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

The content of a Tenancy Agreement will normally include the period/length of the tenancy, rent, payment period, deposit, use (e.g. residence, office, or factory) 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, partnership or a limited company, etc.), different formalities for execution are required.

While the terms “Tenancy Agreement” and “Lease” are often used as if they are synonyms, there are some technical differences between them.

a) Period/length of the tenancy

A Lease is generally a document that creates a tenancy for more than 3 years. It has to be executed in the form of a deed, meaning that it has to be signed, sealed and delivered by the parties. That is to say, the parties have to sign the Lease, affix a red seal (a small red wafer) next to their signatures and exchange copies of the lease.

A Tenancy Agreement is generally a document that creates a tenancy for a period not exceeding 3 years. The parties to a Tenancy Agreement only have to sign it, without needing to affix the red seal and exchanging the document. To protect the interests of both parties, however, it is recommended that the parties should exchange copies of the Tenancy Agreement.

b) Capacities of the parties

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

An individual, sole proprietorship or a partnership entering into a Lease must affix a red seal next to the signature of each signing person. A limited company must affix its common seal next to the signature(s) of the person(s) authorised to sign the Lease. Furthermore, the Lease has to be executed in accordance with requirements stipulated under the company’s Articles of Association.

If the party to a Tenancy Agreement is a sole proprietorship, a partnership or a limited company, the 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 institution, the landlord must obtain the prior consent from that company before leasing it out. For more information regarding this matter, please go to part VI – properties with mortgages.

Table 1

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

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 fact, some people enter into standard form tenancy agreements without obtaining legal advice or even without examining the content of the agreements.

Parties that have the benefit of solicitors, however, have their legal interests better protected because their solicitors will draft or scrutinise a tenancy document 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 tenancy document, the chance of future disputes between the parties may be reduced.

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 advance, the “landlord” disappeared with the money. If I am going to rent a property, then 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.

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

3. 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 matters, it also provides such services as endorsement of Notice of New Letting or Renewal Agreement, issuance 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. Unlike the Court, a tribunal is characterized by informality. For example, the judge sitting at the Tribunal is called a presiding officer. The lawyer and the presiding officer do not have to wear court dress. The presiding officer plays a more intervening role and is more ready to discuss the issues with the parties.

If the dispute is purely about a monetary claim of $50,000 or less, then 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 complex, then 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).

4. 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 housing, please visit the Housing Authority and the Housing Department’s webpage.

If you want to know more about the tenancy matters on Government shopping centres, please visit the Housing Authority and the Housing Department’s webpage.

5. 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 of occupation. If a landlord is in breach of a tenancy document, then the tenant can claim damages (compensation) against the landlord and continue to occupy the property in question.

In contrast, a licence creates no interest in land. The licensor only allows the licensee to use the land, not to exclusively occupy it. The licensee’s remedy against the licensor’s breach of the licence may lie only in claiming damages, but not in occupation of the property. Therefore, a 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 property, e.g. a car parking space , a 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 wall, being a vertical surface, is not land. Therefore, the owner of the rights and interests in the external walls of a building cannot let the walls to another party, but can only license the rights to use the walls.

It should also be noted that as a licence does not transfer any interest in land, it is not liable to stamp duty. However, it 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, but on the factual circumstances evidenced by the document. 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 case, the 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.

6. Before signing the formal tenancy agreement or lease, a 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 agreement, the intending landlord agrees to give, and the intending tenant agrees to take, a lease in the future.

The agreement for lease/provisional tenancy agreement is a contract. It must, therefore, satisfy the requirements of a contract. There must be offer from one party, acceptance from the other party, consideration, intention to create legal relations and so forth. The terms of the agreement must be sufficiently certain, including:

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 other consideration.

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 agreement, the other party can apply to the court for an order of specific performance. That is, to 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 agreement, another 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 practice, the consequences of signing an offer to lease are similar to that of signing an agreement for lease.

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

A tenancy document is usually executed in counterparts, both 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 Lease, then it should also be registered at the Land Registry within 30 days of the date of execution, otherwise 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 documents, please 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. However, a landlord who does not submit the form within the one month period may later do so after paying a fee of $310.

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. However, if there is any doubt as to whether a tenancy document is liable for stamp duty, then 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. Therefore, the parties to a Tenancy Agreement can freely agree between themselves on their respective shares of stamp duty. In most cases, the 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.

Moreover, a tenancy document must be stamped before it can be lodged with the Lands 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 words, a 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 Lands 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 registered, the 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 tenancy document, being an instrument affecting land, is of course registrable at the Lands Registry.

The laws that govern the registration of documents at the Lands Registry are contained primarily in the Land Registration Ordinance (Cap.128 of the Laws of Hong Kong). Strictly speaking, the Land Registration Ordinancedoes not contain any provision that compels the registration of documents. It only spells out the consequences of non-registration. Therefore, the question should be: why is it that some tenancy documents should be registered with the Lands Registry?

Lease and Tenancy Agreement

Although a tenancy document is registrable with the Lands 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”.

Therefore, a document that creates a tenancy for a term of more than 3 years (i.e. a Lease) should be registered, otherwise it is prone to be defeated by successors in title of the landlord and will lose its priority against other registered documents that affect the same property.

In contrast, a 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.

However, if a Tenancy Agreement contains an option to renew the existing tenancy, it 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 term, i.e. to renew the existing tenancy. As this option to renew represents a legal interest in land and affects the principles of notice and priority, the relevant Tenancy Agreement should be registered.

To play it safe, parties to a Tenancy Agreement should check with either the Land Registry or legal professionals to ascertain the necessity of registration.

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

Every well-drafted tenancy document, whether for a domestic or non-domestic property, will 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 clause, the law generally implies such a right of forfeiture.

Regarding tenancies of domestic properties that were created on or after 27 December 2002, section 117 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 forfeiture, there 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.

Therefore, in general, if a tenant is late in paying the rent for 15 days, the landlord is entitled to terminate the tenancy. The tenant, however, can save the tenancy by paying all of the outstanding rent in arrears before the landlord takes possession of the property.

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 rent, then 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 properties, then they may make their claim for rent arrears at one of the followings.

– The Small Claims Tribunal: for claims of $50,000 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 $50,000 but do not exceed $1,000,000;
– The Court of First Instance of the High Court, which has unlimited jurisdiction.

Landlords of domestic properties domestic property, should 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. However, landlords 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

If landlords believe that their tenants have been absconded or will not be able to pay the rent for the remaining term of the tenancy, then they will probably want to get back the property and recover the rent in arrears. In such circumstances, the 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 $1,000,000 and the rateable value of the property does not exceed $240,000; or
– the Court of First Instance of the High Court for outstanding rent of any amount.

The landlord, if successful in obtaining a judgment against the tenant, will be able to apply to the tribunal/appropriate court for a Writ of Possession. Upon the issue of the Writ of Possession, the 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 claims, it normally will not entertain a claim that falls within the jurisdiction of the District Court or the Lands Tribunal.

Interim payment

In simple words, “interim payment” is the payment made by one of the parties to the other party in a lawsuit before the completion of the court trail (i.e. before the judge delivers the final judgment on the relevant case). The payee (usually the plaintiff) must first apply to court and obtain the relevant court order before he could entitle to interim payment.

Application for interim payment is common in situations where the tenant has been in continuous possession of the premises, refusing to vacate and paying no rent at all. In such a situation, the landlord may commence legal proceedings against the tenant for forfeiture of tenancy, damages (compensation), and mesne profits (the rent that should be paid by the tenant for the period between the expiry of tenancy and the date of vacation). However, it would take some time before the landlord’s alleged grievance can be heard before a judge in court. In this waiting period, the landlord may be precluded from obtaining the contractual rent (from the tenant) or the prevailing market rent (if the landlord finds a new tenant) due to the continuous occupation of the premises by the tenant. The landlord should not be deprived of money which he would be entitled to recover from the tenant in the period leading to case being heard in court.

If, on the hearing of an application, the court is satisfied that:

1. the plaintiff’s legal action includes a claim for possession of land (to get back the property); and
2. if the legal action proceeded to trial, the defendant would likely be held liable to pay to the plaintiff a sum of money in respect of the defendant’s use and occupation of the land,

the court may order the defendant to make an interim payment to the plaintiff. Before the court exercises its discretion, it would take into consideration any set-off, cross-claim or counterclaim by the defendant.

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

c) Action for distress

Distress means the seizure, detention and sale of movable chattels/goods found in the rented property to satisfy the rent arrears. Due to the nature of distress, it 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), meaning 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. If the Court accepts the landlord’s application, then a warrant of distress is issued. The bailiff then enters the property, seizes the movable chattels/goods found inside and in the apparent possession of the tenant, and sells the chattels/goods to satisfy the rent in arrears. As distress is complicated both in terms of procedures and legality, it is usually done with the assistance of legal professionals.

2. My tenant has failed to pay rent for several months and has deserted the property. Can I regain possession of my property by breaking open the door, throwing away the tenant’s belongings and changing the lock?

A tenancy document will usually contain a clause that allows the landlord to re-enter the property if the tenant fails to pay rent. However, it is unsafe for the landlord to rely solely on this clause and re-enter the property in a self-help manner. The tenant can reappear a few months later and allege that the landlord has misappropriated valuables left in the property.

Apart from civil liability, the landlord may also face criminal charges. Section 119V of the Landlord and Tenant (Consolidation) Ordinance 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.

Therefore, even if it may be quite certain that the tenant has deserted the property, the landlord should go through the appropriate legal procedures, which will eventually lead to the recovery of the property with the assistance of the bailiff.

IV. Regulations on using or occupying a leased property

At first sight, a 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. However, the issue is not as simple as that. A property used for a non-authorised purpose may create trouble for its owner.

1. Why is it necessary to ascertain the primary use, for example “domestic” or “non-domestic”, of a property?

A tenancy document usually contains a clause which specifies that the property is only to be used for domestic or non-domestic purposes. If a landlord believes that a tenant is in breach of this clause, such as running a shop in a residential property, the landlord must obtain proof of such a breach before proceeding with further action.

Where a question or dispute arises about whether a property is used for domestic or non-domestic purposes, one may 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 Court, then you should submit Form TR4 to apply for the Certificate. If the dispute has not yet been brought up to the Court, then you should submit Form TR4D and pay the application fee of $3,850. Although the Certificate does not provide a conclusive answer to the issue, it will be persuasive when the issue is brought to Court.

For more details regarding the Certificate, please contact the Rating and Valuation Department at 21520111 or 21508229.

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 there, what further problems will I face?

A property that is used for a non-authorised purpose may create trouble for its owner (the landlord) in the following ways.

Breach of Government Lease

An interesting phenomenon in Hong Kong is that property owners do not really own their properties. All lands in Hong Kong (except the piece on which St. John’s Cathedral is standing) are owned by the government, and landowners only lease their land. A typical owner of a flat in a building is therefore only a holder of 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 contract, generally called a Government Lease, imposes 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 condition, for example conducting business activities at a property designated for residential use, then the government is entitled to re-enter and take back the possession of the property. Although such a drastic measure is seldom used, the Lands Department may require the “owner” to apply for a temporary waiver and pay a waiver fee, so that the government will temporarily waive its rights of re-entry.

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. Therefore, even though it may be the tenant who is in breach of the Government Lease and the deed of mutual covenant, the landlord can still be liable to legal action by the management company or the other unit owners of the building.

Liability to a third party

If a residential property is used for business, then one can naturally expect that more visitors than originally anticipated will frequent the property. The chance of such visitors suffering from accidents related to the property and thus claiming against the landlord will also increase. A well-drafted tenancy document will contain a clause which specifies that the tenant indemnifies the landlord from and against all claims and liabilities caused by the tenant’s breach of any agreements. However, if the landlord does not have a well-drafted tenancy document, there may be a vacuum in the terms of liability to be borne by the landlord or tenant. In such circumstances, the landlord may be entangled in totally unanticipated litigation.

Criminal liability

If the tenant is merely using the property for purpose(s) other than that authorised, then the worst that the landlord will face is monetary loss and damages. However, if the landlord knows that the tenant is using the property for criminal activities, e.g. as a gambling place or a vice establishment, and does nothing about it, the landlord could face criminal charges. The consequences will not be limited to monetary loss and damages, but may include a criminal record and imprisonment. Hence, a landlord who finds a tenant using the property for criminal activities should at once report the case to the police.

As a tenancy document is likely to contain a clause that designates the use of the property, e.g. residential, retail, or industrial, the tenant’s breach of this clause will 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 liabilities, which may vary under different circumstances. For instance, a tenant who uses a residential property as a home office may simply be using it as a business correspondence address with all business done on a computer, i.e. without visitors to the property and without storing goods at the property. There may not be any actual harm to the property or any actual negative effects to the landlord. In such circumstances, even though the tenant is technically in breach of the term of the tenancy document, the Court probably will have much sympathy towards the tenant.

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 that I did not have any right under the deed of mutual covenant. 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 detailed deed of mutual covenant can run to over a hundred pages.

It may be technically correct that a tenant, not being the owner of the apartment unit, does not have any right under the deed of mutual covenant. Yet it does not preclude the building manager (or the owners-incorporation of the building) from exercising its power conferred by the deed of mutual covenant.

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. Therefore, subject to what the deed of mutual covenant exactly says, the building manager can do whatever it is empowered to do under the deed of mutual covenant to stop the singing neighbour, including taking legal action.

The tenancy document made between the tenant and the landlord may also contain a clause under which the landlord covenants to procure that all parties bound by any deed of mutual covenant observe and perform the deed. That is to say, even if the tenant indeed has no right under the deed of mutual covenant, the landlord has a duty to assist the tenant in stopping the singing neighbour by exercising the landlord’s right under the deed.

Eventually, if the tenant finds himself/herself facing with a deed of mutual covenant which is silent on the issue of nuisance, the only option is probably to sue the singing neighbour under the law of tort (one of the grounds for claiming monetary compensation via civil litigation). While it may not be easy to quantify the monetary damages caused by the singing, the tenant may try to obtain a court order for an injunction which prohibits the neighbour from singing at night. As the relevant legal procedures are complicated, it is strongly recommended to obtain lawyer’s assistance.

V. Sub-letting

If I have found that my tenant has sub-let my property to some other person without my consent, then what can I do to protect my interests?

A tenancy document usually contains a clause that prohibits the tenant from subletting the property to another party. Any subletting by the tenant will be a breach of such a clause and the landlord can institute legal action for compensation.

If the tenancy document does not contain a clause that prohibits subletting, then the mere act of subletting, even without the landlord’s consent, may not be illegal. As a tenancy has the effect of passing the landlord’s interests in the property to the tenant, the tenant may deal with the property in whatever manner (except for any illegal activities or actions which would violate the tenancy document) within the period of the tenancy, including subletting the property to another party.

Based on the same reasoning, the breach of a prohibition clause on subletting will make the tenant liable to the landlord for damages, but may not render the sub-tenancy illegal.

VI. Properties with mortgages

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 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 requirement, then the bank has notice of the tenant’s presence and cannot evict the tenant even if the bank eventually exercises its power of repossession under the mortgage, such as when the mortgagor fails to make mortgage repayment to the bank. The bank, under such circumstances, will become the landlord and is entitled to receive rent from the tenant.

If the landlord lets the property to a tenant without obtaining the bank’s consent, then 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 mortgage, which may arise from causes other than the aforesaid breach, the tenant is actually 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 Lands Registry, the tenant is deemed to have notice of the mortgage and its terms. If the bank exercises its power of repossession under the mortgage, then the tenant cannot use ignorance as an excuse. Therefore, before entering into a tenancy document, a tenant should always conduct a land search at the Land Registry to check whether the property is mortgaged. If the answer is affirmative, then the tenant must ensure that the landlord has obtained consent from the mortgagee.

VII. Repair/maintenance obligations

Statutory laws provide little guidance in identifying the duties of maintenance of a property. The Landlord and Tenant (Consolidation) Ordinance does not touch on this issue at all. 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 the owner to remedy the situation. However, this does not provide much assistance in the case of non-dangerous day to day repairs and maintenance. 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. However, this only concerns the hygienic condition of the property and does not provide much assistance in terms of common repairs and maintenance.

In respect of statutory orders issued by government authorities, it is almost invariable that the landlord, as the registered owner of the property, will be responsible for carrying out repairs or maintenance. A tenant who receives such an order should duly inform the landlord so that the necessary steps can be taken as soon as possible.

Regarding the day to day repair and maintenance of a property, the law implies the obligation on the landlord to provide a property fit for human habitation and the obligation on the 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) . Obviously, such implied obligations are rather vague and not very helpful.

Hence, a well-drafted tenancy document that specifies the obligations for repair and maintenance is desirable.

1. In general, is the landlord or the tenant responsible for maintaining and repairing the property?

When dealing with the issue of repair and maintenance, the landlord and the tenant must predominantly rely on the tenancy document to ascertain their respective duties. A commonly adopted approach is that the landlord is responsible for external and structural repairs and maintenance, and the tenant is responsible for internal and non-structural ones. However, such a simple dichotomy can be problematic because the words internal, external, structural and non-structural can have different interpretations under different circumstances. Therefore, a well-drafted tenancy document will try to anticipate and accommodate all potential areas of dispute that are specific to the particular property, and clarify the parties’ duties in details. This also explains why a tenancy document that is drafted by solicitors may consume dozens of pages, whereas a standard form agreement may take only one or two pages.

It will also be quite normal that the terms of the tenancy document 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 term of the tenancy. As a tenancy has the effect of passing the interests in the property to the tenant, the duty to keep the property in good repair and maintenance passes to the tenant. It is for the same reason that the law implies that the tenant will keep the property in a tenant-like manner and will not commit waste.

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 landlords, not being in occupation of the properties, cannot be expected to remedy defects of which they are not aware.

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 document, then the dispute may have to be decided by the Court, which will take into account factors such as the common law duty of “tenant-like” manner, the factual circumstances of the particular dispute, the reasonableness of the parties’ acts, etc.

Landlord’s rights to enter the property

Section 24 of the Landlord and Tenant (Consolidation) Ordinance is the statutory provision by which a landlord may enter the property and effect necessary repairs. A landlord and his servants and agents may:

1. at all reasonable times, enter and inspect the property the subject of the tenancy with a view to ascertaining whether they require any necessary repairs; and
2. after the service (deliver) upon the tenant of 14 days’ notice in writing of intention so to do, enter upon the property the subject of the tenancy and effect all necessary repairs.

The term “necessary repairs” under this ordinance section means any repairs which the tenant would be required to perform were he under covenant with the landlord (legally bound by a contract) to keep the property in a tenantable state of repair. Subject to the terms of the tenancy document or other mutual agreement between the parties, the relevant repairs costs incurred by the landlord may be recovered from the tenant.

2. If there was a fire broken out on a leased property and the landlord has suffered some losses as a result, can 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. was it a pure accident or was it caused by someone’s negligence?).

In practice, 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 furniture, decoration, electrical 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 document, the tenant may also be required to take out proper insurance for the property.

VIII. Terminating a tenancy before expiration

In usual circumstances, both the landlord and the tenant cannot terminate the tenancy before its expiration unless either of them has breached the vital terms of the agreement (e.g. the tenant fails to pay rent or the landlord illegally re-enters the property). However, early termination may be possible with the existence of a valid break clause.

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. However, I note that the rental value of neighbouring properties has risen significantly. Can I terminate the tenancy with the existing tenant and let the property out for a better rent?

A party to a contract is bound by the terms of that contract. Therefore, unless a tenancy document contains a break clause that allows the landlord to terminate the tenancy before the expiry of its term, or there is mutual agreement for an early termination, the landlord is bound by the tenancy document and cannot unilaterallyterminate the tenancy with the existing tenant.

2. I have rented a property on a three year term. There are still more than 2 years remaining in the term. However, I 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. Therefore, unless a tenancy document contains abreak clause that allows the tenant to terminate the tenancy before the expiry of its term, or there is mutual agreement for an early termination, the tenant is bound by the tenancy document and cannot unilaterallyterminate the tenancy with the landlord.

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

Notwithstanding anything herein contained, it is hereby agreed and declared that if at any time after the expiration of one year from the commencement of the Term, the Tenant shall be desirous of terminating this Agreement, then the Tenant shall have the right to terminate it by giving not less than two months prior written notice to the Landlord, provided that the notice is received by the Landlord at least two months prior to the date of termination stated therein, or by paying to the Landlord two months rent in lieu of such notice, provided 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 agreements, stipulations, terms and conditions herein contained.

If the tenancy document does not contain a break clause, then 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 parties, the tenant must usually pay a sum in exchange for the landlord’s acceptance of the surrender.

IX. Landlord sells the property with existing tenancy

When a landlord intends to sell a property that is let to a tenant, the landlord should make it clear to the estate agent, the solicitors and the potential purchaser that the property will be sold subject to a tenancy. The landlord should also notify the tenant about the intended sale and properly deal with the deposit paid by the tenant.

To get more information about sale and purchase of property, please click here.

1. My property, which is currently let to a tenant, has 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 agent, the 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 purchaser, so 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 tenancy, reserving the landlord’s rights to claim against the tenant arrears of rent that were incurred before the completion of the sale, and 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 deal with the deposit paid by the tenant. Simply transferring the deposit to the new owner will not exempt the landlord from being held liable for returning the deposit to the tenant. Upon such transferral, the landlord should, in exchange, obtain 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). Alternatively, the landlord may refund the deposit to the tenant and asked 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 landlord, as the owner of the property, is fully entitled to sell the property. If there is a tenancy subsisting at the property, it is likely that the property will be sold subject to the tenancy. That is to say, the 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. Therefore, a tenant’s rights and liabilities under the existing tenancy will generally remain unchanged.

However, the 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 1986, the covenant made by a landlord to return the deposit to a tenant is a personal promise, and is thus enforceable only against the landlord personally but not against the new owner. Therefore, unless there are some other arrangements or agreements, the new landlord is not liable to the tenant in respect of the deposit paid to the old landlord. The tenant should make sure that the old landlord has transferred the deposit to the new landlord so that the tenant can recover the deposit from the new landlord.

X. Renewal matters

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

In the past, a landlord was in most cases bound to renew a tenancy for a domestic property with an existing tenant. However, the law on this issue underwent a substantial change on 9 July 2004. In essence, the landlord is not bound to renew a tenancy with the same tenant unless there is a written agreement to the contrary. This applies to both domestic and non-domestic properties. For more details regarding the changes in tenancy legislation on 9 July 2004, please refer to Part XI: “Changes in tenancy legislation on 9 July 2004”.

However, if a tenancy document (whenever created and whether domestic or non-domestic) contains an “option to renew” clause, then the tenant will be entitled to a right to renew the tenancy.

A tenancy document may provide an option for the tenant to renew an existing tenancy. The option is an offer by the landlord to grant a further tenancy upon expiry of the existing tenancy. For the option to come into effect, there must be acceptance on the part of the tenant. The 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 document, such as on the same terms as the existing tenancy.

Subject to the agreement between the parties, an “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 Term, then 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.

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 after the expiry of the current term, i.e. to renew the existing tenancy. With an option to renew, the tenant obtains a security of tenure and the landlord is somewhat secured with continual rental income. As an option to renew represents a legal interest in land and affects the principles of notice and priority, the relevant tenancy document should be registered even if the tenancy period does not exceed 3 years.

A break clause, in contrast, confers 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 say, a 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 rent, all 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 property, the parties can jointly appoint an independent professional valuation surveyor to do the job, the 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 practice, of course it will only be worthwhile to retain a professional valuation surveyor if the property has a substantial rental value.

XI. Changes in tenancy legislation on 9 July 2004

The laws on tenancy in Hong Kong are largely governed by the Landlord and Tenant (Consolidation) Ordinance(Cap. 7 of the Laws of Hong Kong). On 9 July 2004, the Ordinance underwent a substantial amendment. In respect of tenancies of domestic properties, the security of tenure provisions were removed. In respect of tenancies of non-domestic properties, the statutory minimum length of notice to terminate a tenancy was removed.

Tenancies of domestic properties

The concept of security of tenure means that a tenant is given a statutory right to continue to rent and to occupy a property after the expiry of the existing tenancy period. Under the old regime (tenancies created before 9 July 2004), a tenant of a domestic property is in most cases guaranteed the right to continue to rent the property as long as the tenant is willing to pay the prevailing market rent. The landlord cannot refuse to let the property to the same tenant except under a few circumstances expressly stipulated under section 119E of the old Landlord and Tenant (Consolidation) Ordinance. Examples include the landlord’s intention to rebuild the property, unnecessary annoyance or disturbance caused by the tenant or use of the property by the tenant for immoral or illegal purposes. To comply with the section 119E requirements, the landlord must deal with complicated laws and procedures to recover possession of the property (such as issuing a termination notice to the tenant, responding to the tenant’s request for a new tenancy or conducting litigation at the Lands Tribunal). This section was repealed in July 2004.

For tenancies of domestic properties that were created on or after 9 July 2004, the parties can freely negotiate and agree between themselves on how the tenancy will be terminated. In the absence of any contractual agreement, a fixed term domestic tenancy will end upon expiry, and a periodic tenancy (which will be automatically renewed from period to period) will be terminated by issuing a notice to quit at the length of a full tenancy period.

In cases of tenancies of domestic properties that were in existence before 9 July 2004, such tenancies can only be terminated by mutual agreement or by a Transitional Termination Notice (TTN). For a TTN to be issued by the landlord, it has to be served on the tenant not less than 12 months before the intended date of termination. For a TTN to be issued by the tenant, it has to be served on the landlord not less than 1 month before the intended date of termination. That is to say, the tenant is in effect granted security of tenure for another 12 months. However, a landlord who requires a property for self-occupation can apply to the Land Tribunal for possession of it upon expiry of the existing tenancy whether or not the TTN has been served (see the judgment from the case of Simon John Cox v Paul Desmond Scanlon). An important note is that a person who has successfully obtained an order for possession on the ground of self-occupation cannot let, sell, transfer, or part with possession of the premises with others (except for that person’s immediate family members such as his/her spouse and children) within 24 months from the date of the order unless the Lands Tribunal has given its prior consent. It should also be noted that a TTN is not required in the following cases:

1. there was a change of any terms of the tenancy on or after 9 July 2004;
2. the landlord and tenant, on or after 9 July 2004, agreed on another period of notice of termination; or
3. the tenancy was assigned to a new tenant on or after 9 July 2004.

Example on how to serve a TTN :

• A Tenancy Agreement for a domestic property was created on 1 January 2003.
• Term of the tenancy: two years commencing on 1 January 2003 (i.e. a pre-amendment tenancy).
• The landlord wants to terminate the tenancy upon its expiry but the tenant refuses.
• To terminate the tenancy, the landlord has to serve a TTN to the tenant.
• The earliest date that the landlord can serve the TTN is 31 December 2005 (i.e. the last day of the existing tenancy).
• The earliest date that the tenancy can be terminated is 1 January 2007 (i.e. 12 months from 31 December 2005).
• The landlord must specify on the TTN that the tenancy will be terminated on 1 January 2007.
• The tenant will in effect enjoy 12 months of security of tenure ( from 1 January 2006 to 31 December 2006) after the expiry of the previous tenancy.

Tenancies of non-domestic properties

Under the pre-9 July 2004 regime of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7 of the Laws of Hong Kong), most tenancies of non-domestic properties will not automatically end even if the term specified under the tenancy document has expired. The old law imposed a duty on the landlord to serve prior notice of at least six months to the tenant, or a duty on the tenant to serve prior notice of at least one month, to terminate the tenancy. However, this duty was abolished on 9 July 2004.

For tenancies of non-domestic properties that were created on or after 9 July 2004, the parties can freely negotiate and agree between themselves on how the tenancy will be terminated. In the absence of any contractual agreement, a fixed term tenancy will end upon expiry, and a periodic tenancy (which will be automatically renewed from period to period) will be terminated by issuing a notice to quit to the tenant at the length of a full tenancy period.

In the case of tenancies of non-domestic properties that were in existence before 9 July 2004, the parties can terminate the tenancy in accordance with agreements stipulated in the tenancy document or as agreed between themselves. In the absence of any mutual agreement, a fixed term tenancy will end upon expiry, and a periodic tenancy will be terminated by a notice to quit at the length of a full tenancy period.

1. How am I, as a landlord, affected by the changes in July 2004?

A major impact of the amendment on a tenancy of a domestic property is that it removes the security of tenure provisions . In respect of non-domestic properties, the statutory minimum length of notice to terminate a tenancy is removed. In other words, for landlords the new law offers more flexibility in negotiating with tenants about whether existing tenancies will be renewed.

Tenancies of domestic properties

For tenancies of domestic properties that were created on or after 9 July 2004, the parties can freely negotiate and agree between themselves on how the tenancy will be terminated. In the absence of any contractual agreement, a fixed term domestic tenancy will end upon expiry, and a periodic tenancy will be terminated by a notice to quit at the length of a full tenancy period.

In the case of tenancies of domestic properties that were in existence before 9 July 2004, such tenancies can only be terminated by mutual agreement or by a Transitional Termination Notice (TTN). For a TTN to be issued by the landlord, it must be served on the tenant not less than 12 months before the intended date of termination. That is to say, the tenant is in effect granted security of tenure of another 12 months. However, a landlord who requires the property for self-occupation may apply to the Land Tribunal for possession of it upon expiry of the existing tenancy whether or not the TTN has been served (see the judgment from the case of Simon John Cox v Paul Desmond Scanlon) . An important note is that a person who has successfully obtained an order for possession on the ground of self-occupation cannot let, sell, transfer, or part with possession of the premises with others (except for that person’s immediate family members such as his/her spouse and children) within 24 months from the date of the order unless the Lands Tribunal has given its prior consent.

It should also be noted that a TTN is not required in the following cases:

(a) there was a change of any terms of the tenancy on or after 9 July 2004(see the court judgment below);
(b) the landlord and tenant, on or after 9 July 2004, agreed on another period of notice of termination; or
(c) the tenancy was assigned to a new tenant on or after 9 July 2004.

The judgment from the case of Fubon Bank (Hong Kong) Ltd v Welform Ltd may help illustrate item (a) above. In this case, the subject tenancy commenced on 1 December 2002 and expired on 30 November 2004 . The Lands Tribunal found out that there was an agreement for a 3-month extension period from the original expiry of the written tenancy agreement. Such an alteration to the original term of the expired tenancy was made after 9 July 2004 . On this basis, and having regard to Section 5(4) of the Landlord and Tenant (Consolidation) Ordinance(please refer to the “note” under section 115 of the Ordinance), the landlord was therefore no longer required to serve onto the tenant a Transitional Termination Notice upon expiration of the extension period. Also, since the extension period was for a period of a fixed term of 3-month but with no specific provision on the service of notice to quit, the court held that the fixed term should end upon expiry on the last day of the 3-month period and no further notice to quit from the landlord was required.

Tenancies of non-domestic properties

For tenancies of non-domestic properties that were created on or after 9 July 2004, the parties can freely negotiate and agree between themselves on how the tenancy will be terminated. In the absence of any contractual agreement, a fixed term tenancy will end upon expiry, and a periodic tenancy will be terminated by issuing a notice to quit at the length of a full tenancy period.

In cases of tenancies of non-domestic properties that were in existence before 9 July 2004, the parties can terminate the tenancy in accordance with the agreements that are stipulated in the tenancy document or as agreed between themselves. In the absence of any mutual agreement, a fixed term tenancy will end upon expiry, and a periodic tenancy will be terminated by issuing a notice to quit at the length of a full tenancy period.

If you have further questions regarding the above changes, please contact the Rating and Valuation Department.

2. How am I, as a tenant, affected by the changes in July 2004?

The laws on tenancy in Hong Kong are largely governed by the Landlord and Tenant (Consolidation) Ordinance. Before 9 July 2004, the Ordinance provided tenants, particularly those of domestic property, with security of tenure, which meant that as long as the tenant was ready to pay the prevailing market rent, the landlord had to continue to let the property to the tenant. The idea itself seems to be fair and attractive, but the procedure required to implement the idea was too cumbersome. On 9 July 2004, the Ordinance underwent a substantial amendment with the removal of the security of tenure provisions.

Tenancies of domestic properties

For tenancies of domestic properties that were created on or after 9 July 2004, the parties can freely negotiate and agree between themselves on how the tenancy will be terminated. In the absence of any contractual agreement, a fixed term domestic tenancy will end upon expiry, and a periodic tenancy will be terminated by a notice to quit at the length of a full tenancy period.

In cases of tenancies of domestic properties that were in existence before 9 July 2004 , such tenancies can only be terminated by mutual agreement or by a Transitional Termination Notice (TTN) . For a TTN to be issued by the landlord, it must be served on the tenant not less than 12 months before the intended date of termination. For a TTN to be issued by the tenant, it must be served on the landlord not less than one month before the intended date of termination. That is to say, the tenant is in effect granted security of tenure of another 12 months. However, a landlord who requires a property for self-occupation may apply to the Land Tribunal for possession of it upon expiry of the existing tenancy whether or not the TTN has been served (see the judgment from the case of Simon John Cox v Paul Desmond Scanlon) . An important note is that a person who has successfully obtained an order for possession on the ground of self-occupation cannot let, sell, transfer, or part with possession of the premises with others (except for that person’s immediate family members such as his/her spouse and children) within 24 months from the date of the order unless the Lands Tribunal has given its prior consent.

It should also be noted that a TTN is not required in the following cases:

(a) there was a change of any terms of the tenancy on or after 9 July 2004(see the court judgment below);
(b) the landlord and tenant, on or after 9 July 2004, agreed on another period of notice of termination; or
(c) the tenancy was assigned to a new tenant on or after 9 July 2004.

The judgment for the case of Fubon Bank (Hong Kong) Ltd v Welform Ltd may help illustrate item (a) above. In this case, the subject tenancy commenced on 1 December 2002 and expired on 30 November 2004 . The Lands Tribunal found out that there was an agreement for a 3-month extension period from the original expiry of the written tenancy agreement ( 30 November 204 ). Such an alteration to the original term of the expired tenancy was made after 9 July 2004 . On this basis, and having regard to Section 5(4) of the Landlord and Tenant (Consolidation) Ordinance (please refer to the “note” under section 115 of the Ordinance), the landlord was therefore no longer required to serve onto the tenant a Transitional Termination Notice upon expiration of the extension period. Also, since the extension period was for a period of a fixed term of 3-month but with no specific provision on the service of notice to quit, the court held that the fixed term should end upon expiry on the last day of the 3-month period and no further notice to quit from the landlord was required.

Tenancies of non-domestic properties

For tenancies of non-domestic properties that were created on or after 9 July 2004, the parties can freely negotiate and agree between themselves on how the tenancy will be terminated. In the absence of any contractual agreement, a fixed term tenancy will end upon expiry, and a periodic tenancy will be terminated by a notice to quit issued by the landlord at the length of a full tenancy period.

In cases of tenancies of non-domestic properties that were in existence before 9 July 2004, the parties can terminate the tenancy in accordance with the agreements that are stipulated in the tenancy document or as agreed between themselves. In the absence of any mutual agreement, a fixed term tenancy will end upon expiry, and a periodic tenancy will be terminated by a notice to quit issued by landlord at the length of a full tenancy period (but normally not more than 6 months).

From the tenant’s perspective, the amendment to the Landlord and Tenant (Consolidation) Ordinance seems to have deprived them of the statutory right to continue to rent the same property after the expiry of the original tenancy (i.e. security of tenure). However, such apparent deprivation may be more theoretical than practical. After all, which landlord will refuse to renew an existing tenancy with a tenant who is punctual in paying rent?

If you have further questions regarding the above changes, please contact the Rating and Valuation Department.

XII. Case Illustration

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 Agreement, the 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 period, Mr. 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 arrears, but 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. However, Mr. 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 tenancy, Mr. 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 obligations, such as providing quiet enjoyment, repairing the roof and external walls, and paying government rent. In contrast, the tenant must comply with many dos and don’ts. However, a 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 tenant, the duty to keep the property in good repair and maintenance also passes to the tenant. Hence, it is quite normal that a tenancy document, even after negotiation between the solicitors for both parties, still 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.

Answer 2:
In general, the 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.

However, if an amendment is so substantive that it alters the nature of the Tenancy Agreement, then the parties may have to enter into a new agreement. For example, if the period of a tenancy is extended, then 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 increased, then 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 sense, connotes the meaning of the decoration and adornment of a property. It may not cover the repairs or maintenance that are essential to the occupation of the property, such as repairing a cracked wall or ceiling. Furthermore, a Tenancy Agreement is likely to specify that the property is let on an “as is” basis, which means that the tenant is aware of the conditions of the property when the tenancy commences. Therefore, unless the Tenancy Agreement provides otherwise, Mr. B is not entitled to request the landlord to renovate the property.

Generally, it 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 property, it is reasonable for the tenant to bear any costs of renovation. However, the 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 Company, as a landlord, should 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 enjoyment, in this context, does not simply refer to freedom from noise, but extends to freedom from interruption by the landlord. Even if the tenancy document does not contain such a clause, then the tenant’s right to quiet enjoyment is implied by law. Therefore, unless 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 fact, the 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 document, such as to pay rent, to keep the property in good condition, to 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 landlord, in most circumstances, will 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 property, the landlord may find that pipes are blocked, walls are painted in weird colours, windows are broken, the refrigerator is gone, trash is left all over the property, etc., and that the tenant cannot be located anymore. The deposit will 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 rent with the deposit.

Answer 7:
Upon the expiry of a tenancy, the 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 objection, the relationship between them will evolve into a tenancy at sufferance: that is to say, the “landlord” suffers the presence of the “tenant” at the property. Strictly speaking, this is not a tenancy at all because the “landlord” has not expressly agreed to let the property. The “tenant”, in this sense, is merely an occupier. Tenancy at sufferance is ambiguous in law because both the “landlord” and the “tenant” are uncertain of their rights and liabilities. In such circumstances, the parties should as soon as possible enter into a new tenancy document that spells out clearly their respective rights and liabilities.

Related Websites

• Hong Kong Judiciary (www.judiciary.gov.hk)
• The Duty Lawyer Service (www.dutylawyer.org.hk)
• Hong Kong e-Legislation (https://www.elegislation.gov.hk/)
• The Law Society of Hong Kong (www.hklawsoc.org.hk)
• The Rating and Valuation Department (www.rvd.gov.hk)
• The Land Registry (www.landreg.gov.hk/en/home/index.htm)