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.

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.

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.

Table 1

The following table summarises the wording that may be used for the execution clause in a Lease/Tenancy Agreement (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 Properties Arrangements > Landlord and tenant > Properties with mortgages .

1. Is it necessary to have a solicitor to represent

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 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 Properties Arrangements > Landlord and tenant > 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.

For more about basic requirements of a contract, please go to “Business and Commerce” under the CLIC website.

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).

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 Ordinance does 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.

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 $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 Court , which has unlimited jurisdiction.

Landlords of 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 $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 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 (please refer to “Bringing or Defending a Civil Case” under the CLIC website for more information) 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. For more information, please refer to Q1.

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 (You may go to “Sale and Purchase of Property” under the CLIC website for more details). 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.

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.

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 (a person who illegally enters or occupies a property without permission from the property owner) 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.

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 (See more in “Insurance” under the CLIC website.

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.

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 (See more in Properties Arrangements > Landlord and tenant > Renewal matters .

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 unilaterally terminate 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 a break 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 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 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.

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.

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.

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.

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?

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.

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?

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.

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?

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.

4. Mr. B did not pay rent for 2 months. What can ABC Company do to recover the outstanding rent and/or to get back the property?

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 ). Any 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.

For more details, please refer to Properties Arrangements > Landlord and tenant > How to recover the outstanding rent and get back the property? > Q1 .

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?

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.

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?

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.

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?

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.

1. 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?

By signing an agreement for lease /provisional tenancy 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. 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.

For other things that you need to know before signing a Tenancy Agreement or a Lease, please visit Properties Arrangements > Landlord and tenant > Things that you need to know before signing a Tenancy Agreement or a Lease .

2. 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. However, 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 three years”. A document that creates a tenancy for a term of more than three years (i.e. a Lease) should therefore 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 three 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 three years.

If you want to know how the parties handle the document after signing a Tenancy Agreement (or a Lease), please visit Properties Arrangements > Landlord and tenant > How should the parties handle the signed Tenancy Agreement/Lease? .

3. If my tenant conducts criminal activities in my property, what problems will I face?

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.

A property that is used for other non-authorised purposes may also create trouble for its owner. To know more about this, please visit Properties Arrangements > Landlord and tenant > Regulations on using or occupying a leased property > Q2 .

4. 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. It is quite normal that the terms of the tenancy document impose many obligations on the tenant, but 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.

For more about repair/maintenance obligations, please visit Properties Arrangements > Landlord and tenant > Repair/maintenance obligations .

5. If the tenant refuses to pay the rent for the final two months of the tenancy, and suggests the landlord to forfeit the deposit (which is equivalent to two months of rent) as a payment of the outstanding rent, should the landlord accept this?

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. If, upon regaining possession of the property, the landlord finds 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.

If you want to read more case illustrations regarding landlord and tenant, please visit Properties Arrangements > Landlord and tenant > Case illustration .

6. What are the major government departments that 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). It also provides services regarding tenancy matters. The Department answers 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. 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.

If you want to know how to recover the outstanding rent and get back the property, please visit Properties Arrangements > Landlord and tenant > How to recover the outstanding rent and get back the property? .