III. How to recover the outstanding rent and get back the property?
Every well-drafted tenancy document, whether for a domestic or non-domestic property, will contain a clause that entitles the landlord to forfeit the tenancy (i.e. to terminate the tenancy and to re-enter the property) if the tenant fails to duly pay rent. Even if the tenancy document does not contain a forfeiture clause, the law generally implies such a right of forfeiture .
Regarding tenancies of domestic properties that were created on or after 27 December 2002, section 117 of the Landlord and Tenant (Consolidation) Ordinance implies in such tenancies a covenant on the part of the tenant to pay the rent on the due date and a condition for forfeiture if that covenant is broken by virtue of non-payment of rent within 15 days of the due date.
Regarding tenancies of non-domestic properties , section 126 of the Landlord and Tenant (Consolidation) Ordinance provides that in the absence of any express covenant for the payment of rent and condition for forfeiture, there will be implied in every tenancy a covenant to pay the rent on the due date and a condition for forfeiture for non-payment within 15 days of that date.
Therefore, in general, if a tenant is late in paying the rent for 15 days, the landlord is entitled to terminate the tenancy. The tenant, however, can save the tenancy by paying all of the outstanding rent in arrears before the landlord takes possession of the property.
1. My tenant has failed to pay rent for two months. What can I do to recover the rent and the possession of my property?
If a tenant fails to pay rent, then the following measures are usually available to the landlord.
a. Action for the recovery of outstanding rent
If landlords intend only to recover the outstanding rent but not to regain possession of the properties, then they may make their claim for rent arrears at one of the followings.
– The Small Claims Tribunal : for claims of $50,000 or less (To get more information about how to prepare for the trial (from both the Claimant’s and the Defendant’s perspective), please click here ;
– The District Court : for claims that exceed $50,000 but do not exceed $1,000,000;
– The Court of First Instance of the High Court , which has unlimited jurisdiction.
Landlords of domestic property should ensure that they have submitted a Notice of New Letting or Renewal Agreement (Form CR109) to the Commissioner of Rating and Valuation for endorsement within one month of the execution of the tenancy document. Landlords of domestic properties are not entitled to maintain legal action to recover rent under tenancy documents if the Commissioner does not endorse the form. However, landlords who do not submit the form within the one month period can do so at any time after paying a fee of $310.
b. Action for forfeiture (to get back the property) and to recover outstanding rent
If landlords believe that their tenants have been absconded or will not be able to pay the rent for the remaining term of the tenancy, then they will probably want to get back the property and recover the rent in arrears. In such circumstances, the landlords are said to be exercising their right of forfeiture and may file their claims at:
– the Lands Tribunal ;
– the District Court if the outstanding rent does not exceed $1,000,000 and the rateable value of the property does not exceed $240,000; or
– the Court of First Instance of the High Court for outstanding rent of any amount.
The landlord, if successful in obtaining a judgment against the tenant, will be able to apply to the tribunal/appropriate court for a Writ of Possession . Upon the issue of the Writ of Possession, the court bailiff will recover the possession of the property on the landlord’s behalf.
Jurisdiction of the High Court
It should be noted that although the High Court has unlimited jurisdiction to handle any of the above claims, it normally will not entertain a claim that falls within the jurisdiction of the District Court or the Lands Tribunal.
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:
- the plaintiff’s legal action includes a claim for possession of land (to get back the property); and
- 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.