. There are still more than 2 years remaining in the term. HoweverI note that the rental value of neighbouring properties has dropped significantly. Can I terminate the tenancy with the landlord so that I can get a comparable property for a lower rent?

A party to a contract is bound by the terms of the contract. Thereforeunless a tenancy document contains a break clause that allows the tenant to terminate the tenancy before the expiry of its termby giving prior notice at a certain time (e.g. after the expiration of one year from the commencement of the tenancy)or there is mutual agreement for an early terminationthe tenant is bound by the tenancy document and cannot unilaterally terminate the tenancy with the landlord.

A “break clause” from the tenant’s perspective may look like this (for reference only).

Notwithstanding anything herein containedit is hereby agreed and declared that if at any time after the expiration of one year from the commencement of the Termthe Tenant shall be desirous of terminating this Agreementthen the Tenant shall have the right to terminate it by giving not less than two months prior written notice to the Landlordprovided that the notice is received by the Landlord at least two months prior to the date of termination stated thereinor by paying to the Landlord two months rent in lieu of such noticeprovided always that the operation of this clause is without prejudice to the rights and remedies of either party against the other in respect of any antecedent claims or breach of the agreementsstipulationsterms and conditions herein contained.

If the tenancy document does not contain a break clausethen neither the landlord nor tenant can unilaterally terminate the tenancy. The only option open to a tenant who wants to end a tenancy before the expiry of the agreed term is then to offer to the landlord to surrender the tenancy. Subject to negotiation between the partiesthe tenant may agree to pay a sum in exchange for the landlord’s acceptance of the surrender. Alternativelythe parties’ may continue with the tenancy by agreeing to increase/reduce the rent after renegotiation based on prevailing market conditions.

4. I have rented a property on a three year term. As a resultI have incurred rather big sum of money on renovations and purchasing furniture and expensive appliances which only fits into the property’s layout and dimensions. Howeverthe landlord relied on the ‘break clause’ and gave my notice to quit at the commencement of the second year. The landlord at the same time threatened me that if I wished to stayI must pay extra rent for the remaining termor else I must leave after restoring the property into its original state at my own costs. Is that fair? Can I sue the landlord for compensation?

Assuming that the landlord has rightfully invoked the break clause at the correct time as stipulated under the tenancy agreement (i.e. after 1 year fixed term)the landlord is not in breach. Regardless of how much sympathy you may gain from your positionthe Court is likely to give recognition to the break clause to terminate the lease and no compensation will be awarded in favor of the tenant.

Whether or not the landlord has put pressure on you by increasing rent may not be relevant as it is permissible for parties to freely negotiate on terms based on their bargaining power on a commercial basis.

While ‘break clauses’ do grant flexibilitya tenant shall take into consideration as to whether the inclusion of ‘break clause’ is truly desirable for him/her interests. It must also be noted that if there is no security of tenure for the entire termthe tenant shall be cautious as to whether it would be worth to commit expenditures into the property by renovating it. The question of handover standard will be dealt with further below.

1. My propertywhich is currently let to a tenanthas risen in value and I intend to sell it. What do I need to do to discharge myself from any liability under the tenancy before selling the property?

The landlord should make it clear to the estate agentthe solicitors and the potential purchaser that the property will be sold subject to a tenancy. The landlord’s solicitors will be responsible for putting relevant provisions in the agreement for sale and purchase to be made between the landlord and the potential purchaserso that the landlord will be discharged from any liability under the tenancy. Typical provisions include declaring that the landlord has fully disclosed the particulars of the tenancyreserving the landlord’s rights to claim against the tenant arrears of rent that were incurred before the completion of the saleand excluding liabilities under the tenancy document on the landlord’s part incurred subsequent to the completion of the sale.

The landlord should also notify the tenant about the intended sale and properly make an agreement with the tenant to deal with the deposit. Simply transferring the deposit to the new owner will not exempt the landlord from being held liable for returning the deposit to the tenant when the tenancy expires. Upon completionthe landlord shouldin exchangeobtain from the new owner an indemnity against claims on the deposit by the tenant (i.e. the landlord will be free from any future deposit claim by the tenant). Alternativelythe landlord may refund the deposit to the tenant and request the tenant to lodge the same deposit with the new owner.

2. My landlord has informed me that the property I am renting was sold recently. I was also told to pay rent to the new landlord on the next due date. Can I object? Will my interests under the "old" tenancy be protected?

The landlordas the owner of the propertyis entitled to sell the property. If there is a tenancy subsisting at the propertyit is likely that the property will be sold subject to the tenancy. That is to saythe new owner will be aware of the tenancy and will expect to collect rent from the tenant. The agreement for sale and purchase made between the old owner and the new owner should also have specified that the new owner will inherit from the old owner all of the rights and liabilities under the tenancy. Thereforea tenant’s rights and liabilities under the existing tenancy will generally remain unchanged in relation to the new owner.

Howeverthe deposit paid by the tenant deserves particular attention. According to a judgment made by the Privy Council (the final appellant court for Hong Kong before 1 July 1997) in 1986the covenant made by a landlord to return the deposit to a tenant is a personal promiseand is thus enforceable only against the landlord personally but not against the new owner. Thereforeunless there are some other arrangements or agreementsthe new landlord may not become liable to the tenant in respect of the deposit paid to the old landlord. The tenant should make sure that a fresh deposit is paid to the new landlord after return of the same from the former landlord.

1. What is the difference between an Option to Renew and a Break Clause?

An option to renew confers on the tenant a right to continue to rent the property for a fresh term after the expiry of the current termi.e. to renew the existing tenancy. With an option to renewthe tenant obtains another term of tenancy and the landlord is somewhat secured with rental income as agreed beforehand. As an option to renew represents a legal interest in land and affects the principles of notice and prioritythe relevant tenancy document containing such option should be registered even if the tenancy period does not exceed 3 years.

A break clausein contrastconfers rights to a party to prematurely terminate a tenancy after a certain period has elapsed or upon the occurrence of certain incidents. That is to saya party is allowed to break the agreement before the expiry of the original term.

2. A landlord and a tenant intend to renew an existing tenancy. Except the rentall of the terms are agreed. Is there any way that the parties can resolve the problem amicably?

The concept of “prevailing market rent” may be helpful under such circumstances. To find out the prevailing market rent of a propertythe parties can jointly appoint an independent professional valuation surveyor to do the jobthe decision of whom will be final and binding on the parties. The major advantage of this exercise is that the issue can be resolved amicably without endless and unfruitful negotiation. In practiceof course it will only be worthwhile to retain a professional valuation surveyor if the property has a substantial rental value such as commercial premises.

1. My tenant removed one of the partition walls of the unit (which is residential) without my consent. Can I terminate the tenancy agreement for such reason?

The issue primarily depends on whether the tenancy agreement contains a clause which prohibits the removal of a partition wall and whether such breach would entitle the landlord to terminate/forfeit the tenancy agreement contractually.

It is also important to investigate as to whether the partition wall as demolished was ‘structural’. If so, section 117(3)(g) of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) was breached which gives rise to a right to the landlord to forfeit the tenancy agreement.

In either casethe landlord should give a written demand to the tenant to specify the breach and request the partition wall to become reinstated (if possible). If the wall was structuralthe damage done may be permanent and non-remediable.

2. The neighbor has complained that the tenant of my property (in an industrial building) has persistently caused excessive noise during late evenings by having overnight binge drinking parties with over 100 guests and a lot of garbage was left at the lift lobby in early mornings. The matter was reported to the police too and certain people were arrested from the scene being suspected of drug abuse. Can I terminate the tenancy agreement? If the case is heard in Courtwill the Court grant any ‘mercy’ to the tenant?

The position of the landlord also depends on whether there is any express provision for the landlord to rely upon in alleging breach on the part of the tenant and terminate the tenancy agreement for such reason. In the absence of any express agreement conferring a right to terminate under the tenancythere may be difficulty in claiming forfeiture against the tenant. In such casethe landlord’s remedy may be confined to application for injunctive relief against the tenant to prohibit any nuisance caused or illegal use.

In the event of a forfeitable breach and depending on the actual circumstances of the breachserious nuisance caused and illegal use of the property by a tenant may be sufficient reason to deny relief against forfeiture given that some stigma might have been attached to the property itself.

a) Period/length of the tenancy

A Lease is generally legally referred to a document that creates a fixed term tenancy for more than 3 years. It has to be executed in the form of a deedmeaning that it has to be signedsealed and delivered by the parties. That is to saythe parties have to sign the Leaseaffix a red seal (a small red wafer) next to their signatures and exchange copies of the lease. It is desirable for a Lease to become registered in the Lands Registry.

A Tenancy Agreement is generally be referred to a tenancy for a period not exceeding 3 years. A tenancy agreement may be signed or agreed verbally between the parties .

For tenancy agreements which are put into writingthe parties to a Tenancy Agreement only have to sign itwithout needing to affix the red seal and exchanging the document. To protect the interests of both partieshoweverit is recommended that the parties should exchange and keep copies of the Tenancy Agreement as signed.

d) Deed of Mutual Covenant

The deed of mutual covenant (commonly known as “DMC”) is a document which regulates the relationship between the co-owners and occupants of individual units in a multi-storey buildingsetting out their rights and obligations.  The DMC is legally binding upon all the ownerspersons deriving title from the owners and occupants of the buildingincluding tenants of individual units.

In a typical DMCthe following restrictionswhich are of particular relevance to the occupants of individual units in a buildingcan usually be found:-

(a) Not to make any structural alteration to the individual unit or any part of the building.

(b) Not to cutalter or interfere with any water or gas pipeselectrical conduits or plumbing or drainage pipes intended for the use of the whole building.

(c) Not to use or permit or suffer any unit of the building to be used for any illegalunlawful or immoral purpose.

(d) Not to do or permit anything in the unit to become a nuisance or annoyance or cause damage or inconvenience to the owners or occupiers of the building.

(e) Not to project or display any signnotice or advertisement at the window or at the balcony or on the exterior wall of the building.

(f) Not to convert any common parts of the building to its own use.

Some DMCs may contain more draconian prohibitionsfor example occupiers are not allowed to hang out laundry outside the exterior of the buildingor restrictions on keeping of pets.

c) Apportionment

The issue of apportionment of rent may arise when:

(a) there is a break in time during the term of the tenancy; or

(b) there is a change of ownership of the subject property.

Under section 3 of the Apportionment Ordinance (Cap. 18)with the exception of rent payable in advancerent accrues from day to day and shall be apportionable in time accordingly.

Where there is a change of ownership of the property during the currency of the tenancythe rent payable is normally apportioned between the former landlord and the new landlord respectively.  In practicethe former landlord normally would receive the rent for the whole month and apportion the rent to the new landlord upon the completion of the conveyance.

d) Payment of rent

One of the most important obligations on the part of the tenant is to pay rent to the landlord punctually on the due date.

For tenancies of domestic premises entered on or after 27th December 2002section 117(3) of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) implies in favour of the landlord a covenant that the tenant to pay rent on the due datewith an implied condition for forfeiture of the tenancy if such implied covenant is broken by non-payment of the rent within 15 days of the due date.

The time for payment of rent is normally specified in the tenancy agreement.  It is often the case that the rent is payable in advancethat ison the first day of the rental period.  If there is no express agreementthe rent is generally payable in arrears at the end of each rental period.

d) Joint Representation

The relationship between an estate agent and the landlord or the tenant may take one of the following forms:-

“Single representation” means the estate agent acts for either the landlord or the tenant only.

“Joint representation” means the estate agent acts for both the landlord and the tenant at the time.

“Potentially dual agency” means the estate agent now acts for the landlord or the tenant onlybut may also act for the other party at a later stage.

a) Renting abroad - Estate Agent

a) Overview

Rent is the pecuniary return to the landlord from a tenancy arrangement.  The tenant is bound by the tenancy agreement to pay rent to the landlord for the use of the subject property.  As surprising as it may seemrent is not an essential term of a valid tenancy agreement.

Rentin most casesis in monetary termbut it may also consist of goods or services if so agreed by the parties. 

The amount of rent payable is determined by the terms of the tenancy agreement.  The rent must be certainor can be calculated with certainty; otherwise it may be void for uncertainty.

b) Rent-free periods

There is no mandatory rent-free period prescribed by the law.  Whether there is a rent-free period and the duration of the rent-free period depends on the agreement of the landlord and the tenant.  In practicerent-free period in Hong Kong can range from a couple of days to 2–3 months.

1. The tenancy agreement stipulates that rent shall be payable in advance on the 1st day of each month. The tenancy will terminate on 15th January. Does the tenant need to pay monthly rent in full on 1st January? If sodoes the landlord need to refund the rent for the period 16th to 31st January to the tenant later?

Unless there is express agreement to the contrarythe apportionment mechanism under the Apportionment Ordinance (Cap. 18) does not apply to rent payable in advanceas in this example.  The tenant is still obliged to pay the monthly rent in full on 1st January and it is not a legal requirement for the landlord need to refund the rent for the period 16th and 31st January.

For a tenancy agreement with a break clause which allows for early terminationthe entitlement to early terminate the tenancy does not in principle affect the obligation to pay rent of the tenant.  In such a caseit would be more desirable to serve notice to quit on the pay day of the monthly rent.

1. Can the tenant withhold some portion of the rent if the landlord fails to fulfill his obligation to repair?

The short answer is ‘No’.  It is well established in case law thatunless there is express agreement to the contrarythe tenant’s covenant to pay rent is independent of other covenants or obligations under the leaseincluding the compliance by the landlord of its obligation to repair.

2. The water tap was broken. The landlord is responsible for repairing itbut he refused to do so. I paid $500 to replace the tap with a new one. Can I pay $500 less in rent?

The answer is not at all straightforward.

The common law does recognise that the tenant may have a right to set-off the costs of carrying out repairs against the rent payablebut if and only if it is clear that the landlord has a duty to carry out the repairsand where the amount to be expended is reasonable and undisputed.

In practicearguments can easily ensue over whether the tenant can legitimately deduct the repair costs from the rent.  Firstlyit may not be clear-cut whether the landlord or the tenant or neither of them is under a duty to carry out repairs.  Secondlythe landlord may dispute the extent of the repairs and whether repair costs are reasonable.

Furthermorethe express words of the tenancy agreement may exclude the tenant from the right to set-off any amount against the rent payable.

If the tenant has decided to deduct the amount from the rentbut it turns out that he is held not entitled to make such a deductionhe runs the risk that the landlord may then exercise the right to forfeit the tenancy from the tenant.

Alternativelythe tenant can sue the landlord for breach of the covenant to repair and recover reasonable costs of carrying out the repairs from the landlord in damages.

1. If a tenancy agreement does not specify the end date of the tenancywould it still be legally binding until any of the party requests to terminate?  What would be the potential risk to tenants and landlords entering into such kind of tenancy agreement?

A tenancy at will may arise where the tenant occupies the land with the consent of the landlord and on the understanding that either party can terminate the tenancy immediately at any time by informing the other party.

A tenancy at will is for an indefinite duration and is a vulnerable form of tenancy.  It is purely a personal interest and will come to an end upon the death of either party.

The tenant has to leave within a reasonable time when a tenancy at will is terminated.

Perhaps more of a concern to the landlordsection 12(1) of the Limitation Ordinance (Cap. 347) provides that a tenancy at will is deemed to be brought to an end at the expiration of 1 year from its commencement.  This in effect limits the landlord’s right to recover unpaid rent for up to a maximum of 12 months.

2. If a tenancy agreement does not specify the end date of the tenancybut when the tenant moved into the flatthe landlord and tenant orally agreed when the tenancy would terminate.  Is the tenancy agreement valid?

In principlethere can be a tenancy agreement partly in writing and partly orally.  But this is not desirable and may lead to unnecessary complications in practice.

A lease for a term not exceeding 3 years at market rent which takes effect in possession may be created orally by virtue of section 6(2) of the Conveyancing and Property Ordinance (Cap. 219).

For leases which do not fall under the above exceptionwhilst in general they are legally binding as between the landlord and the tenantproblems may arise if the parties need to take legal action to resolve disputes relating to the tenancy.  This is because section 3(1) of the Conveyancing and Property Ordinance (Cap. 219) states that no legal action may be brought on an oral agreement for leaseunless:-

(a)      there is some memorandum or note in writing evidencing the tenancy agreement and signed by the parties; or

(b)      the parties can rely on the doctrine of part performance by demonstrating that they have performed sufficient acts pursuant to the oral agreement between them.

By way of exampleupon entering into an oral tenancy agreement with the landlordthe tenant has already moved into the flat and has duly paid rent to the landlord periodicallythen the tenant may be able to invoke the doctrine of part performance to assert that there has been an oral tenancy agreement between the parties.

3. If a tenancy agreement specifies the end dateprovides a renewal clause stating that it can be renewed every two years with an adjusted rentand a termination clause of one-month notice by either partyis it legally binding? Will it be deemed as a tenancy at will after the first term?

This example is likely to be a tenancy for a fixed term with an option to renew and a break clause allowing either the landlord or the tenant to early terminate the tenancy agreement by one-month notice during the currency of the term.

An option to renew typically provides that the tenant would be entitled to take a further term of the tenancy if the tenant gives prior written notice to that effect to the landlord at least a specified period before the expiration of the original tenancy and on the condition that the tenant has reasonably performed and observed the terms and obligations during the original tenancy. 

In order for the option to renew to be binding upon the successor(s)-in-title of the landlord (e.g. the succeeding owner of the property)the tenancy agreement in writing has to be duly registered in the Land Registry in accordance with section 3(1) of the Land Registration Ordinance (Cap. 128).

The landlord should be conscious that whether to exercise the option to renew is largely a choice for the tenant.  In practiceit is not usual for the landlord to commit to successive terms of renewed tenancy with yet an option to renew for another term.  In any casea break clause such as the one mentioned in this example would serve its purpose when the landlord wishes to terminate the tenancy.

4. Is there a maximum/minimum tenancy period in Hong Kong?

In Hong Kongthere is no maximum or minimum tenancy period as a matter of law.  The length of the tenancy period is based on the agreement of the landlord and the tenant.

A standard residential tenancy agreement in Hong Kong is for 2 yearseither with no break clause or a break clause to allow either the landlord or the tenant to terminate the tenancy by one-month notice after one year has passed (commonly known as “one year fixedone year flexible”).

Note: Short-term accommodation rental for not longer than 28 continuous days is regulated by the Hotel and Guesthouse Accommodation Ordinance (Cap. 349).  A flat with more than 12 or bedspaces used as sleeping accommodation under rental agreements is regulated under the Bedspace Apartments Ordinance (Cap. 447).

b) Capacities of the parties

The capacities of the parties entering into the Lease/Tenancy Agreement also affect the formalities of execution.

It is preferable for an individualsole proprietorship or a partnership entering into a Lease to affix a red seal next to the signature of the signing person(s). A limited company must affix its common seal next to the signature(s) of the person(s) authorised to sign the Lease. Furthermorethe Lease has to be executed in accordance with requirements stipulated under the company's Articles of Association accompanied by properly executed written board resolutions to authorize such execution.

If the party to a Tenancy Agreement is a sole proprietorshipa partnership or a limited companythe chop or the rubber stamp (as the case may be) of the signing party also has to be affixed onto the Tenancy Agreement together with the signature of the signatory.

You can go to Table 1 for more information regarding the execution clause (i.e. the part of a Tenancy Agreement/Lease where you sign your name).

If the property has been mortgaged to a bank/financial institutionthe landlord must obtain the prior consent from that company before leasing it out. For more information regarding this matterplease go to part VIII – properties with mortgages.

c) Implied covenants

In the absence of express provisions in the tenancy agreement to the contrarycertain basic obligations will be implied in a tenancy:

Implied covenants of the landlord include:

1. The tenant to have quiet enjoyment of the property.  This is to protect the tenant against eviction or interference with the use and enjoyment of the property by the landlord during the tenancy.
2. The landlord not to derogate from its grant.  That means the landlord shall not do anything to defeat the purpose for which the premises was let to the tenant.
3. Fitness for habitation.  This covenant applies only to furnished tenancy and only at the beginning of the tenancywhere the landlord warrants that the premises is in such a condition that it fits for human habitation.

Implied covenants of the tenant include:

1. To pay rent on the due date.
2. To pay rates.
3. To use the property in a tenant-like manner.  The tenant is under a duty to use the premises in a manner as a reasonable tenant will dofair wear and tear excepted.
4. Not to commit waste.  The tenant must not do any act which alters the nature of the premisese.g. an act of destruction or damage.
5. To deliver up possession of the property upon expiry of the tenancy.

For tenancies of domestic premises entered on or after 27th December 2002where the tenancy does not already contain covenants substantially to the same effectsection 117(3) of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) implies the following covenants of the tenant:

1. To pay the rent on the due date;
2. Not to use or suffer or permit the use of the premises for an immoral or illegal purpose;
3. Not to cause unnecessary annoyanceinconvenience or disturbance to the landlord or any other person; and

Not to make or suffer or permit any structural alteration to the premises without the prior written consent of the landlord.

1. The water tap is broken. The landlord refuses to repair it and there is no water coming into the flat. Is the landlord in breach of the covenant of "fitness for habitation"?

The implied covenant on the landlord that the premises is fit for habitation only applies to furnished tenancy and only at the commencement of the tenancy.  Such covenant does not last throughout the life of the tenancy.

So where the water tap is broken during the currency of the tenancythe landlord is unlikely to be in breach of the covenant as to habitability.

In factwhether the obligation to repair the broken water tap falls on the landlord or the tenant or neither of them is to be determined by reference to the specific provisions of the tenancy agreement.

2. I am a tenant of a residential property. I tried to lock the door of the property. HoweverI found that the door cannot be closed properly (e.g. a gap of about 2cm) upon the collection of keys from the estate agent. Given that I have already signed the formal tenancy agreement and I am preparing to move inis it reasonable for me to request the landlord to repair it? In contrastthe landlord wanted to amend the agreement to include a new clause requiring us to acknowledge this defect with a photo. Is it lawful?

Whether the landlord is an obligation to carry out repairs depends primarily on the terms of the tenancy agreement.  Some tenancy agreements may state that the tenant is solely responsible for the repair of doorswindowsetc. during the continuance of the tenancy. 

If the defect is not substantial enough to affect the normal use and enjoyment of the flatit is rather unlikely that the tenant could terminate the tenancy agreement on such ground.

On the other handassuming that the parties have already entered into a legally binding tenancy agreementin principlethe tenant is not obliged to agree to an addition or amendment of the terms of the tenancy agreement.

Pragmaticallywhen faced with the above situationthe tenant should inform and liaise with the landlord and endeavour to solve the problem amicably.

It is advisable for a prospective tenant to arrange for an inspection of the subject property in the presence of the estate agent before committing to a tenancy agreement.  If any noticeable defect is detected at the commencement of the tenancyit should be documented properly to avoid potential dispute between the parties in the future.

1. A dog-owner entered into a tenancy agreement with a landlord on a property with its DMC prohibiting property owners and tenants from keeping pets. What actions can be taken from the Incorporated Owners of the property or the management company to him and his landlord if he insists on keeping the dog with him?

The Incorporated Owners and the management company are under a duty to enforce the DMC in the proper management of the building.  Enforcement actions that may be taken against the tenant and the landlord include issuing warning letter andif ineffectiveinstituting court action for an injunction and for monetary damages (if any).

If the landlord is aware of any breach of the DMC by the tenant but has chosen to remain inactionthe landlord may also be found liable for allowing or permitting such breach.

The tenant and the landlord would likely be held responsible also for the legal costs incurred for taking enforcement action against them.

2. Following 1what action can the landlord take to the dog-owned tenant?

A more well-drafted tenancy agreement would usually contain a provision requiring the tenant to obey and comply with all the covenants in the DMC of the building and to indemnify the landlord against the non-observance of the DMC.

Alternativelytenancies of domestic premises typically contains a conventexpress or implied under section 117(3) of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7)that the tenant is not to cause unnecessary annoyanceinconvenience or disturbance to any other occupant.

Subject to the exact wordings of the tenancy agreementthe landlord may be entitled to exercise the right of forfeiture and break the tenancy early.  But before doing sounder section 58 of the Conveyancing and Property Ordinance (Cap. 219)the landlord is required to serve a prior written notice on the tenantspecifying the breach complained of and requesting the tenant to remedy the breach.  If the tenant fails to remedy the breach within a reasonable timethe landlord may then forfeit the tenancy.

3. If the estate agent and the landlord have not mentioned the prohibition of pet keeping to the tenant before entering into the tenancy agreementis it the tenant's responsibility to provide remedies as per the requests in 1 and 2?

Generally the covenants forming part of the DMC are binding upon the tenant irrespective of whether the estate agent or the landlord has specifically drawn the contents of the DMC to the attention of the tenant.

So the Incorporated Owners of the building and the management company can take enforcement action against the tenant for non-compliance of the DMC as mentioned above.

A prospective tenant is advised to look into the DMC and make proper enquiriesif appropriateto ascertain whether there may be any special restrictions under the DMC prior to entering into a binding tenancy agreement.

As to whether the tenant would have a claim against the estate agent or the landlord for damages or for early termination of the tenancy agreementit may depend on whether the tenant was procured to enter into the tenancy agreement by misrepresentation.

e) Interests affecting the tenancy

Unlike a transaction for the sale and purchase of landit is indeed lesser common for a potential tenant to investigate the title of the landlord to the subject property prior to entering into a tenancy agreement.  The interests and rights of the tenant can nonetheless be affected by other interests or encumbrances in relation to the same property or land.  Examples are:

1. Instruments registrable under the Land Registration Ordinance (Cap. 128)

Instruments affecting land duly registered under the Land Registration Ordinance (Cap. 128)e.g. an existing lease for a term exceeding 3 yearstakes priority according to their respective dates of registration and are generally binding on subsequent interests in land.

Even a registrable but unregistered instrument affecting land may take priority over the tenancy as a tenant is not a bona fide purchaser for value of the property under the meaning of section 3(2) of the Ordinance.

2. Interests of beneficial owner of the property

In some casesthe registered owner is in fact holding the property for the benefit of a beneficial owner by way of constructive trust or resulting trust.  Sometimes it is not easy to ascertain the beneficial ownership of a property on paper.  For exampleat the time when the property was purchasedX and Y had a common intention or agreement that whilst the property was held in the sole name of Xboth X and Y would have beneficial interest in the property and both of them had contributed to the purchase pricethen both X and Y may be the beneficial owners of the subject property.

The beneficial owner may not agree to lease the property and may even obstruct the tenant from taking possession.  The beneficial owner also has the right to receive the rent.

3. Interests of occupiers of the property

If it happens that there is a subsisting tenancy in respect of the same propertythe existing tenant will have an interest in the property.  The new tenant may not be able to enter or have possession of the property on the intended commencement date of the tenancy.

4. Orders or notices from the Building Authority or other government departments

These documents tend to show that the property or even the building as a whole is in an unsafe or dangerous state not fit for habitation or occupation.

To better protect its own intereststhe potential tenant is advised to conduct a land search to ascertain what instruments or encumbrances are registered against the subject property.  The potential tenant should alsoas far as practicablearrange an inspection of the property before entering into the tenancy agreement.

f) Tenancy without a written tenancy agreement

A lease for a term not exceeding 3 years at market rent which takes effect in possession is an exception to the general rule under section 3(1) of the Conveyancing and Property Ordinance (Cap. 219) that a lease of landed property shall be in writing in order to be enforceable by legal action.

Even for a lease for over 3 yearsit may not be problematic if both the landlord and the tenant are willing to honour their obligations to perform the tenancy as the oral tenancy agreement is legally binding upon the parties.

But if dispute about the tenancy arisesno legal action can be brought on an oral tenancy agreement unless:-

(a) there is some memorandum or note in writing evidencing the tenancy agreement and signed by the parties; or

(b) the parties can rely on the doctrine of part performance by demonstrating that they have performed sufficient acts pursuant to the oral agreement between them.

1. I am looking for a flat to rent. I see a number of documents issued by government departments are posted at the entrance of the building of the flatbut I don't know what they are. Will my interest be affected if I rent that flat later?

These documents may or may not affect your interest as a potential tenant.  Examples include various forms of statutory orders issued by the Buildings Department under the Buildings Ordinance (Cap. 123) mandating demolition and remedial works to be carried out before a specified time.  You should at least read the contents to ascertain what the documents are.  If in doubtyou should seek legal advice before you commit to any tenancy agreement with the landlord.

1. What is the potential risk to the landlord and the tenant in leasing and renting a property without a written agreement?

The most obvious risk has to be dispute on the precise terms of the tenancy agreementor sometimeseven whether a landlord and tenant relationship has in fact existed.  These uncertainties could have been avoided if the parties have signed a written tenancy agreement setting out clearly the terms of the tenancy.  Indeed signing a printed tenancy agreement conveniently available in local stationery shopsthough far from being adequate in many aspectsmay still more desirable than relying on a purely oral tenancy agreement.

When dispute arisesby the effect of section 3(1) of the Conveyancing and Property Ordinance (Cap. 219)the parties may not be able to bring a legal action to enforce the terms of an oral tenancy agreement unless the case falls under one of the exceptions to the rule that a lease of a landed property shall be in writing.

2. Can the rent receipt or utility fees receipt issued to a tenant by a landlord be proof of a tenancy relationship between two parties?

A rent receipt can serve as written evidence that the tenant has paid rent to the landlord.

For a tenancy of domestic premises falling under Part IV of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7)it is a mandatory requirement under section 119RA that the landlord shall give the tenant a receipt setting out the amount of the rent paidthe period for which the rent was paid and the date of payment.  A landlord who fails to comply commits a criminal offence and is liable to a fine of HK$2,000.

Utility fees receipt is rather neither here nor there.  An occupant of the property not in the capacity of a tenant may also be willing to pay for the utilities for its day-to-day use.

In either casehoweverproof of a tenancy relationship is no substitute for a properly drafted tenancy agreement.  Taking a typical rent receipt as an exampleother than the identities of the landlord and the tenantthe location of the property and the amount of rentit discloses almost nothing else about the terms of the tenancy.

e) Suspension of rent

Sometimes a tenancy agreement may contain provisions to the effect that the payment of rent or a proportionate part thereof shall be suspended in the case that the subject premises or any part thereof is destructed or damaged by certain calamitiesfor example firefloodtyphoonearthquake or white antsor if the premises is rendered uninhabitable or inaccessible for any cause beyond the control of the parties.

A suspension of rent clause is often construed narrowly.  If the premises is damaged but not destroyedit must be so severely damaged as to be rendered unfit for usenot merely in a dilapidated state or in need of repair.

Typically rent shall become payable again once the property is repaired or become accessible.

f) Rent review

Especially in longer leasesa rent review clause allows for adjustments of the rent periodically.  The purpose of a rent review clause is obviously to bring the rent in line with the open market rental from time to time.

A rent review clause in its basic form will provide for the rent to be reassessed at intervals of 2 – 3 years.  The clause will usually provide that the new rent is to be agreed between the landlord and the tenant; and if there is no agreement by a certain datethe parties are to agree on an independent valuer to assess the new rent.

4. If the tenant causes nuisance to neighbourswill the landlord be liable? Does the landlord have any remedies against the tenant?

The landlord may be liable for nuisance committed by the tenant if he has expressly or impliedly authorised the tenant to commit nuisanceor has adopted or continued such nuisance.

Tenancy agreements commonly contain a covenant by the tenant not to cause or permit nuisanceannoyanceinconvenience or disturbance to the occupants of neighbouring premises.

For tenancies of domestic premises entered on or after 27th December 2002section 117(3) of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) implies in the tenancy a covenant that the tenant not cause unnecessary annoyanceinconvenience or disturbance to the landlord or to any other personif the tenancy does not already contain a covenant substantially to the same effect.  The legislation also implies in the tenancy a condition for forfeiture if such implied covenant is broken.

Before the landlord can enforce the right of re-entry or forfeiture to terminate the tenancy earlysection 58 of the Conveyancing and Property Ordinance (Cap. 219) requires that a prior written notice be served on the tenantspecifying the breach complained of and requesting the tenant to remedy the breach or the compensation payable.

So if it can be proved that the tenant has been causing nuisance or annoyance to the occupiers of adjacent premises and where the tenant has refused to remedy the breachthe landlord may exercise the right to forfeit the tenancy and may claim against the tenant any damages caused by such early termination of the tenancy.

4. Issues relating to Bailiff

The Bailiff is a public officer empowered to execute the order or judgment of a Court or Tribunal.  After the plaintiff has obtained a court order or judgmentand if the opponent does not complythe plaintiff maydepending on the nature of the caseapply for enforcement by the Bailiff.

Particularly relevant to the landlord and tenant contextthe Bailiff can take appropriate steps to try to recover judgment debts or to deliver possession of premises.

(a)      Execution of a Writ of Fieri Facias or Warrant of Distress

A Writ of Fieri Facias is used to enforce a judgment or order for the payment of money by seizure of goodschattels or other property of the judgment debtor.

A Warrant of Distress is usedwhere the landlord has filed distress proceedings in the District Courtfor the seizure and sale of goodschattels or other property found in a rented premises to satisfy the arrears of rent.

On the date of execution of either of these writsa Bailifftogether with a security guardwill visit the subject premises.

If there are sufficient goods and chattels on the premises to justify a seizurethe Bailiff will seize them up to the amount endorsed on the writplus the estimated costs of the execution.  The applicant needs to give an undertaking to pay the necessary costs involved in effecting a seizureotherwise the seizure will be withheld and treated as unsuccessful.

(b)      Execution of a Writ of Possession

A Writ of Possession can be applied for to regain possession of land or premises.

The Bailiff will first go to the premises and serve a Notice to Quit for the occupant to vacate the premises in 7 days.  The Bailiff will review the situation after a lapse of 7 days before proceeding to execution.

If the premises is still occupiedthe Bailiff will proceed to the Writ of Possession on a scheduled date.  If the Bailiff cannot enter the premisesa locksmith may be called upon to break into the premises.

The applicant shouldif possibleaccompany the Bailiff to go to the subject premises to carry out execution of the writ.

The applicant will have to pay:-

(a)      a filing fee for the writ of the execution;

(b)      a deposit for the Bailiff’s travelling expenses; and

(c)      a deposit for the services by the security guard.

Irrespective of whether the execution is successfulthe Bailiff’s expenses and the security guard service fees are to be deducted from the deposits for each attempt at execution.  The more attempts are madethe more costs will be incurred.  The costs the applicant incur may only have recovered if the execution is successful and the payment of the defendant or the proceeds of the sale of goods and chattels are enough to cover the judgment debt plus the costs incurred.

You can visit the Judiciary website for more details about the Bailiff.

5. What amounts to “structural alteration”? Can the tenant make any structural alteration to the premises?

“Structural alteration” refers to alteration or interference with the formfabric or framework of the building capable of affecting the integrity of the structure.  Examples of structural alteration include demolition of a load-bearing wallerection of a canopy or making an opening on the external wall of the building.

Usually the terms in the tenancy agreement prohibit the tenant from making structural additions or alterations to the premises.  For tenancies of domestic premises entered on or after 27th December 2002there is a statutory implied covenant under section 117(3) of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) that the tenant not to make or suffer or permit any structural alteration to the premises without the prior written consent of the landlord.

Separatelythe deed of mutual covenant of the building most likely prohibits owners and occupiers from making structural alterations to the building.

All necessary approvals from government departmentsfor example those under the Building Ordinance (Cap. 123)must be obtained before the commencement of any structural building works.

If in doubtthe tenant should notify the landlord in advance and obtain the landlord’s consentpreferably in writingprior to the commencement of any works which may potentially involve structural additions or alterations.

6. I am a tenant of an industrial property. The landlord and I had an understanding that I would use the property for residential purpose when the tenancy agreement was signed. The landlord later evicted me from the property. Can I go to the court to enforce the tenancy agreement and seek remedies?

Entering into such kind of tenancy arrangements is not advisable and is very riskyespecially to the tenant.

Presumably it has been written in the tenancy agreement that the subject property is for industrial use only.  It is not hard to imagine when dispute emergesthe landlord is all the more tempted to deny the existence of the alleged understanding that the property would be used for residential purpose.  If the tenant cannot prove on evidence that there was such an understandingthe tenantinstead of the landlordwouldon the face of itbe the party in breach of the user restriction in the tenancy agreement and naturally would unlikely be entitled to any remedies.

Even if the tenant manages to establish the understanding with the landlord at the outsetit is very doubtful whether the court would specifically enforce a tenancy agreement which is in breach of the user restriction of the property.

Separatelythe landlord and the tenant are most likely in breach of the deed of mutual covenant of the building for allowing the property to be used for non-industrial purposes.  Both of them may be liable in legal action by the management companythe incorporated owners (if any) or other owners of the building.

3. There is an option to renew clause in the tenancy agreement signed between the old landlord and the tenant. The tenant tries to exercise the option to renewbut the new landlord refuses. Can the new landlord do so?

It depends on whether the option to renew has been duly registered in the Land Registry.

An option to renew in a written tenancy agreement is an interest in land registrable in the Land Registry under section 3(1) of the Land Registration Ordinance (Cap. 128)irrespective of whether the tenancy is for a term not exceeding 3 years.

Non-registration of registrable instrument is rendered absolutely null and void to all intents and purposes as against any subsequent bona fide purchaser for valuable consideration of the same propertyregardless of whether the purchaser has notice of the option to renew or not.

So if the written tenancy agreement containing the option to renew has not been duly registered in the Land Registryit is not binding on a subsequent bona fide purchaser for value.

In contrastif the tenancy agreement has been so registeredthe option to renew takes priority and the new landlord is not entitled to refuse if the tenant chooses to exercise the option to renew.

5. How to count the notifying period of tenancy termination? If it is specified a one-month notice perioddoes it count from the day of notification? Or does it count from the 1st day of the next rental month?

The computation of the notice period shall be based on the terms of tenancy agreement.

If the tenancy is for a fixed term with no break clauseneither the landlord nor the tenant has the right to early terminate the tenancy.  The term of the tenancy expires automatically by effluxion of time.  It is not necessary to give notice to quit.

If the tenancy agreement has a break clause allowing either the landlord or the tenant to give notice to terminate earlier than the end of the termthen the date when the notice is served is normally excluded when calculating the notice period.

In the case of a yearly tenancythe common law rule is that it can be terminated by at least a half year’s notice expiring at the end of a yearly periodunless the parties have otherwise agreed.

For other periodic tenanciesthat isa weeklymonthly or quarterly tenancythe general rule is the notice period is the same as one full period of the tenancyunless the parties have otherwise agreed.

The notice to quit shallunless the contrary intention is expressedbe in writing and must be served in the form and manner prescribed in section 62 of the Conveyancing and Property Ordinance (Cap. 219).

6. My neighbour causes excessive noise at night every day. My children and I cannot sleep. Can I terminate the tenancy agreement?

Whether or not the tenant can do so would depend on whether any breach by the landlord of its covenants in the tenancy agreement so as to entitle the tenant to early terminate the tenancy.

The landlord’s usual covenant for quiet enjoyment cannot assist the tenantunlessvery exceptionallythe neighbouring premises is also owned by the same landlord and it can be shown that the excessive noise caused by the occupant is authorised by the landlord.  The covenant for quiet enjoyment does not offer absolute protection against all forms of interference by any person during the tenancybut only protects the tenant against interference with quiet and peaceful enjoyment of the premises by the landlord or persons deriving title from the landlord.

The remedies available to the tenant may be an injunctive relief prohibiting the neighbour from causing or permitting nuisance and a claim for monetary damages against the neighbour resulting from breach of the deed of mutual covenants or nuisance.

Of courseif the tenancy agreement has a break clausethe tenant may also rely on the break clause and early terminate the tenancy accordingly.

7. I rent a flat with a balcony which is found to be an unauthorized building work. Later the landlord removed the balcony. Can I terminate the tenancy agreement?

Not every breach of the tenancy agreement would entitle the innocent party to terminate the tenancy early.  Whether the tenant in this example can terminate the tenancy agreement depends on whether the removal of the balcony was serious enough to constitute a repudiatory breach of the agreement on the part of the landlord so as to allow the tenant to elect to accept the repudiation and terminate the tenancy.

The landlord expressly or impliedly covenants not to derogate from its grant.  That means the landlord cannot do any act so as to defeat the purpose for which the lease was granted to the tenant.

Each case must turn on its own facts.  It is very unlikely though the flat was rented for the main purpose of using the balcony.  The occupation and use of the flat should remain largely unaffected.  In the circumstancesit seems unlikely that the landlord has breached its covenant not to derogate from the grant so as to entitle the tenant to terminate the tenancy agreement.

1. How to resolve the situation of the tenant and landlord not agreeing the amount to be deducted from the rental deposit (due to the disagreement on “reasonable satisfaction of the landlord”)?

It is rather common for a tenancy agreement to provide that the tenant shall deliver up possession of the premises upon the termination of the tenancy in a condition “to the reasonable satisfaction of the landlord” (with fair wear and tear excepted).

In lawthere is no standard or determinative answer for what is meant by “reasonable satisfaction of the landlord” in this context.  The landlord and the tenant shouldand certainly would the Courtexercise a degree of reasonableness and common sense in assessing whether the tenant is at fault.  Bearing in mind that the tenancy has already come to an endthe parties should carefully consider whether it is worthwhile and economically efficient to incur time and costs to dispute how much is to be deducted from the rental deposit.

In the absence of terms in the tenancy agreement stipulating the mechanism on how to resolve the differencesthe tenant may have to resort to legal action to recover the rental deposit from the landlord in the case that negotiations between the parties fail.

2. If my landlord refuses to return the rental deposit to mewhat can I do?

The nature of the rental deposit is to secure the tenant’s performance of its obligations under the tenancy.  Depending on the terms of the tenancy agreementthe landlord may be entitled to forfeit the rental deposit in full or in part if the tenant fails to pay the rent or other sum due under the tenancy agreementor if the landlord has suffered any damage due to the failure by the tenant to perform its covenant.

If the landlord has unreasonably refused to return the rental depositand the parties fail to reach consensus by negotiationthe tenant may need to commence legal action to recover the rental deposit from the landlord.

The proper venue for the litigation would depend on the amount in dispute:-

(a)      Small Claims Tribunal — where the claim is for HK$75,000 or less;

(b)      District Court — where the claim exceeds HK$75,000 but do not exceed HK$3,000,000; or

(c)      Court of First Instancefor any claim exceeding HK$3,000,000.

3. Does the landlord have the right to dispose of the belongings left by the tenant after the handover?

Generally the landlord has no right to dispose of the former tenant’s personal belongings.  The belongings are still owned by the former tenant.

The landlord is advised to give reasonable notice in writing to the former tenantrequesting him to collect the belongings left behind on or before a specified time.

If necessarythe landlord should institute court proceedings to regain possession of the property by proper means with the assistance of the Bailiff.

A more ideal tenancy agreement would have made provision that the tenant shall remove all its belongings from the suit premises within a certain number of days upon the termination of the tenancy; failing which the tenant shall be deemed to have abandoned its ownership of all the items left behind and the landlord shall have the absolute right to dispose of the items without further notice.

4. Does the landlord have the responsibility to keep the belongings for a certain period of time if the tenant has indicated that they will collect them?

In this situationthe landlord should definitely not throw away the tenant’s belongings outright.  Otherwise the landlord may risk being accused by the tenant of conversion or even stealing of the properties.

Unless the parties have otherwise agreedthe landlord is not obliged to retain the tenant’s belongings inside the subject property.  If the landlord has decided to move the belongings to a storageit is advisable to take inventory of all the items left behind and well document the logistics process.  With the advancement of technologyit is not at all difficult to take photographs or even videos of the items and during the process.

Depending on the wordings of the tenancy agreementthe landlord may be able to set-off logistics and storage fees reasonably incurred against the rental deposit on hand.

1. Is it mandatory to engage an estate agent to enter into a tenancy of a flat?

Not necessarily.  The landlord and the tenant may negotiate on their own and enter into a tenancy agreement.  In practicemany landlords and tenants in Hong Kong choose to purchase a printed tenancy agreement in English and Chinese from local stationery shops and use it as the basis of their tenancy.  Such printed tenancy agreements contain the very basic terms of a typical tenancythough it may not be adequate to cater for features specific to an individual case.

Parties who choose to act by themselves should pay special attention to the formalities and procedures that need to be followed after the signing of the tenancy agreementparticularly those in relation to stamping and the registration of the tenancy document(s) in the Land Registry.

1. I want to let my flat.  What services can I expect from an estate agent?

The estate agent’s duties include:

(a)  market the property on behalf of the landlord;

(b)  obtain information in relation to the property for the landlord;

(c)  arrange for tenants to inspect the Property;

(d)  conduct negotiation and submit all offers in relation to the property to the landlord; and

(e)  assist the landlord in entering into a binding lease with a tenant.

b) Services to landlords

2. As the landlordmust I sign an estate agency agreement when I ask an agent to help me let my flat?

In compliance with section 45 of the Estate Agents Ordinance (Cap. 511)you as the landlord must sign an estate agency agreement ‘Form 5’ before you can engage an estate agent for leasing a residential property in Hong Kong.  The form must be duly signed by you and your estate agent.

You must read the agreement carefully before signing.  If you do not understand any part of the agreementyou may ask the estate agent or consult a lawyer.  The estate agent should give you a copy of the signed agreement and you are advised to retain the copy for future reference.

1. I want to rent a flat. What services can I expect and what information can I obtain from the agent who shows me a flat?

The estate agent’s duties include:

(a)  obtain information in relation to the property for the tenant;

(b)  arrange for the tenant to inspect the Properties if requested by the tenant;

(c)  conduct negotiation and submit all offers to the landlord of the property as instructed by the tenant; and

(d)  assist the Tenant in entering into a binding tenancy agreement with the landlord of the property.

2. As a tenantmust I sign an estate agency agreement when I ask an agent to show me a flat?

In compliance with section 45 of the Estate Agents Ordinance (Cap. 511)you as the tenant must sign an estate agency agreement ‘Form 6’ before you can engage an estate agent for leasing a residential property in Hong Kong.  The form must be duly signed by you and your estate agent.

You must read the agreement carefully before signing.  If you do not understand any part of the agreementyou may ask the estate agent or consult a lawyer.  The estate agent should give you the original or a copy of the signed agreement and you are advised to retain the copy for future reference.

a) General

c) Services to tenants

3. What if I sign a 'Form 6' with an agent who shows me a flatand laterI rent the flat through another agent or directly from the landlord?

You are still liableduring the validity period of the estate agency agreementto pay commission to the first estate agent in accordance with Schedule 3 of ‘Form 6’.

4. What if I sign a 'Form 6' with an agent who shows me a flatand latersomeone related to me (e.g. my spouse) rents the flat through another agent or directly from the landlord?

You are still liableduring the validity period of the estate agency agreementto pay commission to the estate agent in accordance with Schedule 3 of ‘Form 6’.

1. Can the same estate agent serve both the landlord and the tenant?

Yesif both the landlord and the tenant have been informed and consent to such arrangements.

1. Where can I lodge a complaint if I am not satisfied with my estate agent?

You may lodge a complaint to the Estate Agents Authority by telephone at hotline 2111 2777or in writingby email or in person.  You can visit the website of the Estate Agents Authority for more information.

2. Before I rent the flatI find out that my estate agent gave me false or misleading information about the flat. Can I terminate the tenancy agreement and sue my agent (or his employer) for compensation?

The tenant generally cannot terminate the tenancy agreement on this basisunless it can be shown that the landlord has instructed or authorised the estate agent to provide false or misleading information to the tenant.

Furthermorean entire agreement clause in the tenancy agreement may operate to limit or exclude the tenant’s right to terminate the tenancy on the ground of pre-contractual misrepresentation by the landlord.

The estate agent may nonetheless be held liable for misrepresentation or negligence if it can be proved on a civil standard that the tenant was induced to enter into the tenancy agreement by the false or misleading information given by the estate agent.  The employer may also be vicariously liable for the wrongful conduct of the estate agent so closely connected with the employment.

e) Misconduct

3. Is the estate agent obliged to disclose to the potential tenant about tragic incident which occurred in the flat?

The estate agent acting for the potential tenant has a duty to act in the best interest of the client and must not provide false or misleading information.  So when the potential tenant asks its estate agent whether any tragic incident has happened in the flatthe estate agent should give an honest answer to the best of his knowledge and information.

1. Can unlicensed estate agents provide services to landlords and tenants in relation to overseas properties?

Currently estate agents in Hong Kong who deal exclusively with overseas properties are exempted from the licensing regulations under the Estate Agents Ordinance (Cap. 511).

2. Is there a regulatory body overseeing estate agents who provide agency services in relation to overseas properties?

Currently estate agents in Hong Kong who deal exclusively with overseas properties are not regulated by the Estate Agents Authority.

Estate agents in Hong Kong who deal with both local and overseas properties have to be licensed and are regulated by the Estate Agents Authority.

3. If the estate agent provided false or misleading information in the leasing of overseas propertieswill he or she be liable? How can landlords’ and tenants’ rights be protected?

If the services are rendered by an estate agent in Hong Kong and the parties involved are also Hong Kong entitiesthe estate agent may be liable in breach of the estate agency agreement or misrepresentation or negligence in Hong Kong.  You should first consult a legal professional before commencing any legal action.

Landlords and prospective tenants are advised to engage only established and reputation estate agency to handle matters relating to the leasing of overseas properties.

b) Renting abroad - Conflict of Laws

“Conflict of laws” refers to the body of law which concerns the choice of governing lawthe jurisdiction of the courts and the recognition of foreign judgments.

2. Is there any law regulating the rate of estate agent commission?

The legislation in Hong Kong does not prescribe or restrict the amount of commission chargeable by the estate agent.

The amount or rate of commission is negotiable between the landlord or the tenant and the estate agent.

1. Does Hong Kong law apply to the tenancy of overseas properties?

Subject to any laws in the jurisdiction where the property is locatedthe governing law is determined primarily by the express terms of the tenancy agreement.

In the absence of an express or implied agreement between the partiesthe Hong Kong courts would generally regard the contract as governed by the law with which the contract has its closest and most real connection.  Given that the subject property is located outside Hong Kongthis is a strong pointer that the tenancy is governed by the laws of the place where the property is situated.

a) Objective and Scope of Application of Landlord and Tenant (Consolidation) (Amendment) Ordinance 2021

a. Objective:

Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) came into effect on 22 January 2022 to regulate tenancies of subdivided units.

The key requirements under the Ordinance are as follows:

1. a regulated cycle of tenancies for a subdivided unit is to comprise two consecutive regulated tenancieseach for a term of two years;
2. a tenant of a first term tenancy for a subdivided unit is entitled to be granted a second term tenancy of the regulated cyclethus enjoying security of tenure of four years;
3. rent increase during the term of a regulated tenancy is not allowed;
4. the rate of rent increase for the second term tenancy of a regulated cycle must not exceed the percentage change of the territory-wide rental index for all classes of private domestic properties compiled and published by the Rating and Valuation Department (“RVD”) during the relevant periodand is capped at 10 per cent;
5. a landlord of a regulated tenancy commits an offence if the landlord requires the tenant to pay any non-permitted money or pay for the reimbursement of those charges for utilities and services (including water and electricity) that are not permitted; and
6. a landlord of a regulated tenancy mustwithin 60 days after the term of the tenancy commencessubmit a Notice of Tenancy (Form AR2) to the RVD. If the landlordwithout reasonable excusefails to comply with the requirementthe landlord commits an offence.

b. Scope of Application:

A tenancy which fulfils all of the following conditions is a “regulated tenancy” under Part IVA of the Ordinance:

1. the tenancy commences on or after 22 January 2022;
2. the tenancy is a domestic tenancy;
3. the subject premises of the tenancy are a subdivided unit;
4. the tenant is a natural person;
5. the purpose of the tenancy is for the tenant’s own dwelling; and
6. the tenancy is not one specified in Schedule 6 to the Ordinancei.e. the tenancy is not an excluded tenancy.

Which premises are covered?

A “subdivided unit” means premises that form part of a unit of a building. As long as the building plan of the premise that has been divided and rented has been approved by the Building Departmenttenancies on the unit will be regulated by Ordinanceregardless of whether the interior structures involved comply with the Building Ordinance.

In generalthe Ordinance covers subdivided units in domesticindustrial and commercial buildingsand of different types (including cubiclesbedspacesspace capsulesloftscage homesrooftop houses and podium housesetc.) for domestic use.

Which premises are not covered?

The regulations do not cover structures/building works that have not been covered by approved building plans. In the absence of such plansit would be impossible to delineate the boundary of a “unit” and hence determine whether the premises of the subject tenancy are a subdivided unit.

It follows that tenancies of the following categories do not fall within the regulations under the Ordinance:

1. tenancies on unauthorized building works or structures erected on private land or government land for domestic uses (e.g.squatters)irrespective of whether they are tolerated or not;
2. tenancies on “New Territories Exempted Houses” for domestic uses.

Legality of building structures

The Ordinance does not “legalise” subdivided units in industrial/commercial buildings or temporary structures. The new tenancy control regime would not prejudice law enforcement actions taken by relevant authorities under existing legislationsparticularly in respect of building and fire safety; and regulated tenancy would not necessarily constitute a reasonable excuse for owners not to comply with statutory orderslease enforcement notices and other enforcement notices issued by relevant government departments in the exercise of their legal authorities. If a statutory order is served to require the demolition of a subdivided unit that is under a regulated tenancythe relevant person is obliged to comply with such order.

b) Excluded Tenancies

Tenancies specified in Schedule 6 of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) are excluded from the tenancy regulations on subdivided units. Such tenancies include:

1. A tenancy of which the landlord is the employer and the tenant is the employee in possession of the premises in accordance with the terms and conditions of the tenant’s employmentbeing terms and conditions requiring the tenant to vacate the premises on ceasing to be so employed;
2. A tenancy:
   1. that is not a sub-tenancy;
   2. the subject premises of which are demarcated as a bedroom in a unit of a building in the latest building plan of the buildingwhich is the latest building plan approved by the Building Authority under the Buildings Ordinance (Cap. 123) as at the date on which the occupation permit in relation to the building is issued; and
   3. the landlord of which is a natural person and residing in the unit at the commencement of the tenancy;
3. A tenancy of premises under the Hong Kong Housing Society’s “Letting Scheme for Subsidised Sale Developments with Premium Unpaid”.
4. A tenancy held from:
   1. the Government;
   2. the Hong Kong Housing Authority;
   3. the Hong Kong Housing Society;
   4. the Hong Kong Settlers Housing Corporation Limited;
   5. the Urban Renewal Authority (or any of its wholly owned subsidiaries);
5. a tenancy held from a social services organization;
6. a tenancy of premises that is subsisting at the time when the regulation is in effect (i.e.22 Jan 2022).

If the relevant tenancies of the premises being rented out satisfy any of the abovethey are excluded from regulation under Part IVA of the Ordinance.

Q1. Would a landlord residing in one of the subdivided units be a sufficient condition to exempt the tenancies of other subdivided units from the regulation of the Part IVA of the Landlord and Tenant (Consolidation) Ordinance?

If the following three conditions are satisfiedthen the tenancy is excluded from the application of Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7).

A tenancy:

1. that is not a sub-tenancy;
2. the subject premises of which are a bedroom in a unit; and
3. the landlord of which is a natural person and residing in the unit at the commencement of the tenancy.

In this contextthe term “bedroom” has been specifically defined under Section 1 of Schedule 6 to mean: “in relation to a buildingmeans premises in a unit of the building that are demarcated as a bedroom in the latest building plan of the building”.

In other wordsthe exclusion only applies when the primary landlord rents out a bedroom so demarcated as in the approved building plan of a premise in which he/she has been residing. If the subdivided unit being rented is not “a bedroom in the latest building plan of the building”the above exclusion does not apply. Likewisethe exclusion will not apply if the tenancy is a sub-tenancy.

c) Transitional Arrangements

Transitional arrangements for fixed-term and periodic tenancies under Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) are different.

Fixed-term tenancy is a tenancy agreement for a certain term (e.g. for two years). At common law a tenancy for a fixed term expires automatically at the end of that term andsubject to any agreement between the parties to the contraryis determined by the effluxion of time alonewithout the need for any other act or notice.

Periodic tenancy is a tenancy by the period (e.g. weekly tenancy and monthly tenancy) and does not expire without notice at the end of the period or at the end of each periodthere being not a reletting at the beginning of every week or period but a springing interest which arises and which is determined only by proper notice to quit.

Both periodic and fixed-term tenancies can be created orally or in writing.

Tenancies commenced before the material date

Transitional arrangement for fixed-term tenancies commenced before 22 January 2022: The terms as well as rights and obligations of the landlord and the tenant under fixed-term tenancy agreements are not regulated.

Transitional arrangement for periodic tenancies commenced before 22 January 2022: The arrangement is governed by section 120AAQ of the Ordinance which provides for “deemed first term tenancy in certain circumstances”:

1. If a period of the tenancy commences (usually taken as the monthly rent payment date) on 22 January 2022the tenancy is taken to be a first term tenancyand the term of the tenancy is taken to be 2 years commencing on 22 January 2022. The rent agreed by the parties to be payable by the tenant at the commencement of the reference period is taken to be the rent for the first term tenancy.
2. If a period of the tenancy straddles 22 January 2022the tenancy is taken to be a first term tenancy and the term of the tenancy is taken to be 2 years commencing on the date immediately after the expiry of the period that straddles 22 January 2022. Similarlythe rent agreed by the parties to be payable by the tenant at the commencement of the reference period is taken to be the rent for the first term tenancy.

Tenancies commenced on or after the material date

A fixed-term tenancy for a term of 2 years commencing on or after 22 January 2022will be taken to be the first term tenancy regulated by the Ordinance.

A tenancy that purports to be (i) a periodic tenancy or (ii) a tenancy for a term other than of 2 yearscommencing on or after 22 January 2022 is taken to be a first term tenancy:

1. the term of the tenancy is taken to be 2 years commencing on (i) the date of the creation of the tenancy; or (ii) a later date agreed by the parties for the commencement of the tenancy; and
2. the rent agreed by the parties to be payable by the tenant at the commencement of the tenancy is taken to be the rent for the first term tenancy.

The following examplesapplicable to both written and oral tenanciesdemonstrate when the regulated first term tenancies would commence:

1. A fixed-term tenancy commencing on 1 January 2022: The tenancythe term and the rent are not regulated by the Ordinance.
2. A fixed-term tenancy commencing on or after 22 January 2022: The first regulated term of 2 years would commence with the beginning of the tenancy termno matter how long the term is provided in the tenancy agreements. The rent agreed by the parties to be payable at the commencement of the tenancy is taken to be the rent of the first term tenancy.
3. A periodic (monthly) tenancy commencing on 1 December 2021: The first regulated term of 2 years commenced on 1 February 2022the date immediately after the expiry of the period (1 January – 31 January 2022) that straddles the material date (22 January 2022). In the usual termthat is the first rent payment day after the material date of the Ordinance. The rent agreed by the parties to be payable by the tenant at the commencement of the straddling period (i.e.1 January 2022) is taken to be the rent of the first term tenancy.
4. A periodic (monthly) tenancy commencing on 22 December 2021: The first regulated term of 2 years commenced on 22 January 2022since a period of the tenancy (22 January – 21 February 2022) commenced exactly on the material date of the Ordinance. The rent agreed by the parties to be payable by the tenant at the commencement of that period (i.e.22 January 2022) is taken to be the rent of the first term tenancy.
5. A periodic (monthly) tenancy commencing on or after 22 January 2022: The first regulated term of 2 years commenced with the beginning of the tenancy term. The rent agreed by the parties to be payable at the commencement of the tenancy is taken to be the rent of the first term tenancy.

Q1. A tenancy on a subdivided unit was created orally or by conduct with rent paid periodically and no written tenancy had ever been signed. Are the tenancy regulations applicable?

Yes. A tenancy whose term is defined by reference to the period for payment of rentrather than by a fixed period expressly stated in the agreementis a periodic tenancywhether oral or in writing. Periodic tenancy extends indefinitely from period to period until it is terminated by a notice to quit given by one party to the other. The tenancy regulations on subdivided units are applicable to such tenancy.

If a period of the tenancy in question straddles the material date of Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7)i.e.22 January 2022the tenancy is taken to be the first term tenancy and the term of the tenancy is taken to be 2 years commencing on the date immediately after the expiry of the period that straddles 22 January 2022. In usual termsthat is the first rent payment day after the material date of the Ordinance.

If the periodic tenancy commences on or after 22 January 2022it is taken to be the first term tenancy and the term of the tenancy is taken to be 2 years commencing on (i) the date of the creation of the tenancyor (ii) a later date agreed by the parties for the commencement of the tenancy.

Q2. An original tenancy agreement has expired. The tenant continues to pay for the monthly rent and stay in the subdivided unit with the landlord’s consent. Are the tenancy regulations applicable?

Yes. Where a tenant holds over with the landlord’s consentexpress or impliedat the end of a fixed-term tenancy and either party may at any time terminate the arrangement at willit is a tenancy at will. If the tenant pays rent to the landlord by reference to a periodand the landlord acceptsthe tenancy becomes a periodic tenancy. The next day after the expiry of the fixed-term tenancy is taken as the commencement of the periodic tenancy. The tenancy regulations on subdivided units are applicable to such tenancy.

If a fixed-term tenancy expires before the material date of Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) i.e.22 January 2022and a period of the periodic tenancy in question straddles the material datethat periodic tenancy is taken to be the first term tenancy and the term of the tenancy is taken to be 2 years commencing on the date immediately after the expiry of the period that straddles material date. In usual termsthat is the first rent payment day after the material date of the Ordinance.

If the periodic tenancy immediately following the fixed-term tenancy in question commences on or after the material dateit is taken to be the first term tenancy and the term of the tenancy is taken to be 2 years commencing with the periodic tenancy.

d) Determination of Regulated Tenancy

A tenancy which fulfils all of the following conditions is a regulated tenancy under Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) :

1. the tenancy commences on or after 22 January 2022;
2. the tenancy is a domestic tenancy;
3. the subject premises of the tenancy are a subdivided unit;
4. the tenant is a natural person;
5. the purpose of the tenancy is for the tenant’s own dwelling; and
6. the tenancy is not one specified in Schedule 6 to the Ordinancei.e. the tenancy is not an excluded tenancy.

Lands Tribunal

Any personincluding landlord and tenanthaving an interest in any premises may apply to the Lands Tribunal to determine whether or not a tenancy for the premises is a regulated tenancy for the purpose of Part IVA of the Ordinance.

Applicants are required to file with the Registrar of the Tribunal a notice of application substantially in accordance with Form 22 (Part B of Form 22 be completed) in order to set out the nature of the application. For application detailsplease refer to the Tribunal webpage.

Commissioner of Rating and Valuation

If a dispute arises as to whether a tenancy of any premises is a domestic tenancy (see item (2) above) and the primary user of the premises is relevant to the disputethe landlord or tenant of the premises may apply to the Commissioner of the Rating and Valuation Department (the Commissioner) for the issue of a primary user certificate for the premises in Form TR4 at no fee.

Before the Commissioner issues a primary user certificate for any premisesthe Commissioner must carry out an inspection of the premises for the purpose of determining the primary user of the premises. If the evidence available as to the primary user of the premises is satisfiedthe Commissioner must issue a primary user certificate as to the primary user of the premises on the day of the inspection and serve on the landlord and tenant. Otherwisethe Commissioner must issue a notice declining to express an opinion as to the primary user of the premises.

The certificate shallfor all purposesbe evidence of the facts set out in the certificate and of the primary user of the premises as at the day when they were inspected.

Howeverif the Commissioner has already issued a primary user for any premisesno further application may be made for the premises before the expiry of 1 year from the day on which the primary user certificate is issued.

A landlord or tenant of any premises may also apply to the Commissioner for the issue of a primary user certificate for the premiseseven though no dispute arises as to whether the tenancy is a domestic tenancy. In such casesthe applicant is required to submit Form TR4D at a fee and propose in the application form a day (other than a public holiday) on which the Commissioner may carry out an inspection of the premises.

For application detailsplease refer to the notes of the relevant forms available on the Rating and Valuation Department’s webpage.

Q1. A landlord letting a subdivided unit in an industrial building maintains that the tenancy is not for domestic useand therefore not to be regulated by Part IVA of the Landlord and Tenant (Consolidation) Ordinance. The tenant disagrees and would like to take legal action. What can the tenant do in order to prove that the tenancy is for domestic use and thus a regulated tenancy under the Ordinance? What factors will be taken into consideration by the Court when determining whether the tenancy of the subdivided unit is a regulated tenancy?

The tenant may apply to the Lands Tribunal to determine whether or not a tenancy for the premises is a regulated tenancy for the purpose of Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7).

In determining whether a tenancy is a domestic tenancy or notthe Tribunal may consider the following matters:

• Purpose specified in tenancy;
• Purpose for which premises are actually used;
• Tenant to establish landlord’s agreement to change of user as dwelling;
• Purpose of sub-tenancy subject to superior tenancy;
• Whether the premises are used as a boarding or lodging house;
• The covenantsterms and conditions in the Government lease or tenancy in relation to the premises;
• Any occupation permit issued under the Building Ordinance (123) in relation to the premises;
• Normal additional uses of the premises that are consistent with the domestic nature of a tenancy having regard to the following:
               1. the floor area in occupation for the uses (whether at all times or not);
               2. the number of persons engaged in the uses but not dwelling on the premises;
               3. the furnishingsfittings and contents of the premises;
               4. the gross profits resulting from the uses relative to the rent.

Although most of the covenantsterms and conditions in the Government lease or tenancy on the industrial buildings expressly state that the premises can only be used for specific purposes other than dwellingsthe tenancies in these premises might still be taken as domestic tenancies and be regulated by Part IVA of the Ordinance in the following circumstances:

Tenancy with a written purpose of dwelling

If a tenancy specifies in writing that any premises are to be used for a domestic purposethe premises are taken to be used for that purpose unless it is proved otherwise;

Tenancy with a written purpose other than dwelling

Where the purpose referred to in a tenancy on the subdivided unit is for industrial use onlythe premises are taken to have been let for dwellingif:

1. the tenant can establish that the landlord has agreed on or acquiesced in the change of user in breach of the tenancy expressly or by implication; and
2. the premises are being used primarily for dwelling.

For the purpose of establishing (2)the Primary User Certificate issued by the Commissioner of Rating and Valuation (Commissioner) can serve as evidence of the primary user of the premises as at the day of the inspection.

Tenancy without a written purpose or user

If there is not sufficient evidence showing that any premises were originally let for a particular purposethe purpose of the tenancy of the premises is to be determined by the primary user of the premises. For this purposethe Primary User Certificate issued by the Commissioner can serve as evidence of the primary user of the premises as at the day of the inspection.

Sub-tenancy under a superior tenancy

For a tenancy on a subdivided unit that is a sub-tenancy created out of a head lease (or superior tenancy)the terms and use of the head lease (or superior tenancy) will be taken into consideration. If there is evidence showing that the premises of the head lease:

• were let other than as a dwelling; or
• were being used other than as a dwelling,

at the commencement of the subject tenancythe premises of the subject tenancy (subject premises) are taken to be used other than as a dwelling unless the tenant of the subject premises satisfies the Tribunal to the contrary.

e) Security of Tenure

Security of tenure usually involves the provision of a certain level of certainty to a tenant that he will not be arbitrarily ejected or evicted from the land.

Each regulated tenancy is a term of 2 years. Unless under the circumstances specified in the Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7)the landlord cannot terminate the tenancy before the expiry of the term.

A regulated cycle is to comprise 2 consecutive regulated tenancies (i.e.the first term tenancy and the second term tenancy).

A tenant of a first term tenancy is entitled to be granted a second term tenancy of the regulated cyclethus enjoying a total of 4 years (first term 2 years + second term 2 years) of security of tenure. The term and the conditions of the second term tenancy are to be the same as those of the first term tenancyexcept for the period of the tenancy and the amount of rent.

At the end of the 4-year cyclethe landlord and the tenant can freely negotiate the first tenancy agreement for the next regulated cycle.

Early Termination of Regulated Tenancy by Tenant

A tenant may terminate the tenancy by giving the landlord not less than 30 days’ prior notice in writing. Howeverthe date of termination must not be a date earlier than the last day of the first year of the term.

If there is no other provision in the tenancy agreement that the tenant may determine the tenancy during its term other than that provided in the Ordinancethe tenant is subject to the restriction that the date of termination of the tenancy cannot be earlier than the last day of the first year of the first term tenancy or the second term tenancy. NonethelessPart IVA of the Ordinance does not prohibit a tenant from surrendering the tenancy to the landlord before the expiry of the term if both parties can reach a consensus. The tenant may negotiate with the landlord on early termination of the tenancybut the landlord is not obligated to accept the request.

Howeverthe tenant may terminate the tenancy throughout the term by giving the landlord not less than 30 days’ prior notice in writingin accordance with the following provisions under Part IVA of the Ordinanceif the landlord fails:

• to serve the tenancy agreement in writing within 30 days upon demand by the tenant; or,
• to maintain and keep in repairwhere applicable:
  • the drainspipeselectrical wiring serving the premises exclusively;
  • the windows of the premises;
  • the fixtures and fittings provided by the landlord in the premisesand keep in working order.

If a tenant foresees that he/she may need to terminate a regulated tenancy early under certain circumstanceshe/she may wish to negotiate with the landlord to secure such a right for early termination in the tenancy agreement before entering into the first term tenancy. Part IVA of the Ordinance does not limit any rights of the tenant to terminate the tenancy by notice under the tenancy.

Early Termination of Regulated Tenancy by Landlord

Unless under the provisions specified by Part IVA of the Ordinancethe landlord cannot terminate the tenancy before the expiry of the term. Even if the tenancy has any conditions for forfeiture other than the specified provisionsthey should be deemed invalid and shall be void.

According to Part IVA of the Ordinanceif the tenant is in breach of any of the following provisions under Part 4 of Schedule 7 to the Ordinancethe landlord may enforce the right of re-entry or forfeiture:

• fails to pay rent within 15 days after the due dateexcept where the tenant is withholding the payment of rent on the ground that the landlord fails:
  • to serve the tenancy agreement in writing within 30 days upon demand by the tenant; or,
  • to return a counterpart of the stamped tenancy agreement within 30 days upon receiving the agreement signed by the tenant;
• persistently fails to pay rent as and when it falls due;
• makes any structural alterationor permits or suffers any structural alternation to be madeto the premises without the prior consent in writing of landlord;
• uses the premisesor permit or suffer the premises to be usedfor any immoral or illegal purpose;
• does anythingor permits or suffers anything to be doneon the premises that would cause any unnecessary annoyanceinconvenience or disturbance to the landlord or any other person;
• assign or underlet the whole of the premises to another personor otherwise part with possession of the whole of the premises;
• underlet part of the premises to another person without the prior consent in writing of the landlord.

The tenancy of the premises is terminated immediately on the landlord’s re-entry on any of the grounds above.

Other Interests

Howevereven though the landlord cannot wilfully terminate the tenancy earlythe 4-year security of tenure may be subject to other interests related to the premises.

For examplesubdividing premises into units may result in breaches of government leasesbuilding regulationsfire regulations and/or deed of mutual covenants etc. (see “Other Legal Issues”). If a statutory order is served to require the demolition of a subdivided unit that is under a regulated tenancythe relevant person is obliged to comply with such order.

In old districts where many of the subdivided units are locatedit is not uncommon that the premises concerned would be included in a redevelopment plan or subject to compulsory sales. The ownership of the premises will be transferred while the tenantscompensated or resettledare required to move out according to statutes (see the question on urban renewal and compulsory sales).

If the regulated tenancy is a sub-tenancy arising from another tenancythe sub-tenant living in the subdivided unit must also hand over the property back to the landlord when the superior tenancy ends or is forfeited (see “Regulated Tenancy as Sub-tenancy”).

Q1. What will happen to the tenancy if there is an acquisition by Urban Renewal Authority or compulsory sale involving the premises in regulated tenancies? Can a landlord terminate the regulated tenancies unilaterally or not offer second term tenancy in the offering period if the landlord believes that there will soon be a foreseeable acquisition or compulsory sale?

Early Termination of Regulated Tenancies

Unless the tenant has violated the mandatory terms implied for every regulated tenancy provided in Schedule 7 of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7)the landlord cannot terminate the tenancy before the expiry of the term. Even if the tenancy has any conditions for forfeiture other than the specified provisionsthey should be deemed invalid and shall be void.

A mere “belief” that the unit concerned is to be included in a redevelopment plan by the Urban Renewal Authority is a not sufficient reason to terminate the regulated tenancy before its expiry or not to offer the second term tenancy to the tenant in the specified offer period. If the premises are included in a redevelopment plan or are ordered by the court for a compulsory salethe ownership of the premises will be transferred while the tenantscompensated or resettledare required to move out in accordance with statutory procedures. 

Urban Renewal

The Urban Renewal Authority (“URA”) was established under the Urban Renewal Authority Ordinance (Cap. 563) as the statutory body to undertakeencouragepromote and facilitate urban renewal of Hong Kong.

When a resumption is ordereda Government Notice will be published in the Gazette and a freezing survey will be conducted. A copy of the Government notice will be affixed on or near the properties affectedand sent to the registered owners thereofwhere possible. Under normal circumstancesthe Government will give a period of notice of 3 months from the date upon which the notice was affixed on or near the properties and upon expiry of the period specified in the noticethe ownership of the properties will revert to the Government. Upon the date of reversionall legal rights and interests of the owners no longer exist. Henceforththe former owner is not entitled to collect rents or fees of any kind from his tenant or the occupant.

Eligible persons will be offered compensation or ex-gratia allowances. Rehousing arrangements may be made for occupiers of domestic flats (ex-tenants)if applicable.

In order to assess the compensation and allowances as well as to identify persons eligible to compensation or rehousingthe Government will appoint the URA to send staff to properties to be resumed to conduct surveys. The area occupied by each household will be identified and relevant information can be obtained. If both parties fail to reach an agreement on the compensationthe case can be referred to the Lands Tribunal for adjudication.

As to eligible domestic occupierswhether they opt for cash compensation or rehousingthey have to follow the necessary procedures before receiving the compensation or rehousing unit.

Compulsory Sale

In order to encourage the redevelopment of dilapidated buildingsthe Land (Compulsory Sale for Redevelopment) Ordinance (Cap. 545) was brought into force on 7th June 1999. The Ordinance enables people who hold a specified majority of the undivided shares in a lot to make an application to the Lands Tribunal for an order to sell it for redevelopment.

When making an order for compulsory salethe Tribunal may order that compensation be paid to a tenant for termination of tenancy. The Tribunal may specify in directions that:

• tenancies shall be terminated immediately upon the purchaser becomes the owner; and
• tenants are to deliver vacant possession only upon expiry of 6 months immediately following the day the purchaser becomes the owner.

The Lands Tribunal may take into account the following in determining the amount of compensation:

• the tenants’ representations; and
• the benefit afforded to the tenants for not being required to deliver vacant possession until six months after the purchaser becomes the owner of the lot.

Lease covers both oral or written agreement.

Upon the sale of the loteach ex-owner will be responsible for paying the compensation to their own “ex-tenants” if compensation is specified in the order issued by the Lands Tribunal. The trustee will deduct the compensation amount specified by the Lands Tribunal from the sale proceeds before releasing the residual amount to the owners.

Q2. A landlord wishes to evict the tenant within the regulated cycle by withholding the maintenance and repair responsibility reasonably required for the occupation. Does the landlord violate Part IVA of the Landlord and Tenant (Consolidation) Ordinance?

Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) stipulates that the maintenance and repair of certain basic facilities in the premises is a mandatory responsibility of the landlord in a tenancy on a subdivided unit. A landlord who fails to comply with such responsibility could be filed by the tenant in civil proceedings for recovery of the cost involved. More seriouslyif such an abstain from action is to evict the tenant from the unitthe landlord may commit an offence of harassment under the Ordinance.

Mandatory responsibility for repair and maintenance

Under Part IVA of the Ordinancethe landlord must maintain and keep in repair the drainspipes and electrical wiring serving the premises exclusively; and windows of the premises. In additionthe landlord must keep in proper working order the fixtures and fittings provided by the landlord in the premises. On receiving a notice from the tenant for the repair of an item mentioned abovethe landlord must carry out the repair as soon as practicable. If the landlord fails to fulfill any of his obligationsthe tenant mayby giving the landlord not less than 30 days’ prior notice in writingterminate the tenancy. Howeverthe provision of early termination is a right that the tenant can exerciseand the tenant can opt to occupy the unit without surrendering the tenancy.

Civil proceedings

Alternativelythe tenant may first carry out the repairs where practicableand claim the landlord for the repair costs. If neededthe tenant may take legal actions (e.g. the Small Claims Tribunal deals with monetary claims not exceeding HK$75,000).

Apart from section 5 in Schedule 7 to the Ordinance which stipulates a few mandatory terms on maintenance and repair as part of landlord’s obligations under a regulated tenancy to which Part IVA of the Ordinance appliesa landlord and a tenant may freely negotiate and agree on appropriate terms. In the event of tenancy disputes on maintenance and repair matters which cannot be settled between the landlord and the tenanteither party may resort to legal proceedings to deal with the matters.

Offence of harassment

Perhaps of greater concern is that withholding services reasonably required for occupation of the tenant might commit an offence of harassment under Part IVA of the Ordinance. If a personin relation to a subdivided unit:

1. either
   1. does any act calculated to interfere with the peace or comfort of the tenant or members of the tenant’s household; or
   2. persistently withdraws or withholds services reasonably required for occupation of the subdivided unit as a dwelling; and
2. knowsor has reasonable cause to believethat that conduct is likely to cause the tenant
   1. to give up occupation of the subdivided unit; or
   2. to refrain from exercising any right or pursuing any remedy in respect of the subdivided unit,

the person commits an offence and is liable on conviction on indictment by the court on a first convictionto a fine of $500,000 and to imprisonment for 12 months; and on a second or subsequent convictionto a fine of $1,000,000 and to imprisonment for 3 years (see Section 120AAZO).

Q3. If both the landlord and the tenant agreecan they sign a tenancy agreement with a term other than 2 years?

The landlord and the tenant cannot enter into a tenancy for a term other than 2 years by mutual agreement. Even if a tenancy purports to be a tenancy for a term other than 2 yearsthe term of the tenancy is taken to be 2 years under Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7). A tenant of a first term tenancy is entitled to be granted a second term tenancy of the regulated cyclethus enjoying a total of 4 years (first term of 2 years plus second term of 2 years) of security of tenure.

Q4. Can the tenants be charged a tenancy renewal fee?

A tenant of a first term tenancy for a subdivided unit is entitled to be granted a second term tenancy of the regulated cyclethus enjoying a total of 4 years (first term of 2 years plus second term of 2 years) of security of tenure.

A landlord commits an offence if the landlord requires the tenant to payor the landlord otherwise receives from the tenantany money in relation to the tenancy other than those falling within the following types:

1. rents;
2. rental deposits;
3. reimbursement of charges for any of the specified utilities and services payable by the tenant under the tenancy;
4. damages for the tenant’s breach of the tenancy.

Charges or fees related to the renewal of regulated tenancies are not included in the list above. Thereforethe landlord cannot require a tenant to pay a renewal feewhether it is taken as a pre-condition of granting a second term tenancy.

Q5. Can the landlord and tenant negotiate freely on the break clause of a regulated tenancy?

The landlord and tenant are free to negotiate on the break clause of the regulated tenancy that can be exercised by the tenant.

HoweverPart IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) stipulates that “without limiting any rights of the tenant to terminate the tenancy by notice under the tenancy”the tenant can terminate the tenancy before the expiry of the term by giving the landlord prior notice in writing.  Accordingly:

• the date of termination: must not be a date earlier than the last day of the first year of the term;
• the termination notice: must be given 30 days before the date of termination or earlier to the landlord.

In other wordsnotwithstanding the break clause provided in the tenancy agreementthe tenant canat the earliestby giving a termination notice to the landlord on the 30th day counting backwards from the last day of the first year of the termterminate the tenancy on the last day of the first term.

Such statutory rights of the tenant implies that a break clause in the tenancy agreement can only be established if the break clause is consistent with the statutory right stipulated in the Ordinanceor if it offers more rights to the tenant than the Ordinance does.

Example 1: No break clause is provided in the tenancy agreementwhich is commonly known as a “two-year fixed agreement”. Since the tenant can exercise the right to terminate the tenancy early in accordance with the Ordinancethe tenancy becomes essentially a commonly known “one-year flexibleone-year fixed” tenancy.

Example 2: A break clause provides that the tenant may terminate the tenancy on or after the last day of the first year of the tenancy by giving not less than 90 days’ prior notice. Since the tenant can exercise the statutory right to give shorter noticethe 30 days’ notice requirement prevails over the 90 days’ specified in the tenancy agreement.

Example 3: A break clause provides that the tenant can terminate the tenancy at any time by giving not less than 30 days’ noticewhich is commonly known as the "two-year flexible agreement". Since it offers more rights to the tenants to terminate the tenancy early than the Ordinance does and there is no such occasion that the tenant will exercise the statutory rightthe break clause in the tenancy agreement prevails.

f) Rent Regulations

To protect tenants from arbitrary rent increases by landlords and to lower their rental burdenPart IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) imposes a cap on the rate of rent increase between the first term tenancy and the second term tenancy of a regulated cycle.

First term tenancy

A landlord and a tenant may enter into a first term tenancy on a subdivided unit at a rent agreed by the parties.

Second term tenancy

The amount of rent for the second term tenancy as agreed by the landlord and the tenant must not exceed the maximum amount of rent permitted under Part IVA of the Ordinance.

Specificallyin the same regulated cyclethe rate of rent increase for the second tenancy must not exceed:

1. the percentage change of the rental index in respect of all classes of private domestic properties compiled and published by the Rating and Valuation Department (“RVD”) in the relevant period (“control percentage”); or
2. 10%,

whichever is the lower. If the relevant change of the above RVD rental index is negativethe rent of the second term tenancy must be reduced by at least the same percentage.

This would help rein in any rent increase of subdivided units in tandem with the overall movement of the private domestic rental market while enabling landlords of subdivided units to earn a return on their properties which is broadly in line with the prevailing yield in the private domestic rental market. whichever is the lower.

During tenancy term

Be it a first term tenancy or a second term tenancythe rent cannot be increased during the term. The landlord mayupon notifying the tenant in writingreduce the amount of rent payable by the tenant at any time during the term.

Calculation of the “control percentage”

The following formula would be used to calculate the “control percentage”:

• A - means the control percentage
• B - means the figure of the rental index of the 4th calendar month immediately before the commencement month of the purported second term tenancy that is prevailing on the first day of the offer period
• C - means the figure of the rental index of the commencement month of the first term tenancy that is prevailing on the first day of the offer period

Offer periodin relation to a second term offermeans the period of the second calendar month immediately before the calendar month in which the purported second term tenancy commences.

The table below gives the monthly change in RVD’s Private Domestic Rental Index (all classes) between January 2020 and July 2022.

Let’s illustrate how to determine the maximum rent value to be offered for the second term tenancy in a hypothetical case. Suppose a landlord is going to offer a second term tenancy starting on 1 October 2022 (Note: In realitythe first offer of the second term tenancy in compliance with the Ordinance is expected to take place for tenancy starting on 22 January 2024 or later.):

• B: Identify the rental index of the 4th calendar month immediately before the commencement month of the purported second term tenancy. In this casethe rental index for June 2022i.e.177.8 should be applied.
• C: Identify the rental index of the commencement month of the first term tenancy. In this casethe rental index for October 2020i.e.178.2 should be applied.
• A: Using the formula abovewe obtain that the rental index has fallen by 0.22% in the period. The maximum rent to be offered for the second term tenancy should be at least 0.22% lower than the existing rent in the first term.

Source: https://www.rvd.gov.hk/en/publications/property_market_statistics.html

Q1. How to check the rental indexwhich serves as the benchmark of the renewed rent in the second termpublished by the Rates and Valuation Department (“RVD”)?

The most direct way to obtain the indexes is to check them out at the RVD website: https://www.rvd.gov.hk/doc/en/statistics/his_data_3.xls

Please note that:

• The index required to calculate the “control percentage” in determining the rent in the second term offer is (1) the private domestic rental index(2) territory-wide(3) by-monthand (4) of all classes.
• The rental index for the last few months is provisional figures which may be revised from time to time. The figure prevailing on the first day of the offer period should be applied.
• An online calculator for rent of second term tenancy under Part IVA of the Ordinance will be available at the RVD web page from October 2023.

g) Entering into Written Tenancy Agreement

If an oral tenancy fulfils all of the conditions for a regulated tenancy under Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7)the tenancy is also regulated under Part IVA of the Ordinance. The statutory requirements and mandatory terms are to be implied into the oral tenancy of the subdivided unit.

Where the landlord and the tenant of a subdivided unit have entered into a tenancy orally for a first term tenancyafter the tenancy has commencedthe tenant may in writing demand the landlord towithin 30 daysserve on the tenant a written tenancy agreement reflecting the contents of the oral tenancy. If the landlord fails to do sothe tenant may elect either:

1. to withhold the payment of rent until the landlord has done so; or
2. to terminate the tenancy by within7 days after the specified period of 30 days mentioned abovegiving the landlord not less than 30 days’ prior notice in writing of the termination.

Q1. Is there a template of tenancy agreement for a regulated tenancy?

A Template for Tenancy Agreement for a Regulated Tenancy to which Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) applies has been prepared by the Transport and Housing Bureau for general reference purposes and can be downloaded from the webpage of the Rating and Valuation Department (“RVD”): www.rvd.gov.hk/en/our_services/tenancy_matters.html

The landlord and tenant may use and adapt the template with such modifications as appropriate (except mandatory terms) to suit their own circumstances.

Kindly note the requirements applicable to a regulated tenancy as set out in Part IVA of the Ordinance and ensure that the requirements are complied with. If there is any doubt about how the provisions in the template are to be applied or interpreted in their casesplease consult their legal advisors or other professionals as appropriate.

Q2. Can I draft my own regulated tenancy agreement? What are the essential terms of the tenancy agreement?

Yes. The template is for general reference only. The landlord and tenant may use and adapt the template with modifications as appropriateor enter into a tenancy agreement on their own termsas long as there is no conflict or inconsistency with the mandatory terms of a regulated tenancy:

• Tenancy term: The term of regulated tenancies must be 2 years. Even if a tenancy purports to be a tenancy for a term other than 2 yearsthe term of the tenancy is taken to be 2 years (see Section 120AAQ);
• Break clause for the landlord: Any break clause allowing a landlord to terminate the tenancy early is void and has no effect (see Section 120AAQ);
• Break clause for the tenant: Any break clause allowing a tenant to terminate the tenancy at a predetermined date later than the first day of the second year of the termor the absence of a break clause for the tenantwill be taken as having one allowing the tenant to terminate the tenancy on the first day of the second year of the term with a notice period of 30 days (see Section AAZH);
• Landlord’s right of re-entry: Any condition for forfeiture (other than those set out in Part 4 of Schedule 7) provided in the tenancy is void and has no effect (see Section 120AAZFPart 4 of Schedule 7);
• Amount of rental deposit: The rental deposit payable by the tenant may not be more than 2 months’ rent under the tenancy (see Section 120AAZC(2));
• Return of rental deposit: The rental deposit should be returnedfree of interestno later than the expiry of 7 days after the tenant’s delivery of vacant possession of the subdivided unit to the landlord (see Section 120AAZC(4));
• Repair and maintenance responsibilities: The repair and maintenance responsibilities of the facilities and fixtures set out in Part 2 of Schedule 7 are to be borne by the landlord (see Section 5 of Schedule 7);
• Payment of money of certain types: The landlord cannot require the tenant to pay any money in relation to the tenancy other than specified items (see Section 120AAZL);
• Payment for specified utilities and services: The landlord cannot require the tenant to pay for reimbursement of utility and service charges as a separate payment from the rentwhere the aggregation of the amount exceeds the amount under the bills issued by the relevant authorities (see Section 120AAZM);
• Stamp duty: The stamp duty on the tenancy agreement is to be borne by the landlord solely. It is the responsibility of the landlord to arrange for the stamping of the agreement under the Stamp Duty Ordinance ( 117) (see Section 2 of Schedule 7).

If the landlord enforces the tenancy terms that are inconsistent or in conflict with those of mandatory terms in a regulated tenancydepending on the termsin addition to the potential liability for criminal offences (e.g.overcharging for reimbursement of utility and service charges)the resulting disputes may also be resolved in civil proceedings. Tenancy terms that are inconsistent with mandatory terms stipulated in the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) will be deemed void or equivalent to the relevant terms stipulated in the Ordinance.

h) Submission of Notice of Tenancy and Stamping of Tenancy Agreement

Once a tenancy agreement of a regulated tenancy has been offered by the landlord and signed by the tenant (or endorsed by the tenant in case of an oral tenancy)the landlord is obliged to submit the Notice of Tenancy to the Commissioner of Rating and Valuation (Commissioner) and stamp the Tenancy Agreement at the Inland Revenue Department (“IRD”).  The responsibility to submit the Notice of Tenancy also applies to landlords offering oral tenancies regulated by Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7).

Please note that the tenancies concerned are still regulated by the Ordinance if the landlord fails to submit the Notice of Tenancy or stamp the tenancy agreement. On the contrarythere might be legal consequences for landlords who fail to do so.

Notice of Tenancy (Form AR2)

The landlord mustwithin 60 days after the term of a regulated tenancy (including a first term tenancy and a second term tenancy) commences or is taken to commence under the Ordinancesubmit a completed Notice of Tenancy (Form AR2) to notify the Commissioner of the particulars of the tenancy.

If the landlordwithout reasonable excuserefuses or neglects to comply with this requirementthe landlord commits an offence and is liable on conviction to a fine at level 3 (HK$10,000)and in the case of a continuing offenceto a further fine of HK$200 for each day during which the offence continues. Moreoverthe landlord may not maintain an action to recover any rent under the tenancy unless the notice is endorsed by the Commissioner.

On receiving the noticethe Commissioner must endorse the notice with the date of its receiptand notify the landlord and tenant of the receipt of the notice.

Stamping of Tenancy

The landlord mustafter receiving the tenancy agreement signed by the tenantarrange for the tenancy agreement to be stamped under the Stamp Duty Ordinance (Cap. 117) and return to the tenant a counterpart of the stamped tenancy agreement within 30 days.

If the landlord fails to return the counterpart of the stamped tenancy agreementthe tenant may withhold the payment of rent until the landlord has done so. Howeverif the landlord has eventually returned the said counterpartthe tenant must pay backfree of interestany rent withheld to the landlord within 15 days after receipt of the counterpart.

The Ordinance stipulates that the stamp duty on the tenancy agreement of regulated tenancies is to be borne by the landlord solely.

Compared with Non-Regulated Residential Tenancies

The requirement of noticing the Commissioner in the regulation is more stringent than the one required for common residential tenancies that are not regulated by Part IVA of the Ordinance. The landlord in a non-regulated tenancy is also required to submit a Notice of New Letting or Renewal Agreement (Form CR109) to the Commissioner. Similarlythe landlord shall not be entitled to maintain an action to recover any rent under the tenancy unless the notice is endorsed by the Commissioner. Howeverfailure to submit the notice does not involve criminal offences.  The notice may be lodged within 1 month of the tenancy term without chargeor upon payment to the Commissioner of a fee at any time.

As for the regulation on the stamping of tenanciesthe requirement to the landlord is more stringent than common residential tenancies. As far as the concern of non-regulated tenanciesthe landlordtenant and any other persons signing the tenancy agreement are liable for payment of stamp duty. Failure to return the counterpart of the stamped tenancy agreement might not be a justifiable reason for the tenant to withhold the payment of rent.

i) Rental Deposit

Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) stipulates the amount and the repayment terms of rental deposits for regulated tenancies.

Maximum Amount

Despite any provision of the tenancythe rental deposit payable by the tenant may not be more than 2 months’ rent under the tenancy.  If a provision of the tenancy requires the tenant to pay a rental deposit of more than 2 months’ rentthe provision is taken to be requiring the tenant to pay a rental deposit equal to 2 months’ rent only;

Repayment Terms

If the outstanding money payable by the tenant to the landlord under the regulated tenancy has been settledthe landlord must return the rental deposit to the tenantfree of interestno later than the expiry of 7 days after the tenant has handed over the subdivided unit back to the landlord on the expiry of the term or an early termination of the tenancy.

Otherwisethe rental deposit can be returned no later than 7 days after the settlement of the outstanding money payable by the tenant.

If it is a first term tenancy followed by a second term and the outstanding money payable by the tenant has been settledthe landlord must also return the rental deposit to the tenant no later than the expiry of the term.

The landlord may deduct from the rental deposit the amount of any arrears of rentor costsexpenseslosses or damages sustained by the landlord as a result of any breach of the tenancy by the tenant.

j) Mandatory Terms Implied for every Regulated Tenancy

According to Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7)the mandatory terms are to be impliedly incorporated into every regulated tenancy. The mandatory terms bind the landlord and tenant. The landlord and tenant may negotiate to include other requirements or provisions in the tenancy agreement. Howeverif such other requirements or provisions are in conflict or inconsistent with the mandatory termsthe mandatory terms shall prevail.

Landlord's Obligations

(a) Maintenance and repair

• The landlord must maintain and keep in repair the drainspipes and electrical wiring serving the premises exclusively; and windows of the premises. In additionthe landlord must keep in proper working order the fixtures and fittings (e.g.the air-conditioner specified in the tenancy agreement) provided by the landlord in the premises.
• On receiving a notice from the tenant for repair of an item mentioned abovethe landlord must carry out the repair as soon as practicable.
• If the landlord fails to fulfill any of his obligationsthe tenant mayby giving the landlord not less than 30 days' prior notice in writingterminate the tenancy.

(b) Stamping of tenancy agreement

• The landlord mustafter receiving the tenancy agreement (including a Form AR1 signed by the landlord and tenant for a second term tenancy) signed by the tenantarrange for the tenancy agreement to be stamped under the Stamp Duty Ordinance (Cap. 117)and within 30 daysreturn to the tenant a counterpart of the stamped tenancy agreement signed by the parties.
• The relevant stamp duty on the tenancy agreement is to be borne by the landlord solely.
• If the landlord fails to return the counterpartthe tenant may withhold the payment of rent until the landlord has done so.

Tenant's Obligations

• The tenant must pay the rent to the landlord on or before the due date.
• The tenant must not persistently fail to pay rent as and when it falls due.
• The tenant must not make any structural alteration to the premises without the prior consent in writing of the landlord.
• The tenant must not use the premisesor permit or suffer the premises to be usedfor any immoral or illegal purpose.
• The tenant must not do anything on the premises that would cause any unnecessary annoyanceinconvenience or disturbance to the landlord or any other person.
• The tenant must not assign or underlet the whole of the premises to another person.
• The tenant must not underlet part of the premises to another person without the prior consent in writing of the landlord.

If the tenant fails to pay rent within 15 days after the due dateor is in breach of any of the other provisions abovethe landlord may enforce the right of re-entry or forfeiture.

k) Second term Offer

For a regulated tenancythe landlord of a first term tenancy must make a second term offer within the offer period.

A landlord of a first term tenancy for a subdivided unit mustwithin the offer periodmake a second term offer in Form AR1 (to be available from October 2023) to the tenant for a second term tenancy of the regulated cycle for the subdivided unitand serve the offer on the tenant. The landlord must state the proposed amount of rent for the second term tenancy in Form AR1 and sign the Form.

“Offer period” means the period of the second calendar month immediately before the calendar month in which the purported second term tenancy commences. For exampleif a second term tenancy is to commence on any date in January 2024the relevant offer period is the whole month of November 2023.

If the tenant accepts the second term offerthe tenant must sign Form AR1 containing the offer as served by the landlordand serve it on the landlord before the expiry of the first term tenancy. If the tenant fails to notify the landlord of the tenant’s acceptance of the second term offer before the expiry of the first term tenancythe tenant is taken to have rejected the second term offer. It is not necessary to submit Form AR1 to RVD.

If the landlord of the first term tenancy for a subdivided unit fails to serve a second term offer on the tenant within the offer periodthe landlord is taken to have made a second term offer to the tenant on the expiry of the offer periodand the tenant is taken to have accepted the second term offer and to be granted the second term tenancy on the expiry of the first term tenancy unless the tenant has handed over the subdivided unit back to the landlord on or before the expiry of the first term tenancy. In that casethe renewed rent for the second term tenancy is to be the amount of rent last payable by the tenant for the first term tenancyor if the control percentage ascertained for the rent for the second term tenancy is a negative figurethe renewed rent for the second term tenancy is to be reduced by that percentage. If it is now the offer period and the tenant has not yet received the landlord’s second term offerthe tenant may wish to check with the landlord if he/she has already sent out Form AR1 which has gone astrayetc.

l) Overcharging Fees and Charges

Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) prohibits landlords from charging non-permitted fees and overcharging tenants on certain utility charges such as water charges and electricity charges.

Prohibition on charging non-permitted fees

A landlord commits an offence if the landlord requires the tenant to payor the landlord otherwise receives from the tenantany money in relation to the tenancy other than those falling within the following types:

1. rents;
2. rental deposits;
3. reimbursement of charges for any of the specified utilities and services payable by the tenant under the tenancy;
4. damages for the tenant’s breach of the tenancy.

On a person’s convictionthe magistrate mayin addition to imposing a fineorder the person to repay to the tenant any money received from the tenant other than that the person is entitled or permitted to receive.

Prohibition on overcharging specified utilities and services

In Part IVA of the Ordinance“specified utilities and services” means waterelectricitygas and communication services.

Where the charges for any of the specified utilities and services for a subdivided unit incurred by a tenant are not independently billed by the relevant authorities or service providersthe landlord may require the tenant to pay for the reimbursement of the charges as a separate payment from the rent. In doing sothe landlord commits an offence unless the following are observed:

1. the landlord is the payer named in the bills covering the charges;
2. copies of the bills are produced by the landlord to the tenant when the landlord requires the payment; and
3. the landlord has provided an account in writing to the tenant showing:
   1. how the amounts under the bills (billed amount) are apportioned for the different parts (of which the subdivided unit is one) forming the premises to which the bills relate; and
   2. that the aggregate of the apportioned amounts does not exceed the billed amounts.

The landlord commits an offence if the landlord requires the tenant to pay foror the landlord otherwise receives from the tenantthe reimbursement of the charges for any of the specified utilities and services for the subdivided unit at a sum exceeding the apportioned amount for the subdivided unit as shown in the account provided to the tenant.

Penalties

A person who commits any of the above offences is liable on a first conviction to a fine at level 3 (currently HK$10,000)and on a second or subsequent conviction to a fine at level 4 (currently HK$25,000). On a person’s convictionthe magistrate may also order the person to repay to the tenant any money received from the tenant other than that the person is entitled or permitted to receive.

The mistaken belief of the person charged with the offences above as to the amount the person is entitled or permitted to receive is not a defence.

Waterworks Regulations

Furtherin light of the enactment of the Waterworks (Waterworks Regulations) (Amendment) Ordinance 2021the amended Regulation 47 of the Waterworks Regulations only allows a registered consumer of the Water Supplies Department (“WSD”) (usually the landlords) to recover from the occupants of the premises (usually the tenants) the water charge paid to the WSD.

The amendmentwhich has taken effectstrengthens the protection of tenants of sub-divided units from being overcharged for water. If the amount recovered by the landlord exceeds the water charge paid to the WSDthe landlord shall be guilty of an offence. Offenders are liable to a maximum fine of HK$10,000.

The WSD encourages the public to report unscrupulous landlords for overcharging tenants of sub-divided units for water. A relevant option has been available under its enquiry hotline on 2824 5000. Meanwhilethe WSD will continue to conduct proactive patrols in suspected sub-divided units to investigate any situation of overcharging for the use of water. Prosecutions will be instituted should there be sufficient evidence.

The WSD website provides useful information about the avoidance of water overcharge situations for landlords and tenants of sub-divided units.

Q1. What documentation is there to prove that the utility fees have been overcharged?

Examples of documents to gather to prove that the utility fees have been overcharged: 

• All written demands for the overcharged utility fees;
• Payment proof for the overcharged utility fees; and
• Receipt for the overcharged utility fees.

Q2. Does the landlord violate any laws if he/she alters the meter to overcharge the utility fees for a sub-divided unit?

Whether the landlord has altered the meter or notthe landlord commits an offence if the landlord requires the tenant to pay foror the landlord otherwise receives from the tenant the reimbursement of the charges for any of the specified utilities and services at a sum exceeding the apportioned amount for the subdivided unit as shown in the abovementioned account or the aggregate of the apportioned amounts exceeds the billed amounts. The landlord is liable on a first conviction to a fine at level 3 (currently HK$10,000)and on a second or subsequent conviction to a fine at level 4 (currently HK$25,000).

A landlord who fraudulently alters the meter to overcharge the utility fees for a sub-divided unit may commit further criminal offences.

Q3. What are the proper steps to install electricity and water meters for calculating the utility charges for the sub-divided unit tenants?

Electricity

On electricity supplythe power companies will install individual meters for customers if prior consent from landlords and building management has been obtainedand that the units concerned comply with the relevant prerequisites and safety standards such as the installation of an individual doorand that the separate electrical installations and other facilities can meet the safety standards stipulated in the Electricity Ordinance (Cap. 406) and requirements of the Supply Rules of the power companies.

If the rental premises are sub-divided units equipped with electrical installations and separate meterslandlords' consent will be required to modify the existing electrical installations to meet the safety standards stipulated in the Electricity Ordinance and the requirements of the Supply Rules before individual meters can be installed.

In additionmeters must be connected to the riser which supplies electricity in a building and be installed in the common areas to facilitate meter reading by the staff of the power companies. Thereforebefore applying for individual meterstenants of sub-divided units should identify suitable locations in the common areas of the buildings for installing meters and obtain the consent of building management for the allocation of space for meter installation.

The Hongkong Electric has launched an SDU (subdivided unit) Rewiring Subsidy Programme subsidizing eligible households in subdivided units to rewire and install individual tariff meters. The applicant shall obtain the prior consent of every household in the flatthe owner of the flat and the Building Owners’ Corporations. Meanwhilethe CLP Power has released a similar scheme for owners as applicants. For detailsplease visit their websites:

Hongkong Electric SDU Rewiring Subsidy Scheme

CLP Power Rewiring Works for Subdivided Units

Water

As regards installation of water metersif the relevant unit has a proper postal address to ensure that letters from the Water Supplies Department (WSD) such as notices and water bills can be posted to the occupierthe occupier may apply for a separate water meter from the WSD. The following factors will also be taken into account by the WSD when processing the applications:

• Whether the premises can be accessed without passing through any area occupied by others to ensure that the Water Authority can enter the premises directly for inspection or carrying out other relevant duties in case of any problem of the inside service;
• Whether the premises have proper drainage systems to ensure that no flooding will occur in case of inside service fault; and
• Whether the application satisfies the requirements of the Waterworks Ordinance. For examplethe applicant is required to accept responsibility for the custody and maintenance of inside serviceand submit the plumbing proposal in respect of the inside service etc.

Landlords or tenants may also consider applying to the WSD for the installation of separate water meters for sub-divided units to enable tenants to pay water charges based on their water consumption.

For subdivided units which have separate plumbing systems for individual units installedthe landlord can apply for a pilot scheme with streamlined procedures to facilitate the installation of the WSD’s water meter. After approvalwater supplied to individual subdivided units will be charged according to the schedule for domestic consumers as stipulated in the Waterworks Regulations. For more detailsplease visit the WSD webpage on Pilot Scheme for Installation of Separate Water Meters for Subdivided Units.

Q4. Is there a standard way to determine the portion of the utility fee to be shared by a household in a sub-divided unit?

Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) has not stipulated any standard way to determine the portion of the utility fee to be shared by a tenant in a sub-divided unit.

Provided that there is no conflict with the relevant legislationbefore entering into a tenancythe landlord and tenant may discuss and agree on an acceptable method of apportionmentincluding the level of and basis for calculating rents and other charges (e.g. water and electricity charges).  Once the tenancy agreement is entered intoboth parties are required to abide by the relevant terms and conditions. As for charges outside the scope of the written tenancy agreementlandlords and tenants should discuss and negotiate an arrangement based on any previous agreementincluding oral agreement. Tenants may make use of the Rating and Valuation Department's free advisory service on tenancy matters.

Q5. Can the tenant recover the utility fees and non-permitted fees that have been overcharged?

On a conviction of an offence of overcharging the utility fees or charging non-permitted fees under the Landlord and Tenant (Consolidation) Ordinance (Cap. 7)in addition to imposing a finethe magistrate may order the landlord to repay to the tenant any money received from the tenant other thanor in excess ofthat the landlord is entitled or permitted to receive. There is no need for the tenant to institute a separate civil action to recover the amount concerned.

m) Enforcement of Regulated Tenancies

The provisions of regulated tenancies under Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) are to be enforced by criminal charges and civil proceedings.

Criminal Charges

A landlord commits an offence if the landlord:

1. without reasonable excusefails to submit a Notice of Tenancy (Form AR2) to the Rating and Valuation Department (“RVD”) within 60 days after the term of a regulated tenancy commenceson a conviction to a fine at level 3 (HK$10,000)and a further fine of $200 for each day during which the offence continues;
2. charges the tenant non-permitted feeson a first conviction to a fine at level 3 (HK$10,000) and subsequent conviction to a fine at level 4 (HK$25,000);
3. improperly charges the tenant the reimbursement of the charges for utilities and services specified by the Ordinanceon a first conviction to a fine at level 3 (HK$10,000) and subsequent conviction to a fine at level 4 (HK$25,000);
4. fails to give a receipt to the tenant within 7 days after receiving the amount of renton conviction to a fine at level 1 (HK$2,000); or
5. unlawfully deprives the tenant of occupation of the subdivided uniton a first conviction to a fine of HK$500,000 and to imprisonment for 12 monthsand subsequent conviction to a fine of HK$1,000,000 and to imprisonment for 3 years.

In additionfor the purpose of fulfilling the duties related to the tenancy regulationthe Commissioner of the RVD (“the Commissioner”) may serve on any person a requisition in the specified form or require the landlord or tenant of any premises to provide any reference document. A person commits an offence if he/she:

6. without reasonable excuserefuses or neglects to comply with Commissioner’s requisition in specified form or requests to provide reference documentson a conviction to a fine at level 3 (HK$10,000) and to imprisonment for 3 months.
7. in purported compliance with Commissioner’s requisition or request knows that or is reckless as to whether or notthe particularsreference documents or informationor the thing said or statedis false or misleading in a material particularon a conviction to a fine at level 3 (HK$10,000) and to imprisonment for 3 months.

Statutory Rights in Civil Proceedings

Apart from criminal chargesthe Ordinance also stipulates the rights of tenants of the regulated tenancies to withhold the rent payable or terminate the tenancy regardless of the break clause provided in the tenancy agreementunder the following circumstances:

1. Arranging the tenancy agreement to be stamped: If the landlord fails to return a counterpart of the stamped tenancy agreement within 30 days after receiving the tenancy agreement signed by the tenantthe tenant may withhold the payment of rent until the landlord has done so.
2. Providing written tenancy: If the landlord fails to serve on the tenant a tenancy in writing reflecting the contents of the oral tenancy for signing by the parties within 30 days (the specified period) after receiving the written demand by the tenantthe tenant may either
   • to withhold the payment of rent until the landlord has done so; or
   • to terminate the tenancy bywithin 7 days after the specified periodgiving the landlord not less than 30 days’ prior notice in writing of the termination.
3. Fulfilling maintenance and repair obligations: If the landlord fails to fulfill the maintenance and repair obligations specified in part 3Schedule 7 of the Ordinancethe tenant mayby giving the landlord not less than 30 days’ prior notice in writingterminate the tenancy.

The Ordinance also stipulates the rights of landlords to terminate the tenancy and repossess the property regardless of the 4-year security of tenureif the tenant fails to pay the rent to the landlord within 15 days after the due date or in breach of the tenant’s obligations specified in part 4Schedule 7 of the Ordinance.

Given these statutory rights that both parties may uphold in civil proceedings (e.g.in an application by the landlord to repossess the property due to non-payment of rent)there is an incentive for the landlords and tenants to comply with the related provisions in the regulated tenancies.

In case of a dispute between the parties over the terms of the regulated tenancies and the issue does not involve committing the offences of the Ordinancethe parties may use the free advisory or mediatory services provided by the RVD (see below). If both parties cannot reach an agreement on the disputesthey may be resolved by civil action. The principle is that if the Ordinance clearly set out the ruleswhich are different from the provisions in the oral or written agreement between the partiesthe law shall prevail.

For examplea landlord in the regulated tenancy failed to offer the second term tenancy to the tenant in accordance with the Ordinance and tried to evict the tenant at the expiry of the first term. The tenant refused and stayed in the subdivided unit. If the landlord attempts to reclaim the possession of the property on the ground of the expiry of the first term tenancySection 120AAW of the Ordinance will be applicable. It stipulates that the landlord in this case is taken to have made a second term offer to the tenant on the expiry of the offer periodand the tenant is taken to have accepted the second term offer and to be granted the second term tenancy on the expiry of the first term tenancy. The provisions of the regulated tenancy concerned will then be established.

Complaint Channels and Procedures

To complain about another person for suspected non-compliance with the requirements of the Ordinanceyou may lodge your complaint through the following channels:

• by post or visiting RVD in person: 15/F.Cheung Sha Wan Government Offices303 Cheung Sha Wan RoadKowloon
• by email: [email protected]
• by telephone: 2150 8303

Upon receipt of a complaintRVD will process it in accordance with the following procedures:

• RVD will first consult the complainant on the facts of the complaint and collect the relevant information (e.g. in case of complaining the landlord about overcharging the water and electricity chargesRVD will collectamong other thingsinformation about the request of the landlord for water and electricity charges from the tenant). If neededRVD will conduct site inspection and collect information from the complainee.
• Ifafter investigationthe complaint does not involve committing the offences under the OrdinanceRVD will explain to the complainant and provide free advisory or mediatory services as appropriate.
• If the complaint involves committing the offences under the OrdinanceRVD will seek legal advice from the Department of Justice and consider whether legal action is warranted depending on the circumstances (including the information and evidence collected) of the case.

For detailsplease visit the RVD webpage.

Q1. What is the role of the Commissioner of the Rates and Valuation Department (Commissioner) in executing the regulated tenancy?

Duties

To enforce Part IVA of Landlord and Tenant (Consolidation) Ordinance (Cap. 7)the Commissioner has three main duties:

1. endorse the Notice of Tenancy (Form AR2) submitted by the landlord;
2. determine the primary user of the premises upon receiving an application;
3. ascertain whether an offence under Part IVA of the Ordinance is beingor has beencommitted in relation to the premises.

Power

The last two duties (duties 2 and 3) may require the Commissioner to gather evidence through the service of documents or formsand entry into the premises. For these purposesthe Commissioner is given the power to:

1. serve on any person a requisition in the specified form in relation to any premises and reasonably require them to provide any particulars in writing within specified period (Section 120AAZV);
2. require the landlord or tenant of any premises to provide any reference document within specified periodincluding:
   • a document related to the tenancy of the premises;
   • a document related to the user of the premises;
   • a tenancy in writing;
   • a receipt for rent;
   • a rent-book;
   • accounts; and,
   • a bill for any of the specified utilities and services;

(Section 120AAZW):

3. with the occupier’s consententer any premises at any reasonable time (Section 120AAZX);
4. without the occupier’s consentapply to a magistrate for a warrant to enter the premises for the purposes mentioned andwith a warrant issuedenter (by the use of reasonable force if necessary) the premises (Section 120AAZY);
5. after entry into the premises with a warrant issuedfor the purpose of determining the primary user of the premises:
   • inspect the premises;
   • take any measurements and other particulars of the premises that the Commissioner considers appropriate;
   • take any photograph and video recording inside the premises;
   • require any person present on the premises to provide any assistance or information necessary for the purpose;

(Section 120AAZZ(1))

6. after entry into the premises with a warrant issuedfor the purpose of ascertaining whether an offence under Part IVA of the Ordinance is beingor has beencommitted in relation to the premises:

• inspect and search the premises;
• examine any document found on the premises;
• take any measurements and other particulars of the premises that the Commissioner considers appropriate;
• take any photograph and video recording inside the premises;
• to seize and detain anything that isor that appears to be or to containor that is likely to be or to containevidence of the commission of an offence in relation to the Ordinance and the premisesand to take the steps that appear to be necessary for preserving the thing so seized or preventing interference with it;
• to do anything necessary for the purpose;
• to require any person present on the premises to provide any assistance or information necessary for the purpose.

(Section 120AAZZ(2))

Related offences

If a personwithout reasonable excuserefuses or neglects to comply with Commissioner’s requisition in specified form (power 1) or requests to provide reference documents (power 2)the person commits an offence and is liable on a conviction to a fine at level 3 (HK$10,000) and to imprisonment for 3 months (see Sections 120AAZV and 120AAZW).

Moreoverif a person in purported compliance with Commissioner’s requisition or request knows that or is reckless as to whether or notthe particularsreference documents or informationor the thing said or statedis false or misleading in a material particularthe person commits an offence and is liable on a conviction to a fine at level 3 (HK$10,000) and to imprisonment for 3 months. This offence is also applicable to particulars provided in the Notice of Tenancy (Form AR2) submitted by the landlord (see Section 120AAZZE).

Giving evidence in proceedings

Although the Commissioner has the duty and power to collect evidence related to regulated tenanciesthe Ordinance stipulates that the Commissioner or an RVD officer may only be called to give evidence in any proceedings before the court for determining whether or not a tenancy is a domestic tenancy (duty 2). In other proceedings including those between a landlord and a tenant of a subdivided unitno subpoena may be issued against the Commissioner or an RVD officer to give evidence before the court (see Section 120AAZZC).

n) Regulated tenancy as Sub-tenancy

At timesthe regulated tenancy for a subdivided unit is a sub-lease created out of another tenancy. In such casesthe termination of a tenancy superior to the regulated tenancy (the head lease or superior lease) would destroy the leasehold estate under the regulated sub-lease (or sub-tenancy). Notwithstanding that the regulated sub-lease has not yet expiredthe sub-tenant will have no legal right or interest to possess and occupy the property vis-à-vis the landlord and must deliver up vacant possession of the subdivided unit. The general rule of the relationship between head lease and sub-lease applies (see “Subletting”).

Recover the possession of the subdivided unit

A superior landlord who applies to the court for possession of the subdivided unit must post the Notice to Recover Possession on the main door or entrance to the subdivided unit (or the premises of which the subdivided unit forms part) on 3 consecutive days. Such notice is taken to be an effective notice served on the sub-tenant. Unless the sub-tenant has handed over the subdivided unit back to the landlordthe court will not grant leave to issue a writ of possession to enforce the order before the expiry of a period of 60 days beginning on the day immediately after the last day on which the notice is posted. In other wordsthe sub-tenants are granted a grace period of 63 days for moving out from subdivided units to be repossessed.

Claim compensation from the sub-tenant

In case the tenant of the regulated tenancy (sub-tenant) fails to hand over the subdivided unit back to the landlord on the date the regulated tenancy is terminated (termination date)the superior landlord who terminates the head lease may recover compensation from the sub-tenant as a civil debt. If the superior landlord waives the right to recover the compensation in writingthe landlord of the regulated tenancy (sub-landlord) may do so.

The compensation amount is calculated by the monthly rent payable by the sub-tenant under the regulated tenancy times the number of months covering the period between the termination date and the date on which the sub-tenant hands over the subdivided unit back to the landlord. If the number of months covering the period is not an integerit is to be rounded down to the integer.

The compensation recoverable must be paid by the sub-tenant within 15 days after the date on which the sub-tenant hands over the subdivided unit back to the superior landlord or sub-landlord.

Beyond the compensationhoweverthe right of superior landlords or sub-landlords to make further claims to sub-tenantssureties or guarantors for the sub-tenants and other occupiers under common law rules or equitable principles is abrogated.

Costs

Notwithstanding the usual practice of “costs follow the events” in civil proceedingssubject to certain exceptions the court is not allowed to make any order to costs in favour of the superior landlord or sub-landlord (whichever is applicable) against the sub-tenant in the following proceedings:

• proceedings commenced by the superior landlord to recover possession of the subdivided unit;
• proceedings commenced by the superior landlord or sub-landlord to claim the compensation from the sub-tenant.

Howeverif the sub-tenant has conducted the case in a frivolous or vexatious manneror in respect of the costs of any counterclaim made by the sub-tenant in the above proceedingsthe rule will not apply.

Alsono interest on all or any part of the compensation may be included in the sum for which judgment is given in favour of the superior landlord or sub-landlord (whichever is applicable) against the sub-tenant in the above proceedings.

Q1. What are the remedies for the sub-tenant in a regulated tenancy if the tenancy has been terminated before expiry due to the forfeiture of its head lease by the superior landlord? 

If the superior landlord rightly forfeits the head lease agreement upon such breachit may have the effect of destroying any sub-lease created out of it.

Where the head lease is forfeiteda sub-tenant can apply for “relief against forfeiture” from the Court of First Instance under section 58(4) of Conveyancing and Property Ordinance (Cap. 219) for a ‘vesting order’ for the subdivided unit occupied by the sub-tenant. The order vests the remaining term (or any less term) of the head lease to the sub-tenant with conditions that may be imposed by the Court (e.g.payment of rent) (see “Subletting”).

Alternativelythe sub-tenant may need to vacate the premises and bring an action against the sub-landlord granting such sub-lease for relief against the breach of the sub-lease.

o) Tenant’s Interest to Pass to Family Member on Death

If a tenant dies during the term of the tenancythe subsisting benefits and protection under the regulated tenancy to which the tenant is entitled under Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) during the tenant’s lifetime areafter the tenant’s deathavailable to a family member of the tenant who is residing with the tenant in the subdivided unit at the time of the tenant’s death. “Family member”in relation to a personmeans:

• the person’s spouse;
• the person’s parent;
• the person’s adult child;
• the person’s grandparent; or
• the person’s adult grandchild.

A child includes an illegitimate childa stepchild and a child adopted in a way recognized by lawand parentgrandchild and grandparent are to be construed accordingly.

Only one family member of the tenant is entitled to the specified interest at one time. If two or more family members are residing with the tenant at the relevant time and they are unable to reach an agreement among themselves as to who should be entitled to the specified interestthey must refer the matter to the Lands Tribunal for a determination. The Tribunal must determine the matter on any ground that appears to it to be just and equitable.

Despite any will or the law of succession on intestacythe specified interest of the tenant is not to be available to a personal representative of the tenant; or a person other than a family member referred to above.

Q1. If the landlord dies during the term of the regulated tenancy and the unit has been transferred to another person/entity by way of probateare the benefits and protection under the tenancy available to the tenant? Does the tenant need to leave the property?

If the landlord dies during the term of the tenancy and the unit has been transferred to other person/entity by way of probatesuch other person/entity is the successor of the landlord who is/are bound by the terms of the tenancy. The tenant does not need to leave the property just because of the death of the landlord.

p) Other Legal Issues

The sub-division or partitioning of flats for rental purposes has become a common phenomenon in Hong Kong. As explained in the question about converting property for short term leasessuch partitioning often departs from the original design and purposes of the building. It may run the risk of contravening various lawsregulations or other legal obligations such as the Government LeaseBuilding RegulationsFire Regulations and/or the Deed of Mutual Covenant which may attract civil or even criminal liability.

The use of the property for the purposes of short-term accommodation purposes for guests without license may also infringe the Hotels and Guesthouse Accommodation Ordinance (Cap. 349) and/or the Bedspace Apartment Ordinance (Cap. 411).

In factthe rationale behind such restrictions is obvious:

1. The rental of sub-divided units entails a much higher population density of the unit which exceeds its original designed capacity which renders the use of the unit unsafe;
2. The partitioning walls and extra fittings installed by tenants may increase the load bearing capacity of the building structures. Such fittings might elevate risks of casualties during a fire and the emergency passageways may become obstructed as a result;
3. The sharing of the property between tenants/sub-tenants may also generate other management problems in hygienenuisance (such as excessive noise or foul smell)excessive storage of inflammable mattersfire hazardshigh electricity loadingwater seepagedrainage blockagelost mailpoor air ventilationrental collectioninfringement of privacy and security risks; and
4. Given the illegal or risky nature of such tenanciesit is often also much more difficult to enforce any rights against any breaches committed by a tenant or other occupiers residing in sub-divided flats.

Q1. My neighbour in the same subdivided flat causes excessive noise at night every day.  My children and I cannot sleep.  Can I terminate the tenancy agreement?

It depends on whether the landlord is in breach of its covenant for quiet enjoyment and whether the interference is substantial enough to entitle the tenant to early terminate the tenancy.

The covenant for quiet enjoyment does not offer absolute protection against all forms of interference by any person during the tenancybut only protects the tenant against interference with quiet and peaceful enjoyment of the premises by the landlord. 

On the basis that all the subdivided units are owned by a common landlordthe tenant may have a valid complaint if it can be shown that the excessive noise caused by the neighbour is authorised by the landlord.

To constitute a breach of the covenantthere must be substantial disturbance to the tenant’s possession and enjoyment of its own subdivided unit.  Mere personal annoyance or inconvenience does not generally qualify.  Relevant factors include the character of the localitythe standard of comfortthe reasonableness of the conduct complained of and the durationfrequency and degree of the interferenceetc.  Each case must turn on its own facts.

Separatelyif the tenancy agreement has a break clausethe tenant may rely on the break clause and terminate the tenancy early.

Case Summary: Whether the sale and purchase of a property would be bound by the tenant's option to renew the lease depends on the specific circumstances (Chan Yiu Tong v Wellmake Investments Ltd)

Case Name: Chan Yiu Tong v Wellmake Investments Ltd [1996] 1 HKC 528 (Court of Appeal)

Subject:  Whether the sale and purchase of a property would be bound by the tenant's option to renew the lease

Facts

This case concerns a tenancy agreement of certain business premises ending on 3 October 1995.

The tenancy agreement: it contains an option to renew for a further term of two years at an increased rent.

Vendor’s sale of the business premises to a purchaser:

1. In 1994the landlord agreed to sell the business premises to a purchaser.
2. The agreement for sale expressly provided that the property was to be sold subject to the tenancy. Particulars of the option to renew were also included in the agreement. Howevereven though the tenancy agreement had not been registeredthe vendor did not procure an express stipulation in the agreement for sale to give effect to the option to renew in the tenancy agreement.
3. The premises was assigned to the purchaser on 8 August 1994.

Registration in the Land Registry: The agreement for sale was registered in the Land Registry before the tenancy agreement.

Issues

In the light of the fact that the agreement for sale was registered in the Land Registry before the tenancy agreementthe issue was whether the purchaser must give effect to the option to renew in the tenancy agreement.

Rulings and Discussion

In this casethere was no express stipulation to give effect to the option in the tenancy agreement.

The purchaser can rely on section 3(2) of the Land Registration Ordinance (Cap 128)the effect of which is that by reason of the tenancy agreement was not registered at the Land Registry before the date of the registration of the agreement for salethe tenant’s option to renew isas against the purchaser ‘absolutely null and void to all intents and purposes’.

The purchaser can take advantage of his statutory rights by relying on the necessary registrationwhich was not to be regarded as using the relevant statutory provisions as an instrument of fraud.

After the termination of the tenancy agreementthe purchaser was granted an order against the tenant to deliver up possession of the business premises. If a property with a lease has an option for the tenant to renewit doesn't necessarily mean that the new owner of the property has to honor that option. Whether or not the new owner is required to do so depends on the specific circumstances of the sale and the agreement made between the previous owner and the new owner.

Takeaway
Where a tenancy agreement contains an option to renew and the landlord (vendor) wishes to sell the property,

1. before the vendor agreed to sell the propertyhe/she should first check to see whether or not any option to renew in the tenancy agreement had been registered.
2. If it had been registeredhe could content himself with selling the reversion subject to the option; for then the tenant would be able to enforce the option against the purchaser and would have in any event no claim for damages against the vendor.
3. But if the option had not been registeredthe vendor would be well-advised to procure the entry by the purchaser into an express stipulation to give effect to the optionif he was to protect himself against the tenant’s claim for damages. 
    

Case Summary 1: The tenant's obligation to pay rent is independent of the covenants or obligations of the landlord under the tenancy agreement (Charmway Development Ltd v Long China Engineering Ltd)

Charmway Development Ltd v Long China Engineering Ltd
Case No.: HCA 54/2001
Date of Judgment: 16th July 2001
https://www.hklii.hk/en/cases/hkcfi/2001/68?hl=HCA%2054%2F2001

Facts

The plaintiff tenant had entered into a tenancy agreement with the defendant landlord for a commercial premises in Causeway Bay for a term of 3 years to operate a café and bar.  It is not in dispute that the tenant had not paid rent since 6 months after the commencement of the tenancy.

The tenant sued the landlord for breach of the tenancy agreement on the ground that:- (1) the landlord had denied its entitlement to put up advertising signs on the external wall of the building; and (2) the landlord was in breach of the covenant for quiet enjoyment in that the metal gate at the street entrance of the building was closed after mid-night when the tenant’s business was opened until 4 a.m.

The landlord denied the tenant’s allegations and counterclaimed for arrears of rent and moneys due under the distraint proceedings issued by the landlord.  The landlord successfully obtained summary judgment against the tenant on the counterclaim.

The tenant appealed.

Issue

On appealthe question for determination was whether taking the tenant’s case to the highestthere were triable issues in its defence to the landlord’s counterclaim.

Ruling and Reasons for Judgment

By reference to the subject tenancy agreementthe tenant’s obligation to pay rent was not conditional upon compliance by the landlord of all or part of its obligations.  The tenancy agreement only provided for suspension of rent in the event that the building was destroyed or rendered inaccessible by events or calamity beyond the control of the landlord.  The tenancy agreement contemplated that the obligation to pay rent to operate independently from other contractual obligations.

The position was the same under the common law.  The covenant to pay rent by the tenant was independent of the other covenants or obligations under the leaseincluding the covenant of quiet enjoyment.

The Court held that there was no room for the defence asserted by the tenant to the counterclaim that it was not obliged to pay rent because of the alleged breaches of the tenancy agreement by the landlord.  The tenant’s appeal was accordingly dismissed.

Takeaway

This case is a reminder of the well-established legal principle that the tenant’s obligation to pay rent is independent of the covenants or obligations of the landlord under the tenancy agreement (e.g. the covenant for quiet enjoyment or the obligation to carry out repairs (if any)).  In other wordsthe tenant is generally not entitled to deduct or withhold any part of the rent on the ground that the landlord has not fulfilled all or part of its obligations under the tenancy agreementunless the express terms of the tenancy agreement clearly states that the tenant can do so.

No doubtif the landlord is in breach of his obligationsthe tenant may have a separate claim against the landlord for the losses and expenses incurred as a consequence of the breach.

If the tenant persistently fails to pay rent in fullthe landlord can likely forfeit the tenancyand depending on the actual circumstancesthe landlord may even have a claim against the tenant for losses arising from the forfeiture of the tenancy (e.g. where the tenancy was originally for a fixed term but the tenancy was forfeited because the tenant insisted not to pay rent to the landlord).
 

Case Summary 2: Interest clause in the event of default in payment of rent or other monies payable by the tenant can be enforceable (Luvpa Ltd v Honor City HK Pharmacy Ltd)

Case Name: Luvpa Ltd v Honor City HK Pharmacy Ltd [2021] 2 HKLRD 1326 (Lands Tribunal)

Subject: Modern approach to penalty clauses in tenancy agreement and enforceability of interest clause

Facts

The plaintiff (landlord) let four shops to the defendant (tenant).

The tenancy agreements expressly provided that in the event of default in payment of rent or other monies payable by the tenantthe tenant shall pay to the landlord daily interest on such sums outstanding at the monthly rate of 2.5% from the date on which the same shall be due for payment until the date of payment.

The tenant failed to pay rent and rates and government rentthe landlord applied for recovery of possession of the shopsand mesne profits till the date of delivery of vacant possession of the shopscosts and interest at 2.5% per month pursuant to the interest clause.

Issues

The main issue is whether the interest at 2.5% per month was payable by the tenant to the landlord.

Rulings and Discussion

Under the modern approachit appeared that a clause in a tenancy agreement providing for the payment on breach of a sum of money that exceeded the amount that a court would award as compensation may not be regarded as penal if it could be justified commercially and if its predominant purpose was not to deter breach.

Whether the provisions were legitimate as commercially justified and whether or not they were exorbitant or unconscionable in amount or in their effect should depend on evidence as to the circumstances in which the contract was agreed and evidence as to standard market ratesthe latter being the most important evidence.

This was not a case of a rate of interest that increased in the event of default. As the landlord’s claim was based on contractual entitlementthe landlord was entitled to that interest as of right.

The Court was satisfied that the 2.5% clause in the tenancy agreement was enforceable. The Plaintiff’s claim for interest against the defendant was allowed.

Takeaway

Under common lawa party who signed a written agreement knowing that it was intended to have legal effect would generally be treated as having read its terms and to be bound by them.

Howeverwhen the tenancy agreement contains a clause providing for the payment of interestit would be prudent to seek legal advice as to whether such amount exceeds the amount that a court would award as compensation and whether it would be regarded as penal in the light of its commercial justifiability and its predominant purpose.
 

Case Summary: Landlord's right to access property for repairs does not imply duty to perform repairs for tenant (Leung Wai Ling Isewesg v Success Base Engineering Ltd)

Leung Wai Ling Isewesg v Success Base Engineering Ltd
Case No.: CACV 58/2020
Date of Judgment: 15 March 2021
Citation: [2021] HKCA 310[2021] 4 HKC 80
https://www.hklii.hk/en/cases/hkca/2021/310?hl=CACV%2058%2F2020

Facts

The plaintiff (Landlady) leased a property in an industrial building to the defendant (Tenant). Their written tenancy agreement stated thatlike the clauses in an ordinary and common tenancy agreement:

1. the tenancy was for 3 years (firstly a fixed-term of two years and a flexible term of one year) with a monthly rent payable,
2. if Tenant could not complete the period of tenancyLandlady would forfeit the rental deposit of 3-months’ rent,
3. if Tenant did not pay rentTenant would be treated as in breach of contract and having automatically surrendered the leaseand Landlady would terminate the contract,
4. the property was for ‘general industrial use’,
5. Landlady had the right of access to the property and repair the main structural parts including sewages and pipes.

About 5 months after the tenancy had commencedTenant complained about water seepage and structural deterioration in the propertyand Landlady agreed to make good the defects but had not done so. LaterTenant did not pay rent for 3 monthssaying that Landlady repudiated the tenancy agreement because she delayed in making good of the defects. On the other handLandlady asked Tenant to pay rent. On the factsTenant gave the keys back to Landladybut Landlady refused to accept them.

Landlady sued Tenant in the Court of First Instance for the outstanding 3-months’ rent and for forfeiting the rental deposit (amounting to 3 months’ rent). Landlady succeeded in obtaining judgment against Tenant in the Court of First Instance. Tenant appealed to the Court of Appeal.

Tenant argued that Landlady had the duty to repairbut she breached the duty and repudiated the tenancy agreementand thereforeTenant had a defence in not paying rent. FurtherTenant argued that the Landlady could not have both the rental deposit and the payment of the outstanding rent. (N.B. This is a common stance of some tenants in Hong Kongi.e. because the landlord/landlady was ‘wrong’ or had failed to do something for the tenantthe tenant could not properly use/enjoy the propertyso the tenant needed not pay rentthe rental deposit could cover the rentand the tenant could win the case.)

Issues

Because Landlady had the right of access to the property to repairdid she also have the duty to repair? If Landlady did not do the repairdid Tenant have a defence in not paying rent?

Could the rental deposit ‘off-set’ against the outstanding rent?

Ruling and Reasons for Judgment

Answers: No. Landlady is entitled to win the case.

The clause of the tenancy agreement only provided Landlady a right of access to repair the main structural parts of the property. The clause did not necessarily/impliedly impose on Landlady a duty to repair. The landlord’s duty to make such repairs depends on whether it was necessary at the time the rental agreement was made. In this casethe landlord did not owe the tenant an implied duty of repair because there was no factual basis to support the argument that it was a necessary termi.e. a necessary term is a term without which the tenancy would lack commercial or practical coherence at the date when the contract was made.

Even if Landlady had the duty to repair and breached her dutyTenant unilaterally decided to surrender the property and ended the tenancy. Tenant used and could still use the property for industrial useand Tenant could not withhold payment of rent.

The forfeiture of rental deposit and the payment of outstanding rent served different purposes. The rental deposit was to cover the loss due to the premature termination of the tenancyand it was a pre-estimate of such loss. There was no duplication. (i.e. Arrears of rent represented the loss of rent in the pastwhile forfeiture of rental deposit represented the loss of rent in the future because the tenancy agreement ended prematurely.)

Takeaway

Whether a tenancy agreement contains an implied duty of repair depends on whether it is a necessary term at the date when the contract was made. In court litigationthe party alleging an implied duty of repair will need to plead and adduce evidence to show that without the implied duty of repairthe tenancy agreement would lack commercial or practical coherence.

Even if a clause in a tenancy agreement says that the landlord has the right to access the property to do repairsit is not saying that the landlord has the duty do the repairs for the tenant. The duty to repairnormallycannot be implied into the tenancy agreement. To avoid disputeparties should expressly identify the party who has the obligation to repair in the tenancy agreementand the consequence of such party’s failure to fulfill the obligation.

Although this case happened in a property in an industrial buildingit is also applicable to domestic premises. It is an example of applying the general principles that: (1) even if the landlord/landlady fails to do what he/she had ‘promised’ to do (for exampleto do repairs)the tenant needs to pay rent anyway; (2) rental deposit cannot simply be deducted as outstanding rentand the rental deposit will normally be ‘forfeited’ because the fixed-term tenancy was terminated prematurely and it will be used to cover the loss in rental income suffered by the landlord/landlady.
 

Case Summary 1: A tenant's return of the keys to his landlordby itself and on this fact aloneis not enough to end the tenancy (High Yield Ltd v Home Essentials (HK) Ltd)

High Yield Ltd v Home Essentials (HK) Ltd
Case No.: LDPD 1638/2016
Date of Judgment: 23 November 2016
Citation: [2017] 1 HKLRD 357
https://www.hklii.hk/en/cases/hkldt/2016/165?hl=LDPD%201638%2F2016

Facts

The Landlord (High Yield Ltd) leased the premises to the Tenant (Home Essentials (HK) Ltdrunning a furniture business) at $40,000 per month from January 2015 to December 2017.

Since January 2016Tenant failed to pay rent. In AugustLandlord gave notice to Tenant to vacate the premises within two weeks. Landlord proposed that Tenant could leave some furniture inside the premises to set off the arrears of rentand the value of the furniture would be based on valuationbut Tenant rejected the valuation and counter-offered at a different valuation. As a resultTenant left some furniture inside the premises and returned the keys to Landlord on 15 August. Landlord accepted the keys and showed the premises to other prospective tenants.

In Augustin the Lands TribunalLandlord sued Tenant for vacant possession of the premises and for outstanding rent from January to August. By 22 SeptemberLandlord agreed with another tenant to lease the premises at the same rent starting from Octoberi.e. Landlord would have no loss of rent starting from October.

In Novemberthe Lands Tribunal heard this case. Landlord asked Tenant to remove the furniture but Tenant claimed that the furniture now belonged to Landlord. Tenant denied liability to pay the rent for the period after returning the keys in mid-August.

Issue

By leaving some furniture in the premisesdid Tenant give vacant possession to Landlord? Furtherby returning the keys to Landlordhad the tenancy already ended?

Ruling and Reasons for Judgment

Answer: No.

There was no agreement as to the price of the furniture. The furniture was left in the premises against the wish of Landlord. Tenant did not give vacant possession. (The price of the furniture is to be valued at 50%.)

As a matter of lawthe mere fact that Tenant had returned the keys (which Landlord had taken) did not amount to surrender of the leasebecause:

1. Accepting the keys without more will always be equivocal. One party has to hold the keys anyway.
2. A landlord entering the premises for inspection or repair will not in itself give rise to a surrenderbecause it is consistent with his rights and the lease continuing.
3. A landlord protecting or preserving the premises by taking security measures or doing repairs will not in itself give rise to a surrenderbecause such self-help was necessary to preserve the landlord’s interest in the property and it was a reasonable response to the tenant’s intention not to perform the obligations of the tenancy.
4. The landlord’s seeking to re-let the premises will not necessarily give rise to a surrenderbecause the landlord is reasonably be expected to find another tenant and to seek to mitigate the damage caused by the tenant’s abandoning the lease.

Landlord was only trying to mitigate his loss. The conduct of the parties did not unequivocally amount to an acceptance that the tenancy ended. Landlord’s acceptance of the Tenant’s repudiation occurred only on 22 September when Landlord agreed to lease the premises with another tenant.

(On the particular facts of this caseLandlord did not claim the arrears of rent from mid-August to the end of September.)

Takeaway

This case states that a tenant’s return of the keys to his landlordby itself and on this fact aloneis not enough to end the tenancy. The situation is also the same even after the landlord had accepted the keysentered the premises and led prospective tenants to look at the premises. This is contrary to what a tenant normally would have subjectively thought.

In other wordseven if the premises have been emptiedreturning the keys to the landlord by the tenant is still unable to stop the tenancy from continuing (and hence the tenant is still liable to continue to pay rent)unless there is some other conduct of the parties unequivocally showing the acceptance that the tenancy has ended (for examplethe landlord accepted a new tenant in substitution). Furthereven if the tenancy had come to an endan early termination of the lease by the tenant might entitle the landlord to claim the loss of rent (subject to the landlord’s mitigation of loss).
 

Case Summary 2: Mere incidence of expense or delay or onerousness is insufficient to invoke the doctrine of frustration (Vember Lord Ltd v The Swatch Group (Hong Kong) Ltd)

Case Name: Vember Lord Ltd v The Swatch Group (Hong Kong) Ltd [2022] 2 HKC 349 (CFI)

Subject: Doctrine of frustration

Facts

The defendant was the lessee of certain commercial retail premises in Central under tenancy agreements with the plaintiff (landlord) for a term of 3 years for the sole purpose of operating two watch retail shops.

The landlord claimed against the lessee for arrears of rent.

The lessee contended that at the time of entering into the leasethere was a shared common (commercial) purpose between the parties that the premises would be operated as luxury retail stores for watches.

The lessee then further contended that the wholly unprecedented social unrest from June 2019 to 2020 and the COVID-19 pandemic from January 2020 onward in Hong Kong caused the common purpose and agreements to be frustrated as a matter of law.

Issues

Whether the social unrest and COVID-19 pandemic in Hong Kong caused the agreements to be frustrated as a matter of law.

Rulings and Discussion

The doctrine of frustration candepending on the facts of each casebe applicable to leases.

In this casethe mere incidence of expense or delay or onerousness was insufficient to engage the doctrine of frustration.

The obligation of the landlord was to make the Shops available for use and the defendant had the obligation as a tenant to pay the rent on or before due date. In this casethere was no evidence that carrying out the alleged common purpose of letting the shops as luxury watch shops being rendered impossible. The lessee was able to and did continue to operate its business despite the social unrest and COVID-19 pandemic in Hong Kong.

Thereforethe landlord’s claim against the lessee for arrears of rent succeeded.

Takeaway

It is important to keep relevant evidence that shows the existence of a shared common purpose in order to invoke the doctrine of frustration.

The doctrine of frustration only applies in extraordinary circumstances that render the obligations ‘radically different’.

Typicallythere would be a supervening event transforming the obligation into a radically different obligation from that undertaken at the time of entry into the contract.

Mere incidence of expense or delay or onerousnesse.g. the “profitability” of its business operations being affectedis insufficient to invoke the doctrine of frustration.
 

Case Summary: Whether the sale and purchase of a property would be bound by the tenant's option to renew the lease depends on the specific circumstances (Chan Yiu Tong v Wellmake Investments Ltd)

Case Name: Chan Yiu Tong v Wellmake Investments Ltd [1996] 1 HKC 528 (Court of Appeal)

Subject:  Whether the sale and purchase of a property would be bound by the tenant's option to renew the lease

Facts

This case concerns a tenancy agreement of certain business premises ending on 3 October 1995.

The tenancy agreement: it contains an option to renew for a further term of two years at an increased rent.

Vendor’s sale of the business premises to a purchaser:

1. In 1994the landlord agreed to sell the business premises to a purchaser.
2. The agreement for sale expressly provided that the property was to be sold subject to the tenancy. Particulars of the option to renew were also included in the agreement. Howevereven though the tenancy agreement had not been registeredthe vendor did not procure an express stipulation in the agreement for sale to give effect to the option to renew in the tenancy agreement.
3. The premises was assigned to the purchaser on 8 August 1994.

Registration in the Land Registry: The agreement for sale was registered in the Land Registry before the tenancy agreement.

Issues

In the light of the fact that the agreement for sale was registered in the Land Registry before the tenancy agreementthe issue was whether the purchaser must give effect to the option to renew in the tenancy agreement.

Rulings and Discussion

In this casethere was no express stipulation to give effect to the option in the tenancy agreement.

The purchaser can rely on section 3(2) of the Land Registration Ordinance (Cap 128)the effect of which is that by reason of the tenancy agreement was not registered at the Land Registry before the date of the registration of the agreement for salethe tenant’s option to renew isas against the purchaser ‘absolutely null and void to all intents and purposes’.

The purchaser can take advantage of his statutory rights by relying on the necessary registrationwhich was not to be regarded as using the relevant statutory provisions as an instrument of fraud.

After the termination of the tenancy agreementthe purchaser was granted an order against the tenant to deliver up possession of the business premises. If a property with a lease has an option for the tenant to renewit doesn't necessarily mean that the new owner of the property has to honor that option. Whether or not the new owner is required to do so depends on the specific circumstances of the sale and the agreement made between the previous owner and the new owner.

Takeaway
Where a tenancy agreement contains an option to renew and the landlord (vendor) wishes to sell the property,

1. before the vendor agreed to sell the propertyhe/she should first check to see whether or not any option to renew in the tenancy agreement had been registered.
2. If it had been registeredhe could content himself with selling the reversion subject to the option; for then the tenant would be able to enforce the option against the purchaser and would have in any event no claim for damages against the vendor.
3. But if the option had not been registeredthe vendor would be well-advised to procure the entry by the purchaser into an express stipulation to give effect to the optionif he was to protect himself against the tenant’s claim for damages. 
    

Case Summary: Recovery of possession on the ground of "Structural alteration" (Tsang Kam Lan v Lam Fong Fei)

Case Name: Tsang Kam Lan v Lam Fong Fei [2019] 4 HKC 308 (Court of Appeal)

Subject: Recovery of possession on the ground of “Structural alteration” - the meaning of "Structural alteration"

Facts

The applicant and the respondent were the landlord and tenant of the premises respectively.

The tenant dismantled the kitchen and the cooking slab of the premises.

The landlord sought to recover possession of the premises on the grounds that the respondent altered the structure of the premises and sub-leased the premises to third parties without the landlord’s consent.

Issues

The main issue was whether the respondent’s dismantling of the kitchen and the cooking slab in the present case amounted to structural alternation.

Rulings and Discussion

FirstSection 117(3)(g) of the Landlord and Tenant (Consolidation) Ordinance (Cap 7) provides that if the tenancy does not contain a covenant substantially to the effect that the tenant cannot make any structural alteration toor suffer or permit any structural alteration tothe premises without the prior written consent of the landlordthen there shall be implied in the tenancy (i) a covenant that the tenant not make any structural alteration toor suffer or permit any structural alteration tothe premises without the prior written consent of the landlord; and (ii) a condition for forfeiture if that implied covenant is broken.

Secondas regards the meaning of ‘structural alteration’‘alternation’ included something which altered the form or structure of the building.

The tenant’s dismantling of the kitchen and the cooking slab in the present case amounted to structural alternation contrary to the implied covenant under section 117(3)(g) of the Landlord and Tenant (Consolidation) Ordinance .

Thereforethe applicant obtained an order to recover possession of the premises.

Takeaway

In construing the meaning of the word ‘structural’ in a tenancy agreementthe Court will adopt its natural and ordinary meaningrather than some special or technical meaning.

Thereforeworks not affecting structural safety may still amount to structural alteration.

To avoid disputeparties should expressly set out the agreed meanings of special and technical terms in the tenancy agreement.
 

Case Summary: Distinguishing between rental deposit forfeiture and outstanding rent payment in tenancy agreements (Leung Wai Ling Isewesg v Success Base Engineering Ltd)

Leung Wai Ling Isewesg v Success Base Engineering Ltd
Case No.: CACV 58/2020
Date of Judgment: 15 March 2021
Citation: [2021] HKCA 310[2021] 4 HKC 80
https://www.hklii.hk/en/cases/hkca/2021/310?hl=CACV%2058%2F2020

Facts

The plaintiff (Landlady) leased a property in an industrial building to the defendant (Tenant). Their written tenancy agreement stated thatlike the clauses in an ordinary and common tenancy agreement:

1. the tenancy was for 3 years (firstly a fixed-term of two years and a flexible term of one year) with a monthly rent payable,
2. if Tenant could not complete the period of tenancyLandlady would forfeit the rental deposit of 3-months’ rent,
3. if Tenant did not pay rentTenant would be treated as in breach of contract and having automatically surrendered the leaseand Landlady would terminate the contract,
4. the property was for ‘general industrial use’,
5. Landlady had the right of access to the property and repair the main structural parts including sewages and pipes.

About 5 months after the tenancy had commencedTenant complained about water seepage and structural deterioration in the propertyand Landlady agreed to make good the defects but had not done so. LaterTenant did not pay rent for 3 monthssaying that Landlady repudiated the tenancy agreement because she delayed in making good of the defects. On the other handLandlady asked Tenant to pay rent. On the factsTenant gave the keys back to Landladybut Landlady refused to accept them.

Landlady sued Tenant in the Court of First Instance for the outstanding 3-months’ rent and for forfeiting the rental deposit (amounting to 3 months’ rent). Landlady succeeded in obtaining judgment against Tenant in the Court of First Instance. Tenant appealed to the Court of Appeal.

Tenant argued that Landlady had the duty to repairbut she breached the duty and repudiated the tenancy agreementand thereforeTenant had a defence in not paying rent. FurtherTenant argued that the Landlady could not have both the rental deposit and the payment of the outstanding rent. (N.B. This is a common stance of some tenants in Hong Kongi.e. because the landlord/landlady was ‘wrong’ or had failed to do something for the tenantthe tenant could not properly use/enjoy the propertyso the tenant needed not pay rentthe rental deposit could cover the rentand the tenant could win the case.)

Issues

Because Landlady had the right of access to the property to repairdid she also have the duty to repair? If Landlady did not do the repairdid Tenant have a defence in not paying rent?

Could the rental deposit ‘off-set’ against the outstanding rent?

Ruling and Reasons for Judgment

Answers: No. Landlady is entitled to win the case.

The clause of the tenancy agreement only provided Landlady a right of access to repair the main structural parts of the property. The clause did not necessarily/impliedly impose on Landlady a duty to repair. The landlord’s duty to make such repairs depends on whether it was necessary at the time the rental agreement was made. In this casethe landlord did not owe the tenant an implied duty of repair because there was no factual basis to support the argument that it was a necessary termi.e. a necessary term is a term without which the tenancy would lack commercial or practical coherence at the date when the contract was made.

Even if Landlady had the duty to repair and breached her dutyTenant unilaterally decided to surrender the property and ended the tenancy. Tenant used and could still use the property for industrial useand Tenant could not withhold payment of rent.

The forfeiture of rental deposit and the payment of outstanding rent served different purposes. The rental deposit was to cover the loss due to the premature termination of the tenancyand it was a pre-estimate of such loss. There was no duplication. (i.e. Arrears of rent represented the loss of rent in the pastwhile forfeiture of rental deposit represented the loss of rent in the future because the tenancy agreement ended prematurely.)

Takeaway

Whether a tenancy agreement contains an implied duty of repair depends on whether it is a necessary term at the date when the contract was made. In court litigationthe party alleging an implied duty of repair will need to plead and adduce evidence to show that without the implied duty of repairthe tenancy agreement would lack commercial or practical coherence.

Even if a clause in a tenancy agreement says that the landlord has the right to access the property to do repairsit is not saying that the landlord has the duty do the repairs for the tenant. The duty to repairnormallycannot be implied into the tenancy agreement. To avoid disputeparties should expressly identify the party who has the obligation to repair in the tenancy agreementand the consequence of such party’s failure to fulfill the obligation.

Although this case happened in a property in an industrial buildingit is also applicable to domestic premises. It is an example of applying the general principles that: (1) even if the landlord/landlady fails to do what he/she had ‘promised’ to do (for exampleto do repairs)the tenant needs to pay rent anyway; (2) rental deposit cannot simply be deducted as outstanding rentand the rental deposit will normally be ‘forfeited’ because the fixed-term tenancy was terminated prematurely and it will be used to cover the loss in rental income suffered by the landlord/landlady.
 

Case Summary: The basic requirement of ‘vacant possession' is to clear upempty itmove outand return the keysotherwise the tenant might still be in arrears of rent (Chi Chiu Yueh v Choi Ka Wing)

Chi Chiu Yueh v Choi Ka Wing
Case No.: LDPD 171/2022
Date of Judgment: 11 May 2022
Citation: [2022] HKLdT 20 
https://www.hklii.hk/tc/cases/hkldt/2022/20?hl=%5B2022%5D%20HKLdT%2020 (Chinese judgment only)

Facts

The Landlord (Chi Chiu Yueh) leased a domestic apartment to the Tenant (Choi Ka Wing) for two years (from 1 March 2021 to 28 February 2023) at $17,800 per month inclusive of built-in fixturesfurniture and electrical appliances; Landlord shall maintain and upkeep the main structural parts of the property (including main sewagespipes and electrical wires).

Tenant stopped paying rent since February 2022and so Landlord applied to the Lands Tribunal for terminating the tenancyrecovering the propertyand claiming arrears of rent. Tenant alleged that Landlord did not fulfil her promise made in November 2021 that she would replace two malfunctioned air-conditioners and was in breach of the tenancy agreement; Tenant used the security deposit to cover the rent for February; Landlord did not proactively re-possess the propertyand did not discuss with Tenant how the property would be re-possessed.

When the Lands Tribunal heard this case in April 2022Tenant alleged that he had moved out of the propertybut he had not yet returned the key to Landlord. Thereforethe Lands Tribunal ordered Tenant to return the vacant possession of the property to Landlordand ordered that Tenant shall pay the arrears of rent since and after February (at $17,800 per month). Tenant requested the Lands Tribunal to review the orders.

Issue

As Landlord did not fulfil her promise to replace the air-conditionerswas Landlord in breach of the tenancy agreement? Could Tenant use the security deposit to cover the rent? Was Landlord responsible in re-possessing the property proactively?

Ruling and Reasons for Judgment

The Lands Tribunal referred to many precedent casesadopted the following generally applicable legal principlesand dismissed Tenant’s application for review:

1. Air-conditioners was the ‘main structural parts’ or ‘main pipes’. In the tenancy agreementLandlord was only to provide ‘built-in fixturesfurniture and electrical appliances’ for Tenant’s usebut it did not require Landlord to repairreplaceor provide new appliances. Generallythe legal principle is that a landlord is not responsible for repairing the property or providing suitable appliances.
2. Even if Landlord made the oral promise to repairsuch a promise was made only after the tenancy agreement was signedwhich was not part of the tenancy agreement. Tenant did not pay for the promise the ‘consideration’ required by lawtherefore Landlord’s promise was not binding at lawTenant could not allege Landlord for breaching the tenancy agreement.
3. Even if Landlord was in breach and caused inconvenience to Tenantthe tenancy agreement would not be frustratedand Tenant still needs to pay rent.
4. Security deposit was for guaranteeing Tenant’s compliance with the clauses of the tenancy agreement. If Tenant was not in breach of any clauses of the tenancy agreement (including paying the rent on time)Landlord shall return the security after certain number of days only upon Landlord re-possessing the property and receiving all payment due from Tenant. Unless Landlord agreesTenant cannot unilaterally cover the rent with the security deposit. The obligation of Tenant to give vacant possession and the obligation of Landlord to return the security deposit was not the same and must not be confused. Tenant could not insist return of the security deposit by Landlord at the same time as Tenant giving back the keys to Landlord.
5. A tenancy agreement usually requires a tenant to give ‘vacant’ possession back to the landlord. Clearing up and moving out are not the same as giving up (and Tenant did not even return the keys). Tenant shall unconditionally and proactively giving and returning those; otherwise Tenant needs to compensate for the mesne profit in the interim until Tenant gave vacant possession. It was the responsibility of Tenant to give possessionnot Landlord to take possession.

Takeaway

The above legal principles quoted by the Lands Tribunal are applicable to the tenancy generally in Hong Kong. Unless individual tenancy agreements or the common law otherwise provides for the contrary:

1. A landlord has no legal obligations to repair for the tenantor to provide suitable appliances for tenant’s use.
2. What the landlord has agreed after signing the tenancy agreement is unlikely to be binding in law; an oral promise is not necessarily legally enforceable.
3. Even if the landlord might be in breach of the tenancy agreementthe tenant still has the responsibility to pay rent.
4. Security deposit cannot cover the rent. The responsibilities regarding rentsecurity depositrepairand ‘vacant possession’ etc. were different. There was no legal basis to say ‘only if you return my security depositI’ll give you back the keys’.
5. The basic requirement of ‘vacant possession’ to clear upempty itmove outand return the keysotherwise the tenant might still be in arrears of rent.

Ideally speakingevery terms and conditions should have been spelt out in the tenancy agreement when the agreement was negotiated and before signing it. In realityas a matter of lawit may be already too late when problems arise.
 

A. Regulated Tenancies of Subdivided Units

XVII. Subdivided unitsbasic housing units and tenancy regulation

Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) (the “Ordinance”) took effect on 22 January 2022.

Generally speakinglandlords and tenants may freely negotiate and enter into an agreement for fresh letting or renewal of tenancies. The Ordinance to a certain extent imposes restrictions/regulations to that by regulating a specific category of tenancynamelytenancies of subdivided units. Other categories of tenancies falling outside the scope of the Ordinance remain unaffected.

Historicallysecurity of tenure regime is not totally new to Hong Kong. The Landlord and Tenant (Consolidation) (Amendment) Ordinance 2004 has removed the former security of tenure regime which provided a domestic tenant with a statutory right to renew his tenancy at prevailing market rent. Following the commencement of the Landlord and Tenant (Consolidation) (Amendment) Ordinance 2004 with effect from 9 July 2004domestic tenancies (created on or after 9 July 2004) should be terminated in the following ways:

• in accordance with the terms of the tenancy or as agreed between the parties;
• in the absence of a contractual notice requirement or parties’ agreementa fixed term tenancy will end upon expiry of the term whereas a periodic tenancy may be terminated by a notice to quit at the length of the notice period in accordance with the common law.

Significantlyas will be seen belowa breach of some of the requirements under the new Part IVA of the Ordinance may entail criminal sanctions. 

Furtherthe Government introduced a separate regulatory framework for the subdivided flat sector on 1 March 2026namely the Basic Housing Units Ordinance (Cap. 658). The Basic Housing Units Ordinance establishes a dedicated regulatory regime for subdivided units in residential buildingsor the residential parts of composite buildingsthat are let for habitation. Under this regimea subdivided unit must (i) meet prescribed minimum living condition standardsand (ii) obtain “Basic Housing Unit” (BHU) recognitionbefore it may lawfully be let out for residential use.

Accordinglythese regulatory measures carry significant implications for ownersoperatorstenantsand sub-tenants of subdivided units.

1. What major government departments are responsible for governing tenancy matters in Hong Kong? To which department(s) should a party go to if a tenancy dispute/problem arises?

The Rating and Valuation Department is responsible for administering the Landlord and Tenant (Consolidation) Ordinance (Cap.7 of the Laws of Hong Kong). Regarding tenancy mattersit also provides such services as endorsement of Notice of New Letting or Renewal Agreementissuance of Certificate of Rateable Value and determination of the primary use of a property (i.e. whether it is used as a domestic or business/non-domestic premises). The Rent Officers of the Rating and Valuation Department will also answer public queries on tenancy matters through a telephone hotline at 21508229.

The Lands Tribunal is the major body responsible for handling tenancy disputes especially when recovery of possession is involved. Unlike the higher courtsa tribunal is characterized by more simplified/informal procedures in adjudicating disputes between lay persons at relatively lower scales of legal costs. Do note however the Lands Tribunal is a Court. It is bound to act in a neutral manner and will not act as parties’ legal adviser over the merits of their cases.

If the dispute is purely about a monetary claim of $75,000 or lessthen the claimant can make the claims at the Small Claims Tribunal. If the amount of the claim is higher or the relevant legal issue is more complexthen the parties can also bring the case to the District Court or the Court of First Instance of the High Court (please refer to Part III "How to recover the outstanding rent and get back the property?" for more details).

2. How can I obtain tenancy information concerning the Government properties (such as public rental housing or shopping centres run by the Government)?

If you want to obtain tenancy information on public rental housingplease visit the Housing Authority and the Housing Department's webpage.

If you want to know more about the tenancy matters on Government shopping centresplease visit the Housing Authority and the Housing Department's webpage.

It is also worth noting that most shopping centersfresh marketcooked food stalls and carparks as formerly owned by the Government became the property of Link Real Estate Investment Trust or other private companies.

3. What is the difference between a tenancy and a licence?

A tenancy has the legal effect of passing an “interest” in land from the landlord to the tenant. It means that the tenant is given the right to possess the land during the terms of the tenancy (subject to other restrictive covenants on use). During the fixed term of the tenancy(and without any breaches or any ‘break clauses’ exercisable)a tenant may generally occupy the property as of right without the fear of being evicted by the landlord.

In contrasta licence creates no interest in land. The licensor only allows the licensee to use the landnot to exclusively occupy it. Subject to its termsa license may also be terminated contractually at will or even by way of repudiation by the licensor. The licensee’s remedy against the licensor’s breach of the licence may lie only in claiming damagesbut not in occupation of the property.

Thereforea licence is typically used for short-term occupation (e.g. for several weeks or months) or where the licensee does not have exclusive occupation of the propertye.g. a car parking spacea hotel rooma newsstand or a “kiosk” in a shopping mall.

To demonstrate the concept of “interest in land”it is worth noting that there is no interest in land in the external walls of a building because a wallbeing a vertical surfaceis not land. Thereforethe owner who retains the rights and interests in the external walls of a building (typically in a multi-storey building) generally cannot let the walls to another partybut can only license the rights to use the walls.

It should also be noted that as a licence does not transfer any interest in landit is not liable to stamp duty. Howeverit would be futile to label a document as a licence just to avoid stamp duty. Whether a document creates a tenancy or a licence does not depend on the name of the document or other labels given by the partiesbut on the true nature of the rights and obligations as evidenced by the agreement. A major factor in differentiating between a tenancy and a licence is to see whether the user has exclusive occupation or possession of the property. Subject to facts that will vary from case to casethe law generally accepts that a grant of exclusive occupation (the user can occupy the property solely and privately) for a term at periodic payments creates a tenancy.

The above matter involves complex legal arguments. You must consult a lawyer if you have further queries.

4. Can I convert or use my property (or its sub-divided rooms) to grant short-term leases/licences in providing rooms or bedspaces to guests (similar to Airbnb accommodations or ‘capsule hotels’)?

An owner needs to verify as to whether the property permits domestic or residential uses under the relevant Government Leasethe existing Outline Zoning Plan and compliance of other applicable laws/regulations withenforced by the relevant authorities (e.g. Buildings DepartmentFire Services Department and/or Drainage Services Department) and to examine whether it would be legal to ‘convert’ and use a property as a residence in such intended manner (‘capsule hotels’ in particular). In this respectthis involves highly complex and technical considerations which one must consult a lawyer and other professionals.

Secondlyeven for “residential” premisesregardless of the intended granting of tenancy or a licenceall domestic agreements or letting arrangements are governed and closely monitored by the Home Affairs Department under the Hotel and Guesthouse Accommodation Ordinance (Cap. 349) and the Bedspace Apartments Ordinance (Cap. 447).

This is to sayany agreement or short-term letting arrangement made which may be regarded as part of an arrangement for the operation of a “hotelmotelguesthouseholiday flat or holiday camps” without obtaining a relevant licence or under an exemption (a short-term rental for a period of 28 continuous days with payment of a non-deductible/refundable rent) may be liable to prosecution as a criminal offence.

Similarlythe operation of a “Bedspace Apartment” for a “flat” which contains 12 or more “bedspaces occupied or intended to be occupied under rental agreements” without obtaining a relevant licencethe owner/landlord of such property may be liable to prosecution as amount to a criminal offence.

From past precedentsan owner must also be very careful in that any public advertisements which offers for short-term lettings or use of rooms/bedspaces (even without any successful letting) might become admissible in criminal proceedings for prosecution as evidence for proving the commission of an offence outlined above.

5. Before signing the formal tenancy agreement or leasea tenant may sometimes be asked by a landlord to sign a document called "agreement for lease" or "provisional tenancy agreement". What are the consequences of signing this document?

An intending landlord and an intending tenant may enter into an agreement for lease prior to the execution of the lease/tenancy agreement itself. By signing this agreementthe intending landlord agrees to giveand the intending tenant agrees to takea lease in the future.

The agreement for lease/provisional tenancy agreement is a contract. It mustthereforesatisfy the requirements of a contract. There must be offer from one partyacceptance from the other partyconsiderationintention to create legal relations and so forth. The terms of the agreement must be sufficiently certainincluding:

1. the name of the parties;
2. the name and address of the premises;
3. the commencement date of the lease;
4. duration of the lease;
5. the rent and its payable date(s);
6. other considerations such as depositobligation to repairrestrictive covenanttermination and handover conditions.

An agreement for lease/provisional tenancy agreement is legally binding upon the parties to the agreement. If such an agreement is signed and one party subsequently refuses to sign the formal lease or tenancy agreementthe other party can apply to the court for an order of specific performance. That isto apply for a court order to compel the defaulting party to fulfil the obligations as stipulated on the agreement.

Instead of signing an agreement for lease/provisional tenancy agreementanother possible scenario is that the tenant may be required to sign a document titled "offer to lease". This document will then be signed (i.e. accepted) by the landlord. In practicethe consequences of signing an offer to lease are similar to that of signing an agreement for lease.

6. Can I let or otherwise allow occupiers to stay at subsidized housing under the Housing Ordinance (e.g. Public Housing or Home Ownership Schemes)?

For public housing estate unitsit is generally illegal for tenants/occupiers to sub-let (with or without rental income) to others without the consent of the Housing Authority. Doing so may result in both termination of tenancy by the Housing Department and/or criminal prosecution. Any infringement may also render the occupier to become ineligible to apply for tenancy for public housing within 2 years upon termination of the former tenancy agreement.

Irrespective of whether he/she is a family memberpermitting another occupier to reside or occupy a unit whose name had not been included in the original household particulars as submitted to the Housing Authority may also risk the occupier to become liable involving the making of a false declaration which is a criminal offence.

In the case of ‘subsidized’ housing units (i.e. Home Ownership SchemeTenants Purchase SchemeGreen Form Subsidized Home Ownership Pilot Scheme andSandwich Class Housing Scheme)do ensure that the ‘owner’ of the property has paid the premium and obtained consent of the Housing Authority for resale/rental. A prospective tenant should demand an owner to provide a copy of a confirmation letter issued by the Housing Authority that the premium has already been paid.

Any tenancy agreement entered into may be declared as void and illegal which contravenesamongst other provisions, section 27A of the Housing Ordinance (Cap. 283). Apart from the risk of tenancy agreement being unenforceable by the Court (e.g. any outstanding ‘rent’ or unreturned ‘deposit’ may not be recoverable and the Court may decline the grant of an order for possession in reliance of the purported ‘tenancy agreement’)both parties to such agreement may be liable to criminal prosecution and may be liable to a fine of HKD 500,000 and to imprisonment for a year.

7. Can a foreigner rent a property in Hong Kong?

In Hong Kongthere is no law to prohibit or restrict a foreign individual or corporation from renting a landed property.

8. If I am a foreigner who is posted by my company to work in Hong Kongwhat should I pay special attention to when entering into a tenancy of a flat here?

In a typical tenancy agreement of residential flatthere is no specific terms applicable only to a tenant who is a foreigner.  Some landlords may ask a foreigner tenant to provide proof of his employment in Hong Kong so as to be satisfied that he has a stable source of income to meet the rental payments.

For those who may need to leave Hong Kong within a relatively short period of timeit is worthwhile to note that a standard residential tenancy agreement in Hong Kong is for 2 yearseither with no break clause or a break clause which allows either party to give notice after the first year to early terminate the tenancy.  The tenant would have greater flexibility where the tenancy agreement has a break clause.

9. The covenantsterms and conditions in the Government leases of some premises do not allow the occupiers to let for residential use (Examples: Registered or unregistered squattersroof-top unauthorized building worksindustrial buildingscontainer housesor caravans on farmland). Are tenancy agreements on such premises legally binding?

Whilst a tenancy in non-compliance with the Government lease is not strictly forbiddenentering into such kind of tenancy arrangements is obviously not without risks and problems.

Many of these premises are inherently not suitable for habitationposing dangers and threats to the safety of the occupants.

If the tenant is aware of the contravention at the time when the tenancy agreement was entered intohe cannot later use this as a ground to dispute the validity of the tenancy agreement or to refuse to pay rent to the landlord.

Breach of the user restriction of the Government lease may trigger the Government exercising its right of re-entry under the Government leaseor the statutory right of re-entry or power to vest the relevant interest under the Government Rights (Re-entry and Vesting Remedies) Ordinance (Cap. 126)in which case the landlord will cease to be the owner immediately.

The landlord and the tenant should also be aware that they are most likely in breach of the deed of mutual covenant of the buildingif anyand may be liable in legal action by the management companythe incorporated owners (if any) or other owners of the building.

Case Summary 1: There can be no legally binding contract in the absence of the essential terms of a tenancy agreement (World Food Fair Ltd v Hong Kong Island Development Ltd)

World Food Fair Ltd v Hong Kong Island Development Ltd
Case No.: FACV 6/2006
Date of Judgment: 8th December 2006
https://www.hklii.hk/en/cases/hkcfa/2007/89?hl=FACV%206%2F2006

Facts

In 1996the plaintiff started negotiations with the defendant landlord to lease shop spaces at an underground shopping mall in Tsim Sha Tsui close to completion of construction for running a restaurant and food court.  The parties orally reached agreement on certain aspects of the proposed tenancysuch as the monthly rentmanagement fees and air-conditioning charges.

On 27th January 1997the plaintiff issued to the landlord a cheque of HK$200,000describing it as an “initial deposit”.  The plaintiff’s case was that all material terms of the tenancy had been agreed and an oral contract intended to be immediately binding came into existence no later than the date when the deposit was paid.  The landlord contended that important tenancy terms remained to be negotiated as at that date.

By that timeno design work had been done and the parties had yet to begin discussing the extent of the landlord’s provision of the kitchen facilities.  The plaintiff had not yet started advertising for sub-tenants or licensees for the food court nor brought in investors as partners in the venture.  There had been no steps taken for hiring staff or provisioning the restaurant.

On 1st February 1997the landlord sent to the plaintiff a draft letter of intentstating that the tenancy would commence on 8th March 1997 tentativelysubject to the issuance of the occupation permitwith a prior 7-days’ written notice to be served for the actual date of commencement.  On 4th July 1997a draft tenancy agreement passed between the partieswhich provided that the tenancy would commence on 1st August 1997.  Neither the draft letter of intent nor the draft tenancy agreement was executed.

In early July 1997the landlord gave the plaintiff access to the shop spaces for its contractors to commence fitting-out works.  The parties also agreed on the kitchen facilities to be provided at the landlord’s costbut no tenancy agreement was signed.  But in late July 1997the landlord informed the plaintiff that it was now against having a food court in the mall.  By thenthe plaintiff had already incurred substantial expenses on the design and preliminary works for the intended restaurant and food court.

There had been attempts to negotiate a fresh agreement for the plaintiff to take the tenancy to operate the proposed restaurant but in vain.  Eventually the landlord purported to forfeit the “initial deposit”.  The plaintiff brought action against the landlord for breach of agreement.  The subject matter of the plaintiff’s claim was expenses incurred in anticipation of the commencement of operations of the food courtlater quantified by the Court of Appeal in the sum of HK$3.1 millionand the return of the deposit.

The trial Judge dismissed the plaintiff’s action on the basis that the parties had not proceeded beyond the stage of negotiation so there was no concluded contract.

The Court of Appeal overturned the decision and found that a contract for the tenancy was concluded orallyand that the absence of formality was met by part performance.

The landlord appealed to the Court of Final Appeal.

Issue

The only issue to be decided by the Court of Final Appeal was whether the Court of Appeal was correct to conclude that there was a binding contract between the parties.

Ruling and Reasons for Judgment

The essential terms which must be agreed by the parties for there to be a concluded agreement for any lease were:- (1) the identity of the parties; (2) the premises; (3) the commencement and duration of the term; and (4) the rent or other consideration to be paid.  Additionallyfor there to be a concluded contract for the grant of a leasethe parties must have reached unconditional agreement on all the terms they intended to have in the lease.

Whether the parties intended to enter into a concluded contract was to be assessed objectively.  The Court of Final Appeal held that there was no concluded contract in the present case because final agreement had not been reached on the commencement date of the tenancythe rent-free period and the option to renewall of which were matters the parties plainly intended to be addressed in their tenancy agreement.

The tentative start date of 8th March was not a binding commencement date and was soon overtaken by events.  The evidence showed it was inherently unlikely that the parties would have felt ready at the end of January to go firm on the March start date.  In factit was not until 4th July that a firm date could be proposed as the intended commencement date of the tenancy.

The payment of a deposit and the giving of access for fitting out works were generally equivocal acts.  These acts were consistent with:- (1) the existence of a concluded agreement; and (2) could equally be acts done in anticipation of a legally binding agreement which never materialised.  The Court observed that it was not uncommon for parties in the course of negotiations which were still incomplete or subject to contract to pay deposits or to allow contractors access to the premises.  The “initial deposit” and the giving of access for fitting out works did not prove the existence of any concluded contract.  Indeed the request for an “initial deposit” rather than the execution of a tenancy agreement might suggest that the parties had not yet reached final agreement.

The Court of Final Appeal allowed the landlord’s appeal.  The landlord had to return the deposit as there was no concluded agreementbut was held not liable for the plaintiff’s claim for recovery of expenses.

Takeaway

The Court of Final Appeal has authoritatively set out the essential terms of a tenancy agreementnamely:- (1) the identity of the parties; (2) the premises; (3) the commencement and duration of the term; and (4) the rent or other consideration to be paid.  There can be no legally binding contract in the absence of any of these terms.

This case also serves as an illustration of the potential risks involved when the parties are only relying upon oral agreement.  Whilstgenerally speakingoral agreement can be legally bindingtrouble may arise not only as to the terms contained in the agreementbut alsomore fundamentallywhether the parties have actually come to a concluded agreement.  Performance by the parties (e.g. given access to the premises for fitting out works to be done) in and of itself does not prove the existence of an agreement if in fact the landlord and the tenant have not come to any conclusive agreement.

Where the parties are ready to committhey advised to sign a tenancy agreement in writing before expending money and resources in contemplation of the start of the tenancy.
 

Case Summary 2: There is no implied warranty that the premises would be fit for human habitation or the tenant's purpose (Chan Man Chong v Tong Chi Cheong)

Case Name: CHAN MAN CHONG v TONG CHI CHEONG [2017] 1 HKC 334 (Lands Tribunal)

Subject: Implied warranty that the premises was fit for human habitation or fit for the tenant’s purpose

Facts

1. The applicant (landlord) applied for recovery of vacant possession of the premises based on termination of the tenancy.
2. The respondent (tenant) opposed on the grounds that: 

• the landlord was not the owner of the premises as shown on the Land Registryand
• the landlord was negligent in failing to inform the tenant that the premises would be affected by unnecessary noise and nuisance.

Issues

There were three main issues:

1. whether there was any implied warranty that the premises was fit for human habitation or fit for the tenant’s purpose;
2. whether the tenant is entitled to contest that landlord was not the owner of the premises; and
3. whether the landlord was entitled to vacant possession.

Rulings and Discussion

Firstgenerally under common lawthere is no implied warranty that the premises was fit for human habitation or fit for the tenant’s purpose.

Seconda tenant cannot defend a claim for vacant possession by alleging that the landlord has no interest in the property. The tenant cannot deny his landlord’s title.

Thereforethe applicant was entitled to vacant possession of the premises.

Takeaway

In generalunder common law,

1. there is no implied warranty that the premises is fit for human habitation throughout the terms of the lease.
2. Neither is there a general implied warranty that the premises would be fit for the tenant’s purpose.
3. Noise or disorderly conduct on adjoining premiseseven if it amounts to a nuisancemay not constitute a breach of the covenant; and the landlord is not liable merely for failing to prevent italthough he may have power to do so under an agreement with the tenant of those premises.

The intending tenant is presumed to make his own inquiries as to its conditionandin the absence of a special stipulationhe takes the house as it stands.

To avoid dispute, 

1. parties should expressly state whether there is any warranty that the premises is fit for human habitation in the tenancy agreement; and
2. the tenant should take steps to satisfy himself/herself that the landlord is the registered owner before entering into the tenancy agreement. If necessaryparties should include an express warranty in the tenancy agreement to that effect.
    

Case Summary 3: Interference with quiet enjoyment required some substantial physical interference with the enjoyment of the premises (Ridge Ltd v Golden Castle Ltd)

Case Name: Ridge Ltd v Golden Castle Ltd [2005] 3 HKC 592 (CFI)

Subject: Whether tenant has the right to set-off claim for unpaid rent against landlord's breach of covenant for quiet enjoyment

Facts

The plaintiff (landlord) claimed against the defendant (tenant) for failure to pay rent and other outgoings in respect of commercial premises leased out to the defendant.

The tenant counterclaimed that it was entitled to legal or equitable set-off of its loss of business as a result of the landlord’s renovations that blocked customers’ access to the premises which amounted to a breach of covenant to quiet enjoyment.

Issues

There were two main issues:

1. Whether there was a legal right of set-off of a claim for breach of the landlord’s covenant to give quiet enjoyment against a breach of the tenant’s covenant to pay rent.
2. Whether the landlord’s renovations amounted to a breach of covenant to quiet enjoyment.

Rulings and Discussion

The covenant to pay rent was independent of the other covenants or obligations under a leaseincluding the covenant for quiet enjoyment.

A tenant’s obligation to pay rent was not dependent upon the compliance by the landlord of its obligations under the leasethereforeequitable set-off did not apply.

In this casethere was no defect in the premises themselves. There was no actual blockage of access. At most there was inconvenience to customers who could not use the escalators and stairway within the storebut who could find another way in.

Accordinglyit could not be said that the defendant could not do businessor that its business was so substantially interfered with by the landlord that it should not have to pay rent.

Thereforethe plaintiff succeeded in obtaining a judgement against the defendant for vacant possession and payment of outstanding rent.

Takeaway

For equitable set-off to apply,

1. the counterclaim must be at least closely connected with the same transaction as the claim; and
2. the relationship between the claims must be such that it would be manifestly unjust to allow one to be enforced without regard to the other.

In generalinterference with quiet enjoyment required some substantial physical interference with the enjoyment of the premises.
 

Case Summary 4: What the landlord has agreed after signing the tenancy agreement is unlikely to be binding in law (Chi Chiu Yueh v Choi Ka Wing)

Chi Chiu Yueh v Choi Ka Wing
Case No.: LDPD 171/2022
Date of Judgment: 11 May 2022
Citation: [2022] HKLdT 20 
https://www.hklii.hk/tc/cases/hkldt/2022/20?hl=%5B2022%5D%20HKLdT%2020 (Chinese judgment only)

Facts

The Landlord (Chi Chiu Yueh) leased a domestic apartment to the Tenant (Choi Ka Wing) for two years (from 1 March 2021 to 28 February 2023) at $17,800 per month inclusive of built-in fixturesfurniture and electrical appliances; Landlord shall maintain and upkeep the main structural parts of the property (including main sewagespipes and electrical wires).

Tenant stopped paying rent since February 2022and so Landlord applied to the Lands Tribunal for terminating the tenancyrecovering the propertyand claiming arrears of rent. Tenant alleged that Landlord did not fulfil her promise made in November 2021 that she would replace two malfunctioned air-conditioners and was in breach of the tenancy agreement; Tenant used the security deposit to cover the rent for February; Landlord did not proactively re-possess the propertyand did not discuss with Tenant how the property would be re-possessed.

When the Lands Tribunal heard this case in April 2022Tenant alleged that he had moved out of the propertybut he had not yet returned the key to Landlord. Thereforethe Lands Tribunal ordered Tenant to return the vacant possession of the property to Landlordand ordered that Tenant shall pay the arrears of rent since and after February (at $17,800 per month). Tenant requested the Lands Tribunal to review the orders.

Issue

As Landlord did not fulfil her promise to replace the air-conditionerswas Landlord in breach of the tenancy agreement? Could Tenant use the security deposit to cover the rent? Was Landlord responsible in re-possessing the property proactively?

Ruling and Reasons for Judgment

The Lands Tribunal referred to many precedent casesadopted the following generally applicable legal principlesand dismissed Tenant’s application for review:

1. Air-conditioners was the ‘main structural parts’ or ‘main pipes’. In the tenancy agreementLandlord was only to provide ‘built-in fixturesfurniture and electrical appliances’ for Tenant’s usebut it did not require Landlord to repairreplaceor provide new appliances. Generallythe legal principle is that a landlord is not responsible for repairing the property or providing suitable appliances.
2. Even if Landlord made the oral promise to repairsuch a promise was made only after the tenancy agreement was signedwhich was not part of the tenancy agreement. Tenant did not pay for the promise the ‘consideration’ required by lawtherefore Landlord’s promise was not binding at lawTenant could not allege Landlord for breaching the tenancy agreement.
3. Even if Landlord was in breach and caused inconvenience to Tenantthe tenancy agreement would not be frustratedand Tenant still needs to pay rent.
4. Security deposit was for guaranteeing Tenant’s compliance with the clauses of the tenancy agreement. If Tenant was not in breach of any clauses of the tenancy agreement (including paying the rent on time)Landlord shall return the security after certain number of days only upon Landlord re-possessing the property and receiving all payment due from Tenant. Unless Landlord agreesTenant cannot unilaterally cover the rent with the security deposit. The obligation of Tenant to give vacant possession and the obligation of Landlord to return the security deposit was not the same and must not be confused. Tenant could not insist return of the security deposit by Landlord at the same time as Tenant giving back the keys to Landlord.
5. A tenancy agreement usually requires a tenant to give ‘vacant’ possession back to the landlord. Clearing up and moving out are not the same as giving up (and Tenant did not even return the keys). Tenant shall unconditionally and proactively giving and returning those; otherwise Tenant needs to compensate for the mesne profit in the interim until Tenant gave vacant possession. It was the responsibility of Tenant to give possessionnot Landlord to take possession.

Takeaway

The above legal principles quoted by the Lands Tribunal are applicable to the tenancy generally in Hong Kong. Unless individual tenancy agreements or the common law otherwise provides for the contrary:

1. A landlord has no legal obligations to repair for the tenantor to provide suitable appliances for tenant’s use.
2. What the landlord has agreed after signing the tenancy agreement is unlikely to be binding in law; an oral promise is not necessarily legally enforceable.
3. Even if the landlord might be in breach of the tenancy agreementthe tenant still has the responsibility to pay rent.
4. Security deposit cannot cover the rent. The responsibilities regarding rentsecurity depositrepairand ‘vacant possession’ etc. were different. There was no legal basis to say ‘only if you return my security depositI’ll give you back the keys’.
5. The basic requirement of ‘vacant possession’ to clear upempty itmove outand return the keysotherwise the tenant might still be in arrears of rent.

Ideally speakingevery terms and conditions should have been spelt out in the tenancy agreement when the agreement was negotiated and before signing it. In realityas a matter of lawit may be already too late when problems arise.
 

B. Regulation of Basic Housing Units

a. Overview and Objectives

The Basic Housing Units Ordinance (Cap. 658) introduces a regulatory regime for the letting of subdivided units in residential buildingsor the residential parts of composite buildingsfor habitation. Under the Basic Housing Unit (BHU) regulatory regime, subdivided units in residential buildings must comply with a set of minimum standards of living conditions and obtain BHU recognition before they can be legally let out for habitation. This aims to ensure the provision of safehygienic and reasonable living conditions in subdivided units.

b. Scope of Application

The BHU regulatory regime apply when:

1. A flat in a residential  buildingor the residential  part of a composite buildingis divided (or re‑divided) using partition installations/materials like brick wallsmetal panelswooden boardssliding panelstall cupboardsor similar partitions; and
2. This new layout is different from the original layout shown on the approved building plan; and
3. The division creates two or more wholly or substantially enclosed areaseach intended to be rented out separately for residential  use.

The BHU regulatory regime does not apply to the following premises:

1. Premises as stipulated in Part 2 of Schedule 4 to the Ordinancei.e. premises being regulated by other existing statutory regimesincluding bedspace apartmentshotels or guesthousesresidential care homesresidential care homes for person with disabilitieschild care centresdrug dependent persons treatmentrehabilitation centresother similar premisesetc.; and

1. Flats located in the non-residential part of a composite buildingcommercial buildingsindustrial buildingsillegal structures (including squatter structures and unauthorised building works located at rooftopsflat roofslaneslight wellsyards etc. constructed in contravention of the Buildings Ordinance (Cap. 123))and any storeys of New Territories Exempted Houses.

c. Minimum standards for BHU recognition

To qualify for BHU recognitiona subdivided unit must comply with a set of minimum standards of living conditions. These minimum standards coveramong other things:

1. A minimum internal floor area of 8 m²and a minimum height of 2.3 m from floor to ceiling and 2.0 m from floor to the underside of any beam.
2. Adequate fire safety and structural safety measuresincluding compliance with requirements designed to prevent overloading of the building
3. A separate toilet that meets prescribed sanitary standards.
4. A water supply point and a sink located outside the toilet.
5. Provision of suitable lighting and ventilation.
6. Separate water and electricity meters.

d. Commencement Dates and Implementation Phases

The Ordinance is implemented in two phases.

Phase 1 — 1 March 2026

The Ordinance comes into effectexcept for the provisions concerning the offence of illegal letting of subdivided units (section 8).

(i) Existing subdivided units

A 12-month registration system launches (until 28 February 2027) for existing subdivided units. Flats with at least one valid tenancy of a subdivided unit during the period from 4 July 2025 to 3 October 2025 are eligible for registration.

Within the registration period, Owners are required to make registration applications to obtain a 36-month grace period (running from 1 March 2027 to 28 February 2030)during which they can carry out necessary alteration works and submit applications for BHU recognition.

(ii) New subdivided units

New subdivided units that come into existence after 1 March 2026 must be recognized as BHUs before being let.

The BHU recognition system launches to accept applications from subdivided units that comply with the minimum standards of living conditions. Valid BHU recognitions are granted for a 5-year term.

Phase 2 — 1 March 2027

The provisions concerning the offence of illegal letting of subdivided units (section 8) come into effect. Any person who lets out a subdivided unit without a valid grace-period registration or valid BHU recognition commits an offence involving criminal liability.

e. Criminal penalties

A person who lets a subdivided unit without a valid grace‑period registration or valid BHU recognition commits an offence. The maximum criminal penalty for illegally letting a subdivided unit without a valid grace-period registration or valid BHU recognition is a fine of $300,000 and imprisonment for 3 years. If the offence continuesthere can also be an extra fine of $20,000 for each day the offence continues.

The six‑month period immediately before the expiry of the grace period (i.e. from 1 September 2029 to 28 February 2030) is the “countdown period”. During the countdown periodno person may enter into a new tenancy for a subdivided unit in a registered flat that does not have valid BHU recognition. Any person who does so commits an offence and is subject to the same criminal liability described above.

Tenants occupying the unrecognised subdivided units are not criminally liable for renting such units.

f. Termination of tenancy

If the Secretary for Housing is satisfied that a subdivided unit is being let out illegallyhe may direct the termination of the relevant domestic tenancy by means of a termination notice.

g. Statutory compensation

If the Secretary for Housing orders the tenancy to be terminated because the subdivided unit is being let illegallythe tenant can claim statutory compensation from the operator as a civil debt. The maximum amount the tenant can recover is the lower of 3 months’ rent or the total rent for the remaining term of the tenancy.

For instanceif the tenant’s rent is HK$5,000 per month and there are 6 months left on the tenancyhe could claim up to HK$15,000 (three months’ rent). If there is only 2 months lefthe could claim HK$10,000 — because that is less than three months’ rent.

Howevergetting that compensation does not stop the tenant from making further claims against the operator under common law.

XVIII. Estate Agents

XIX. Renting abroad

XX. Case Illustrations

Scenario:

Mr. B intends to rent a commercial property from ABC Company to run a retail shop. Both parties have verbally agreed on the major terms of tenancy including the rent and the tenancy period. The landlord (ABC Company) has instructed a solicitor firm to handle the relevant tenancy documentation.

Question 1: 
Mr. B received a Draft Tenancy Agreement that was prepared by the landlord's solicitors. It seems that many terms are favourable to the landlord. Is this usual in tenancy dealings? What can Mr. B do to protect his interests? Answer 1

Question 2: 
Subsequent to the signing of the Tenancy Agreementthe parties agreed to amend certain terms of that agreement. Can they simply mark the amendments on the existing agreement or do they have to enter into a new agreement? Answer 2

Question 3: 
After having used the property for a certain periodMr. B believed that the property needed substantial renovation. He asked the landlord to do the renovation but the landlord asked him to contribute to the costs. Who should be responsible for these renovation costs? Answer 3

Question 4: 
Mr. B did not paid rent for 2 months. What can ABC Company do to recover the outstanding rent and/or to get back the property? Answer 4

Question 5: 
Mr. B settled all of the rental arrearsbut ABC Company told him that it intends to sell the property. The company assured Mr. B that it would inform him of any potential purchasers of the existing tenancy. HoweverMr. B was told that he should allow potential purchasers to enter and view the property. Can Mr. B refuse this? Answer 5

Question 6: 
There were only two months left in the period of tenancy. Mr. B refused to pay the rent for the final two months and told ABC Company that it could forfeit the deposit (which is equivalent to two months of rent) as a payment of the outstanding rent. Should ABC Company accept this? Answer 6

Question 7: 
After the expiration of the tenancyMr. B stays in the property and pays rent at monthly intervals and ABC Company continues to accept that rent. Will the terms of the expired Tenancy Agreement continue to bind the parties? Answer 7

Answer 1:

As the landlord's solicitors drafted the Tenancy Agreement it is inevitably prejudicial to the tenant's interests. The best way for Mr. B to tackle this situation is to retain a lawyer to assist him to negotiate for more favourable terms (or to strike out unfavourable terms).

Anyone who has read a usual tenancy document will probably be amazed by the unbalanced proportion of obligations to be observed by the parties. The landlord must only comply with a few obligationssuch as providing quiet enjoymentrepairing the roof and external wallsand paying government rent. In contrastthe tenant must comply with many dos and don'ts. Howevera tenant should recognize that the situation may not be as bad as it seems. As a tenancy has the effect of passing the interests in the property to the tenantthe duty to keep the property in good repair and maintenance also passes to the tenant. Henceit is quite normal that a tenancy documenteven after negotiation between the solicitors for both partiesstill seems to impose many obligations on the tenant. This apparent unfairness is actually quite reasonable because the tenant is the “person-in-charge” of the property during the period of the tenancy and for matters which the landlord does not have sufficient knowledge or control of.

Answer 2:
In generalthe landlord and the tenant can mark the amendments on the existing Tenancy Agreement and then place their signatures next to the amendments. The parties can also enter into a supplemental agreement that incorporates all of the amendments rather than putting numerous amendments onto different parts of the existing agreement.

Howeverif an amendment is so substantive that it alters the nature of the Tenancy Agreementthen it might be desirable for the parties to enter into a new agreement to avoid any confusion. For exampleif the period of a tenancy is extendedthen a new tenancy is actually created and the parties may have to enter into a new agreement and comply with the necessary legal requirements. If the rent is increasedthen additional rent is also chargeable to stamp duty. The number of potential legal consequences is as infinite as the number of imaginable amendments. The parties should therefore seek legal advice before they commit themselves to any amendment.

Answer 3:
The word “renovation”in its ordinary senseconnotes the meaning of the improvementsdecoration and adornment to be made of a property. It may not cover the repairs or maintenance that are essential to the occupation of the propertysuch as repairing a cracked wall or ceiling. Furthermorea Tenancy Agreement is likely to specify that the property is let on an “as is” basiswhich means that the tenant is aware of the conditions of the property when the tenancy commences. Thereforeunless the Tenancy Agreement provides otherwiseMr. B is not entitled to request the landlord to renovate the property.

Generallyit can be said that neither the landlord nor the tenant has a duty to renovate a property. As a tenant is the factual occupier of a propertyit is reasonable for the tenant to bear any costs of renovation. Howeverthe parties can negotiate between themselves on any proposal for renovation. A landlord will probably be more willing to bear the costs of renovation in cases in which the tenant has been occupied the property for a long time and has committed to continue renting the property.

Answer 4:
Please refer to the relevant question and answer.

ABC Companyas a landlordshould also be cautioned that it should not use any illegal measures to get back the outstanding rent or the property (e.g. by breaking open the door without a court order). A ny person who unlawfully deprives a tenant of occupation of the relevant premises may commit an offence and may be liable to a fine or even imprisonment. 

Answer 5: 
A well-drafted tenancy document will invariably include a clause under which the landlord covenants to give quiet enjoyment of the property to the tenant. Quiet enjoymentin this contextdoes not simply refer to freedom from noisebut extends to freedom from interruption by the landlord. Even if the tenancy document does not contain such a clausethen the tenant's right to quiet enjoyment is implied by law. Thereforeunless the tenancy document expressly provides that the tenant must allow a potential purchaser to view or inspect the property (usually at certain time before the tenancy expiration date)the tenant is fully entitled to refuse the landlord's request for viewing or inspection.

In factthe landlord should have notified the potential purchaser about the existence of the tenancy and the property should be sold “subject to tenancy”. Purchasers who buy under such circumstances should understand that they are probably buying properties without the right to view and inspect them.

Answer 6:
A tenancy document usually specifies that the tenant must pay a deposit to secure the performance and observance of the tenant's covenants under the tenancy documentsuch as to pay rentto keep the property in good conditionto execute repair and to comply with the relevant laws. The agreement to pay rent is only one of many covenants that are made by the tenant. The landlordin most circumstanceswill not know whether the tenant has performed and observed such covenants until the recovery of the possession of the property.

Upon regaining possession of the propertythe landlord may find that pipes are blockedwalls are painted in weird colourswindows are brokenthe refrigerator is gonetrash is left all over the propertyetc.and that the tenant cannot be located anymore. The deposit may not be able to cover the aggregate of the unpaid rent and the expenses incurred to refurbish the property. It is therefore unwise to accept the tenant's proposal to substitute the payable rent with the deposit which may lead to irrecoverable losses suffered.

Answer 7:
Upon the expiry of a tenancythe original Tenancy Agreement becomes obsolete. The terms and conditions specified in that agreement do not bind the parties any more. If the “tenant” continues to stay at the property and the “landlord” makes no objectionthe relationship between them will evolve into a tenancy at sufferance: that is to saythe “landlord” suffers the presence of the “tenant” at the property. Strictly speakingthis is not a tenancy at all because the “landlord” has not expressly agreed to let the property. The “tenant”in this senseis merely an occupier or even technically a trespasser unless the landlord continues receives rent without objection. Tenancy at sufferance is ambiguous in law because both the “landlord” and the “tenant” are uncertain of their rights and liabilities. In such circumstancesthe parties should as soon as possible enter into a new tenancy document that spells out clearly their respective rights and liabilities.

XXI. Related Websites

• Hong Kong Judiciary
• The Duty Lawyer Service
• Hong Kong e-Legislation
• The Law Society of Hong Kong
• The Rating and Valuation Department
• The Land Registry
• Hong Kong Housing Authority and Housing Department
• Estate Agents Authority

XXII. Videos