Mastering Tenancy and Lease Agreements: Your Guide to Renting in Hong Kong
To rent is to have a legally binding contractual arrangement that grants an individual, organization, or entity the right to occupy and use a property owned by another party for a specified period.
Residential and commercial rent encompassing industrial premises, office spaces, retail establishments, and hotels are typically regulated by the Landlord and Tenant (Consolidation) Ordinance, as well as the Land Registration Ordinance and the Occupiers’ Liability Ordinance.
Lease vs Tenancy
Although “Tenancy Agreement” and “Lease” are used interchangeably a lot, there is a nuanced legal distinctions in meaning despite their general enforceability in Court. Hence, you will need to choose between a Lease and Tenancy according to your renting needs. The differences are illustrated in the table below:
Aspect | Lease | Tenancy Agreement |
---|---|---|
Duration | More than 3 years | Not exceeding 3 years |
Registration | May or may not be registered. | Required to be registered at Land Registry. |
Stamp | Affix red seal next to signatures | chop/rubber stamp and signature |
form CR 109 | Not required for domestic properties. | Required for domestic properties. |
Bank Consent | Bank’s consent not needed. | Bank’s consent may be required |
Interest in the Land | Lessee has a legal interest in the land | Tenant has a legal interest if certain conditions are met |
Protection Against Third Parties | Lessee’s rights protected if lease registered under LRO | Tenant’s interest protected without registration under certain conditions |
Options to Renew/Purchase | Registration binds option against third party | Option must be registered for enforcement |
Enforcement Against New Owner | Lease enforceable against new owner if registered | Tenant’s interest protected against new owner without registration under certain conditions |
Licence
Alternatively, a licence offers permission to occupy a property without conferring exclusive possession or a proprietary interest. Unlike a lease, a licensee does not hold any proprietary claim and lacks the right to exclusive possession.
Moreover, licences are usually not transferable to third parties and do not bind successors in title of the licensor. Occupancy periods under a licence need not be fixed and don’t establish any vested interest in the property.
Hence, those who rent will more commonly seek for a lease or tenancy.
How To Rent A Property In Hong Kong
Here is a Step-by-Step Guide to Renting a Property in Hong Kong:
Required Documentation
Before finalizing the lease or tenancy agreement and securing a rental property, you will usually be asked for the following documents:
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Things to Consider When Renting a Property in Hong Kong
Rent and other Payment
The renting agreement outlines the rent fees, excluding management fees and rates. It’s crucial to specify the payment schedule (usually monthly) and method (check, cash, or bank transfer). Notably, eviction proceedings can be initiated if rent is overdue by more than 15 days or consistent delays occur.
Break Clause
The presence of a “break clause” in the agreement indicates the possibility of termination under specific circumstances. After the first year, termination is feasible with one or two months’ notice.
Security Deposit
A security deposit, equivalent to two to three months’ rent, is held by the landlord during the lease or tenancy. It’s returned within 7 to 14 days after fulfilling obligations and returning the property in proper condition.
Stamp Duty
Stamp duty must be paid on tenancy agreements or leases as per the Stamp Duty Ordinance (Cap. 117). Failure to properly stamp a tenancy agreement or lease renders it unregistrable at the Land Registry and inadmissible as evidence in court for enforcement.
The stamp duty amount is based on prevailing rates, lease duration, and tenant’s rent payments: If the term is not over one year: Stamp duty is 0.25% of monthly rent multiplied by the number of months.
If the term is over one year but within three years: Stamp duty is 0.5% of the average yearly rent. If the term exceeds three years: Stamp duty is 1% of the average yearly rent.
Management Fees
In addition to rent, management fees encompass maintenance, security, and amenity upkeep. Fees may increase with more extensive amenities. The agreement should explicitly state which party bears the responsibility of payment.
Government Rates
Government rates, typically 5% of the rental amount, are often passed onto tenants by landlords. These charges are billed quarterly in advance, and payment responsibility is indicated in the agreement.
Utilities
Unless otherwise noted, tenants are accountable for utility costs such as phone, gas, and electricity. Negotiations may incorporate these expenses into the contract terms.
Maintenance and Repairs
The agreement outlines whether the landlord or tenant is accountable for property maintenance. A comprehensive inspection is advised, highlighting issues like water pressure and electrical points, with any concerns reported to the landlord.
Furnishing
A detailed inventory of leased furniture and appliances is crucial. While some appliances may be included (e.g., stovetops, refrigerators, washing machines), others may not be part of the arrangement.
Renewal Option
Upon expiration of the lease or tenancy, the owner of the property will have the right to renew at the prevailing market rental rate. If a renewal option clause exists in the agreement, the tenant/ lessee’s renewal rights are preserved.
Insurance
The landlord communicates property insurance coverage to the tenant. Lease terms may necessitate the tenant to cover extra premiums arising from their actions.
How To Rent in Hong Kong – Renting Agreements FAQs
To safeguard yourself, the Land Registry offers a “Land Search” service accessible to the public. Through this service, you can verify the ownership details of any property in Hong Kong. It is strongly recommended that before finalizing any tenancy agreement, prospective tenants conduct a land search to confirm ownership.
If you’re working with an estate agent or have engaged a solicitor firm, they typically have a responsibility to ensure your interests are protected. As part of their duty, they should conduct a land search on your behalf to verify the property’s ownership details before you proceed with any rental arrangements. This helps prevent potential scams and protects your rights as a tenant.
The “agreement for lease” or “provisional tenancy agreement” serves as a preliminary step that an intending landlord and an intending tenant can take before finalizing the actual lease or tenancy agreement. Upon signing this document, both parties commit to a future lease arrangement.
Just like any other contract, a lease agreement or tenancy agreement must meet specific criteria, such as offer, acceptance, consideration intention to be legally bound and more. Certain key details must be clearly defined, such as the names of the parties, the property’s name and address, lease commencement date, lease duration, rent, and other considerations.
When the agreement for lease/provisional tenancy agreement is signed and one party refuses to sign the final lease or tenancy agreement, the other party can seek legal action applying for an order of specific performance from the court, so that the obligations upheld in the agreement will be upheld.
When engaging in lease negotiations, tenants are required to hold a Hong Kong-based bank account, a process that often involves a certain duration for setup. Given that landlords usually request an upfront deposit amounting to two to three months’ rent, along with the necessity of funds for establishing fresh utility accounts, covering stamp duty, and meeting agency fees, tenants must ensure they possess adequate funds to cater to this initial financial commitment.