Mark W. Smith, from JLL's Hotels & Hospitality Group, will give you some tips on obligations of landlords and tenants.
Landlords have a number of rights and obligations. These derive from both landlord and tenant law, as well as from any tenancy agreement between landlord and tenant. The law and obligations it imposes are designed to protect both parties within a leasing agreement. Understanding how such agreements work, and your rights and responsibilities is crucial to any business owner.
A typical commercial property contract in Hong Kong is based off a standard 3 year lease. If it is less than 3 years, the landlord may choose, at the own discretion as to whether they want to register the lease. For any lease exceeding 3 years it is a statutory requirement to register the lease.
The landlord’s obligations
Offer letters can come in two forms. A “Subject to Contract” offer can be non-committal and won’t bind either party to its terms. Though some landlords will require tenants to sign binding offers that are accompanied by deposits and pre-rental agreements.
Once an offer is confirmed, it will be required to proceed to formalizing a Tenancy Agreement. After signing the Tenancy Agreement, your landlord or his solicitor should request payment of the deposit (which is normally in the range of 1-3 months’ rent), first month’s rent, rates, management charges, and a half share of the stamp duty. If you have already paid an ‘advanced deposit’ this will be deducted from your Tenancy Agreement deposit and the balance will be payable.
The landlord reserves the right to make rules and regulations for the better running of the estate. The landlord also has the right to enter the premises to inspect, make repairs, show a purchaser or new tenants the premises, or to check that no breach of covenant has taken place at any deemed reasonable time.
The tenant’s obligations
If the tenant does not wish to renew, the tenancy will simply expire on the contractual date for expiry of the tenancy agreement.
The tenant should make sure that the landlord’s regulations are reasonable. Where the rules and regulations contradict the terms of the tenancy agreement, the tenancy agreement will prevail.
The tenant has to pay rent and other charges reserved by the lease. The tenant also has to pay the landlord’s costs in connection with the landlord enforcing his/her rights under the lease.
The deeper elements of law surrounding any commercial lease are more complicated. Obtaining the advice of an experienced property broker like JLL Property is thus highly recommended.
Hong Kong law is pro-landlord
Changes in law like the removal of the security of tenure and the ability to forfeit a contract after 15 days of delay in rental payment (or persistent delays in payment) have changed the balance of power in favour of the landlord.
In addition, office space for rent in Hong Kong is subject to deposit held by the landlord without interest and refunded to the tenant upon expiration of lease. The cost of any damage or reinstatement work necessary, other than fair wear and tear, will be deducted from the deposit before repayment. Occasionally landlords will insert redevelopment clauses, which allows them to remove tenants with short notice periods should they decide to redevelop their building.
Winning space in Hong Kong’s offices is a challenging task from a legislative perspective. JLL Property office leasing specialists will be delighted to assist with navigating property law and your search for an office.
Eric Chong is the Senior Analyst of Research for JLL in Hong Kong. JLL provides corporate strategic, restructuring and transaction advice, equity and debt financing advice, management contract negotiation, asset management, development structuring, valuation advice and market research. Follow him on LinkedIn.
Top photo via Shutterstock: Ismagilov