RESIDENTIAL TERMS

Lease Term

The general term in Hong Kong is for 2 years (subject to negotiations), after the first 12 months, a written notice may be served to the landlord to early terminate the lease (typically 2 or 3 months in advance). We strongly recommend including this termination provision / break-clause in the tenancy agreement.

Renewals

Options negotiable, typically a further 1-2 year term.

OCCUPANCY COSTS

Rent

Rent is payable monthly in advance. Rents are quoted in Hong Kong dollars (HK$) per square foot, per month and are calculated with reference to the leased area as defined by the landlord.

Rent Free

An incentive offered by the landlord to the tenant as an allowance for the fitting-out of the premises. The length of the rent free period depends on the size of the premises and the prevailing market conditions. During tight market conditions, free rent offered may range from one to three months. During weak market conditions, some landlords offer four free months or more, depending on the tenant, the length of the lease term, the size of the space leased and the rental rate.

Management Fee

A monthly charge payable to the landlord or management company for the upkeep and security of the building and its common areas. Payable monthly in advance and based on the leased area. Management charges generally include air conditioning, building security, lift maintenance and common area cleaning (Subject to revision by management company). The fee is quoted on per square foot per month and is non-negotiable and may be revised from time to time.

Security Deposit and Guarantees

This is normally equivalent to two to three months rent which the landlord will hold without interest throughout the lease term. This deposit is refundable and will be returned to the tenant at the expiration of the Tenancy Agreement provided that all the terms of the lease have been compiled with and all utility bills are fully settled.

Taxes

Government rates and rent are payable quarterly in advance and are calculated at 5% and 3% of the rateable value of the property respectively. Government rent and rates are usually borne by the landlord, but some landlords may look to pass this cost on to the tenant.

Stamp Duty (Ad Valorum Tax)

This is shared equally between the Landlord and Tenant and is paid to the Government of the Hong Kong Special Administrative Region for the stamping of the Lease Agreement after it is signed. The duty on a lease must be paid within 30 days of its execution, failing which the contractual parties are liable to a penalty for lateness. If the stamping is more than two months late, the penalty is ten times the amount of duty, though the collector has power to remit some or the entire penalty.Your agent, landlord, solicitor or yourself will need to present the signed tenancy agreement for stamping. The duty incurred will be shared equally between you and your landlord. A separate cheque should be made payable for the duty to 'The Government of HKSAR.

At the commencement of 2014 the following Stamp Duty rates apply and are payable upon execution of the lease:

• 0.25% of the average annual rent / lease term 1 year or less
• 0.5% of the average annual rent / lease term 1-3 years
• 1% of the average annual rent / lease term of 3+ years

Utilities

Electricity and telephone charges are separately metered and paid directly by the tenant to the utility company. The electricity charge is usually based on a meter, and is typically HKD 1.00–1.20 per square foot per month for an office tenant. Water rates are charged to the landlord and passed onto the tenant.

The tenant pays for electricity, water, and gas used in the premises, usually directly to the utility company. The electricity charge is usually based on a meter, and is typically HKD 1.00–1.20 per square foot per month for an office tenant. Tenants usually pay for water based on a meter, although some pay a fixed license fee or pay for water in the management fee.

Insurance

The tenant may consider sufficient insurance coverage to protect themselves against third party liabilities.

Car Parking

Car parking may be included with the residence. The average rate ranges from HKD 3,000–6,800 per month in addition to residential rent. Parking spaces can be fixed (assigned) or floating (non-assigned), covered or outdoor, 24 hours, seven days a week.

LEASE MECHANISMS

Option to Renew

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

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

Right to Sublet

Sub-letting rights are prohibited under most agreements and where they are permissible, are subject to approval by the landlord. Similarly, assignment of the lease and early termination are usually non-negotiable. Subject to approval by Landlord, replacing a tenant can be done by Assignment. The outgoing tenant will need permission and co-operation of the landlord and should expect to pay the landlord's share of the agency fee, legal costs and stamp duty payable.

1. Assignment:

The new or replacement tenant has a lease granted by the landlord.

Termination or Break

The general term in Hong Kong is for 2 years (subject to negotiations), after the first 12 months, a written notice may be served to the landlord to early terminate the lease (typically 2 or 3 months in advance). A termination provision / break-clause is common in residential leases.

Sale & Redevelopment Clause

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 (instead of delivering up “vacant possession”).

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

Reinstatement Provisions

The tenant is required to hand the premises back to the landlord at the expiration of the term, in a state consistent with the due performance of the Tenant's obligations under the Tenancy Agreement. The Tenant's obligations typically are handover in good clean and tenantable condition and repair (fair wear and tear excepted).

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

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

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

Fit-out Subsidies

Capital contributions for fit-outs are generally not open for negotiation.

Landlords

Strata-Title

A large proportion of the overall residential market in Hong Kong are held by way of a “strata-title” where individuals own residential units in a building. The rights and responsibilities of property owners and overall property stewardship are outlined within the Deed of Mutual Covenant.

The communal areas of the property (including the exterior of the building) are usually managed by an external management company. The process of acquiring space in a strata-title property is no different to any other residential property.

Developer

Typically held by private investors, institutions or larger organisations, often owning clusters of buildings including a mixture of retail and commercial. Commonly, developers have been involved in the development of the property or scheme and take responsibility for building management in-house. The owners will frequently employ the services of a third party specialist to take care of the day-to-day running of the property.