There are three steps to renting a property - finding it, entering into an agreement and then finalizing your lease. Read on to find out how.
In this section, the content has been supplied by Simon Reid-Kay, a partner with international law firm Allen & Overy. This article is for general guidance only and does not constitute legal advice. Allen & Overy accepts no responsibility whatsoever to any person who relies on or arrives at a decision on the basis of this article without prior consultation with Allen & Overy.
The letting process in Hong Kong usually begins with the landlord putting his premises on the market through an agent. Once the prospective tenant (either through his own agent or possibly through an advertisement or even word-of-mouth) finds a suitable premises, the landlord and the prospective tenant will then agree on the principal terms of the lease (such as the rent, any rights of early termination, length of term, fittings to be provided, repairing obligations and other relevant issues). The tenant should carry out his own due diligence enquiries such as confirming the ownership of the property, its permitted use and whether or not it is fit for the tenant's purpose and legal.
2. Provisional tenancy agreement
The landlord and the prospective tenant will then sign a provisional tenancy agreement setting out the agreed principal terms. At this point, the prospective tenant will also pay a holding deposit, which is normally equivalent to one month's rent. It is common for such provisional tenancy agreements to provide that (i) the landlord compensate the prospective tenant (in addition to refunding the already paid holding deposit) a sum equivalent to the holding deposit if the landlord fails to sign the formal tenancy agreement and (ii) the holding deposit be forfeited by the landlord if the prospective tenant fails to sign the formal tenancy agreement.
The party failing to sign the formal tenancy agreement may also have to pay all the commission payable to the agent. It is advisable that the holding deposit is refundable and that the agent's commission be payable only upon the signing of the formal tenancy agreement.
If the premises are subject to a mortgage, the prospective tenant should also request that the landlord provide a written consent of the mortgagee consenting to the lease prior to the signing of the formal lease agreement. Without the mortgagee's consent, the tenancy agreement signed between the landlord and the tenant will not be binding on the mortgagee. The mortgagee, after exercising his right of re-entry under the mortgage, would be entitled to treat the tenant as an unauthorised occupier and could even demand that the tenant leave the premises without compensation.
3. Formal tenancy agreement
The landlord and the prospective tenant should engage their own solicitors to draft and prepare the terms of the formal tenancy agreement. Since the rights and obligations of the landlord and the tenant are mostly contractual (unless implied by common law), the landlord and the prospective tenant should keep their solicitors well informed of the terms they require and expect under the lease before it is signed.
After signing the formal agreement, the landlord (or his solicitors) will arrange for stamping and (if necessary) registration of the agreement with the Land Registry. The stamp duty payable on the agreement is normally shared equally between the landlord and the tenant. Both the landlord and the tenant will keep a signed copy of the formal agreement as evidence of the lease.
The landlord is required to file statutory form CR109 with the Rating and Valuation Department within one month of signing the formal agreement. This form notifies the Rating and Valuation Department of the terms of the new lease.
