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 (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.

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 (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.

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 go to “Sale and Purchase of Property” under the CLIC website.

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.

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.

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. 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.

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.

FAQ

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? .

I. The Owners’ Corporation as an entity of collective responsibility

Hong Kong is a small place inhabited by a large population, with most citizens living in multi-storey buildings. When people purchase a flat in a multi-storey building, not only do they own the flat, but they also co-own the common parts of the building with the other flat owners. Therefore, every owner of every flat in a multi-storey building is responsible for managing and maintaining the common parts of the building.

Owners of units in a building or estate may form an owners’ corporation, whose management legally represents all of the building’s owners. The owners’ corporation of a building or estate is, therefore, a legal entity with collective responsibility, meaning that all owners of the building/estate are liable for every action carried out by the corporation, or lack of action. But the existence of an owners’ corporation does not exonerate each owner from responsibility or liability in the management and maintenance of the commons parts.

II. Third party insurance

Many Hong Kong citizens may have heard of the Court case involving the building Albert House. In 1994, a concrete canopy on the external wall of Albert House collapsed, killing one person and injuring seven. The Incorporated Owners of Albert House were found to be liable and had to pay substantial damages. Unfortunately, the Incorporated Owners were not covered by third party liability insurance. This eventually led to the winding-up of the Incorporated Owners, which meant that each individual owner of a flat in Albert House had to contribute to the damages according to his/her respective share in the building.

This case highlights the importance of third party insurance in relation to the maintenance of the common parts of buildings. The Hong Kong Government subsequently imposed a mandatory duty on all owners’ corporations to keep in force an insurance policy in respect of third party risks in relation to the common parts of the building and property of the corporation.

The Building Management Ordinance ( Cap. 344 of the Laws of Hong Kong) and the Building Management (Third Party Risks Insurance) Regulation ( Cap. 344B of the Laws of Hong Kong) require an owners’ corporation (OC) to buy third party risks insurance in order to reduce the risk of large compensation faced by owners in case of accidents and, at the same time, offer better protection for members of the public.

Third party risks insurance provides compensation for financial loss in the case of the death of, or bodily injury to, a third party in relation to common parts and facilities (such as lifts, staircases, fire service installations, etc.) of the building. If compensation is required, it is paid by the insurance company.

A. Duty of the OC to procure third party risks insurance

Under section 28 of the Building Management Ordinance ( Cap. 344 of the Laws of Hong Kong), the OC is required to procure and keep in force a policy of third party risks insurance in relation to the common parts of the building, facilities and property.

The Building Management Ordinance ( Cap. 344 ) requires the OC to procure insurance which provides coverage of no less than HK$10 million for an accident in relation to the common parts and facilities of the building resulting bodily injury or death.

The OC has a legal obligation to procure a policy of third party risks insurance.  Therefore, the OC must be at least one of the insured parties of the policy. If the property management company has already procured a policy of third party risks insurnace for the building, the OC may request that the property management company and the insurance company add the OC as one of the insured parties of the existing policy or take out another policy in the name of the OC.

If the policy is procured in the joint names of the OC and the property management company, the policy must satisfy the legal requirement by providing not less than HK$10 million insurance cover for third party bodily injury or death claims.

B. Liabilities to be covered by third party risks insurance

Third party risks insurance is required to cover liabilities that may be incurred by the OC in relation to the common parts of the building (e.g. external walls, passageways, corridors, staircases, roofs and lifts) and property in respect of the bodily injury to, and/or the death of, a third party.

Third parties include owners, tenants, occupiers, visitors, staff of the property management company, or trespassers of the building.

Direct employees of the OC are not regarded as a third party.

The third party risks insurance does not need to cover property damage. However, the OC is at liberty to insure against property damage. Although such insurance is not mandatory, the OC is liable for compensation if damage is done to a third party’s property due to the negligence of the OC.

The OC does not have the legal obligation to take out an insurance policy to cover liabilities arising from unauthorised building works. It is not a mandatory requirement. BUT if the court finds that the OC is responsible for an accident caused by unauthorised building works, the OC and/or the owners are liable for all the civil liabilities incurred.

Generally speaking, insurance companies do not provide insurance for unauthorised building works. If there are unauthorised building works in the building, the OC should remove them for the benefit of the OC, building owners and third parties who may be affected by the unauthorised works.

C. Minimum insured amount

The minimum insured amount of each policy must be $10 million per event.

D. Notice to owners

After the OC has procured third party risks insurance, the insurance company issues a notice of insurance giving the particulars of the policy.

The OC is required to display the notice of insurance in a prominent place in the building as long as the policy is in effect.

E. Report to the Land Registrar

The secretary of the management committee of the OC must, within 28 days after the insurance policy takes effect, give notice of the name and address of the insurance company and the period covered by the insurance policy to the Land Registrar.

F. Legal liability for failure to procure third party risks insurance

If the OC fails to procure third party risks insurance, every member of the management committee of the OC is guilty of an offence and is liable on conviction to a maximum fine of HK$50,000.

It would be a defence for members of the management committee of the OC if they could demonstrate that they had exercised all due diligence to procure insurance.

G. Protection for the OC and third parties

Duty of the OC to give information as to insurance

If a third party makes a claim against the OC, the OC must state whether it is insured in respect of the claim and give particulars of the policy within 10 days after receiving a written request.

Avoidance of restrictions in policies

The restriction will have no effect on any compensation paid by the insurance company if a policy restricts the OC’s insurance in any of the following ways:

  1. the number of claims that may be made during the period the policy is in effect or any part of that period;
  2. the age of the building to which the policy relates;
  3. the condition or maintenance of the building;
  4. the number of flats in the building;
  5. the use of the building or parts thereof; or
  6. the existence of a statutory instrument in relation to the building.

However, if the insurance policy includes terms relating to the above matters 1 to 6, the insurance company can make a claim against the OC after the insurance company pays compensation for bodily injury to, or the death of, a third party.

Avoidance of certain agreements or arrangements regarding liability to a third party

Any agreement between the OC and a third party that purports to negate or restrict any liability to the third party will be of no effect.

Winding up of the OC

If the OC becomes insolvent and is wound up, this will not affect the OC’s liability covered by the third party insurance policy.

III. Mandatory Building Inspection Scheme

There is no question that ageing buildings which lack proper management and maintenance can pose danger to the public. In order to deal with this problem, the Hong Kong Government introduced the Mandatory Building Inspection Scheme (MBIS) in 2012.

Under the MBIS:

  1. Every year the Government selects 2,000 buildings which are at least 30 years old (except domestic buildings not exceeding three storeys), and sends pre-notification letters to the owners of all units in the target buildings, notifying them that the buildings have been selected under the MBIS. Six months after the pre-notification letters have been sent, the Government issues statutory notices to the owners, requiring them to appoint a Registered Inspector to carry out certain prescribed inspections. (Note: these same 2,000 buildings will at the same time receive statutory notices requiring the inspection of windows under the Mandatory Window Inspection Scheme.)

  2. For a building or estate which does not have an owners’ corporation, the owners of all flats in the building or estate are expected to work together to comply with the statutory notice.
  3. The scope of the inspection includes external elements, physical elements, structural elements, fire safety elements, drainage systems, unauthorized building works, and so forth.
  4. If the Registered Inspector finds that the building requires repair works, the collective owners of the building must appoint a Registered Contractor to carry out the prescribed repair works under the Registered Inspector’s supervision.
  5. Upon completion of the inspection and repair works, the Registered Inspector will submit an inspection report and completion report to the Government for record purposes.
  6. Any owners or owners’ corporation that fails to comply with the statutory notice for building inspection without a reasonable excuse may be prosecuted and are/is liable upon conviction to a fine of $50,000 and imprisonment for one year, plus a fine of $5,000 for each day the offence continues.
  7. The owners of the selected buildings will receive a statutory notice once every 10 years. That is to say, an inspection (and any necessary repair works) has to be done every 10 years.

IV. Mandatory Window Inspection Scheme

In 2012 the Hong Kong Government also introduced the Mandatory Window Inspection Scheme (MWIS) to tackle the specific problem of window disrepair.

It would be fair to say that most windows in a building or estate are the private property of the individual owners of units in that building or estate. Therefore, the Government issues notices to all owners (i.e. the owners of individual flats and the owners’ corporation) of a building or estate under the MWIS.

Under the MWIS:

    1. Every year the Government selects 5,800 buildings at least 10 years old (except domestic buildings not exceeding three storeys) and sends pre-notification letters to the owners’ corporation of the selected buildings giving advance notice to the owners of upcoming window inspections and the possible need for repair. One to two months after the pre-notification letters, the Government issues statutory notices to the owners of the buildings, requiring them to appoint a Qualified Person to carry out certain prescribed inspections. (Note: these 5,800 buildings include the 2,000 covered under the MBIS.)
    2. If the Qualified Person finds that windows in the building have been rendered dangerous or are liable to become dangerous, the owners concerned must appoint a Registered Contractor to carry out the prescribed repair works under the Qualified Person’s supervision.
    3. Upon completion of the inspection and repair works, the Qualified Person must submit an inspection report and completion report to the Government for record purposes.
    4. If the owners or owners’ corporation fails to comply with the statutory notice for window inspection without a reasonable excuse, they may be served with a penalty notice of a fixed fine of $1,500. Failure to comply with the penalty notice may lead to prosecution, with the owner or owners’ corporation subject to a fine of $25,000 and imprisonment for three months, plus a fine of $2,000 for each day the offence continues.
    5. After a notice (the preceding notice) has been complied with, the owner or the incorporated owner will not receive another notice in respect of the same window within 5 years.

V. Government subsidy, loan and/or grant

In order to assist property owners who may have queries about the statutory requirements for maintaining their residential building and those who may have financial difficulty in doing so, the Government launched the Integrated Building Maintenance Assistance Scheme (jointly operated by the Housing Society and the Urban Renewal Authority). The Scheme comprises subsidies, loans and/or grants in various forms to cater for different needs. For details, owners can contact the following statutory bodies:

Housing Society

Website: http://www.hkhs.com/eng/business/pm_ibmas.asp
Telephone hotline: 3188 1188

Urban Renewal Authority

Website:
http://www.ura.org.hk/en/schemes-and-policies/rehabilitation/integrated-building-maintenance-assistance-scheme.aspx
Telephone hotline: 3188 1188

Under the Integrated Building Maintenance Assistance Scheme, the Government offers a wide variety of subsidies, loans and/or grants to the public to cater for different situations. A list of the major subsidies, loans and/or grants is set out below:

  • Common Area Repair Works Subsidy
  • Common Area Repair Works Interest-free Loan
  • Common Area Repair Works Hardship Grant
  • Home Renovation Interest-free Loan
  • Home Renovation Hardship Grant
  • Subsidy in relation to the MBIS and MWIS
  • Building Maintenance Grant Scheme for Elderly Owners
  • Building Safety Loan Scheme
  • Owners’ Corporation Formation Subsidy

A. Common Area Repair Works Subsidy

The Common Area Repair Works Subsidy is a maintenance subsidy provided to encourage owners or owners’ corporations to carry out comprehensive maintenance works to the common areas of buildings.

Eligibility

The Subsidy aims primarily to assist owners of private residential or composite (i.e. commercial and residential) buildings at least 30 years old. One further criterion is that the average rateable value per residential unit at the building must not exceed $120,000 per annum for properties in the urban area (including Shatin, Kwai Tsing and Tsuen Wan) or $92,000 per annum for properties in the New Territories.

Buildings with or without an owners’ corporation

For buildings with an owners’ corporation, the management committee has to pass a resolution resolving to apply for the Common Area Repair Works Subsidy and to authorize a representative to sign the relevant documents.

For buildings without an owners’ corporation, the Government considers applications from owners on a case-by-case basis. Generally speaking, the owners of the building should hold a meeting to resolve to apply for the Subsidy and to authorize at least two representatives to sign the relevant documents.

Use of the Subsidy

The Subsidy is to be applied to common areas works relating to structural safety, sanitary facilities and environmental friendly provisions.

The maximum amount of the Subsidy depends on the total number of units in the subject building:

Number of units

Subsidy amount

20 units or below

30% of the approved cost of works, up to $150,000

21 – 49 units

20% of the approved cost of works, up to $150,000

50 or above

20% of the approved cost of works, or maximum $3,000 per unit, capped at $1,200,000 for each owners’ corporation

 

If the maintenance works include green/ environmental friendly works, the building will enjoy the following subsidy (the Green Item Subsidy):

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Number of units

Subsidy amount

20 units or below

30% of the approved cost of green items and related consultancy fee, up to $75,000

21 – 49 units

20% of the approved cost of green items and related consultancy fee, up to $75,000

50 or above

20% of the approved cost of green items and related consultancy fee; or not more than $1,500 per unit, up to $600,000

B. Common Area Repair Works Interest-free Loan

In addition to the Common Area Repair Works Subsidy, the Government provides an interest-free loan to owners to encourage comprehensive maintenance works to the common areas of buildings.

Eligibility

The Loan is applicable to owners of private residential or composite (i.e. commercial and residential) buildings at least 20 years old. One further criterion is that the average rateable value per residential unit in the building must not exceed $120,000 per annum for properties in the urban area (including Shatin, Kwai Tsing, Tsuen Wan) or $92,000 per annum for properties in the New Territories.

Buildings with or without an owners’ corporation

For buildings with an owners’ corporation, the management committee has to pass a resolution resolving to apply for the Common Area Repair Works Interest-free Loan and to authorize a representative to sign the relevant documents.

For buildings without an owners’ corporation, the Government considers applications from owners on a case-by-case basis. Generally speaking, the owners of units in the building should hold a meeting to resolve to apply for the Loan and to authorize at least two representatives to sign the relevant documents.

Once the government gives its approval-in-principle for the Loan, the individual owners in the subject building should submit their individual loan applications. It should be noted that applicants have to be the registered owners of the residential property for which the loan relates. They have to be individuals, not company owners. Although there is no income and assets means test, applicants are required to produce proof of income (such as salary slips) to prove their repayment ability; otherwise, they will be required to execute a legal charge in favour of the Government.

Use of the Loan

The Common Area Repair Works Interest-free Loan is to be applied to common areas works relating to structural safety, sanitary facilities and environmental friendly provisions.

The maximum loan amount for an individual owner of a residential unit is $100,000 or the full cost of the owner’s contribution to the common area repair works, whichever is lower. The Loan has to be repaid over a period of not more than 60 months.

C. Common Area Repair Works Hardship Grant

For property owners who have applied for the Common Area Repair Works Interest-free Loan and still have difficulty paying for the repair works to the common area of their building, the Government may provide a Common Area Repair Works Hardship Grant up to a maximum of $10,000 for each household.

Eligibility

Registered owners who are Hong Kong Identity Card holders and belong to any of the following categories are eligible to apply for the Hardship Grant:

  • Recipient of Old Age Allowance (OALA);
  • Recipient of Comprehensive Social Security Assistance;
  • Owner aged 60 or above or disabled, and holder of a Medical Fee Waiver Certificate; or
  • Owner aged 60 or above or disabled, and within the income and asset limits below:

Household Size

Monthly Income Limit

Asset Limit

Single

$8,980

$210,000

Couple

$15,130

$318,000

 

The Grant

Once the government gives its approval-in-principle for the Common Area Repair Works Interest-free Loan, an individual owner of a residential unit fulfilling one of the above criteria can apply for a common area repair works hardship grant up to a maximum of $10,000.

D. Third Party Risks Insurance Subsidy

For owners who have received either a Common Area Repair Works Subsidy or a Common Area Repair Works Interest-free Loan, the Government provides a further subsidy, the Third Party Risks Insurance Subsidy.

Eligibility

Upon the completion of works under the Common Area Repair Works Subsidy or Common Area Repair Works Interest-free Loan, owners can apply for a Third Party Risks Insurance Subsidy from the Government.

Applications for this Subsidy must be submitted within 12 months after the completion of the repair works.

The Subsidy

The subsidy amount is 50% of the annual premium, up to $6,000 per year for three consecutive years.

D. Home Renovation Interest-free Loan

In addition to a subsidy, loan or grant for the improvement of the common areas of buildings, the Government provides an incentive for home owners to improve or enhance the living conditions in their homes. Eligible applicants may be granted an interest-free loan not exceeding $50,000 or the total cost of approved works (whichever is lower) for interior repairs and maintenance works in flats related to safety and hygiene.

Eligibility

In order to be eligible for the Loan, the following criteria have to be met:

  • The applicant must hold a Hong Kong Identity Card and be aged 18 or above;
  • The subject unit must be in a residential building at least 20 years old;
  • The subject unit must be the only property the applicant owns in Hong Kong, directly or indirectly; and
  • The average rateable value of the residential unit must not exceed $120,000 per annum for properties in the urban area (including Shatin, Kwai Tsing, Tsuen Wan) or $92,000 per annum for properties in the New Territories.

Use of the Loan

The purpose of the Loan is not to provide finance for luxury renovations of an owner’s flat. It must be used only for interior repairs and maintenance works related to safety and hygiene. An applicant, therefore, has to set out in the application form all the intended repair works and a breakdown of the cost.

The maximum loan amount for each application is $50,000 or the approved cost of works, whichever is lower. The Loan has to be repaid over a period of not more than 36 months. Applicants are also required to produce proof of income (such as salary slips) to prove their repayment ability; otherwise, they will be required to execute a legal charge in favour of the Government.