Tenants' rights and regulations

Tenants' rights and regulations

Renting a flat is trendy again in the SAR. Changing demographics and skyrocketing prices are making purchases increasingly unappealing for many, and a slow uptick in supply has made more rental stock available in the second-hand market. There’s a catch for tenants, however, and that’s in the relative dearth of solid rules and regulations to live by. Guidelines for tenancy agreements are just that, guidelines, and little is as coveted as a decent landlord — never mind a genuinely good one. Is the situation dire? Not if you get it in writing.

Slippery slopes

Between 2011 and 2015, “Julian” rented a mid-century walk-up flat near Kennedy Town. His landlord was mostly helpful, always fixing repairs efficiently and being flexible with minor alterations. But every time the rental winds of change blew, Julian would be forced into a rent increase, despite having a standard two-year lease with a break clause. “He would break it every single year, with no reason, but he always offered to sign a new lease immediately — with an increase,” recalls Julian. “I stayed four years mostly because moving is very disruptive, but as far as I’m concerned there’s no such thing as a two-year lease in Hong Kong.”

The kicker of course is that there’s nothing illegal about what Julian’s landlord did. According to the Rating and Valuation Department (RVD), “Rent and security of tenure in respect of domestic tenancies created on or after 9 July 2004 are not subject to any statutory control.” Is it unethical? Perhaps. Irritating? Yes. But not illegal. “Security of tenancy in Hong Kong is pretty good, thanks to the rule of law. When it comes to other abuses — like landlords subdividing industrial buildings into apartments or tenants subletting their flats through Airbnb — there's plenty of blame to go around,” property writer Chris Dillon (Landed Hong Kong) points out. “That said, Hong Kong is generally regarded as a landlord-friendly jurisdiction.”

High turnover is expensive for landlords, and so keeping a good tenant is preferable to the expense incurred with cleaning out the flat, applying a fresh coat of paint and making repairs every year (again, assuming the landlord deigns to clean up). When rents spike, the urge to jump on the bandwagon can be tempting, which is what happened in Julian’s case.

A standard residential lease in Hong Kong is two years, and the paperwork should clearly itemise terms, such as deposit expectations, rent-free periods, handover periods, extension options, appliances and so on, as well as an option to terminate the tenancy by both parties after 13 months — the break clause. Many leases are written on government-issued, pro forma agreements. “Most break clauses are subject to negotiation. We strongly advise a tenant to include a break option,” notes Savills’ head of residential services, Edina Wong, who also recommends it to be unconditional, not diplomatic. “An unconditional break clause is a straightforward break that can be exercised without reason.” Which is why Julian got caught out. It goes both ways.

Tenants' rights and regulations

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Legal recourse

Most landlords honour contracts, but some do play fast and loose with what rules there are. There is nothing like the Attorney General-administered comprehensive regulations (and rent controls) in New York State, or the German Tenancy Law act that caps deposit demands and regulates landlord obligations — as well as a rigid eviction and termination process — or the tenant-friendly Ontario Residential Tenancies Act, recently amended to be more so. HKU’s Community Legal Information Centre (CLIC) offers suggestions on common disputes, and the RVD details both parties’ responsibilities on its website, but there is no official moderating body to arbitrate disputes. Even though agents are often used as intermediaries, the instinct to reach out to the Estate Agents Authority is misguided.

“The Estate Agents Authority is essentially a trade body for real estate agents,” points out Dillon. “If a tenant and landlord have a dispute, they can bring it before the Lands Tribunal, which is part of the Hong Kong Judiciary. If the dispute is just about money and the amount is less than $50,000, they can go to the Small Claims Court. Both the Lands Tribunal and Small Claims Court are relatively informal, so tenants are not at a disadvantage if they have a dispute with a corporate landlord.” Corporate landlords like Sun Hung Kai Properties and Chinachem Group, who rent out high-end properties, ironically are more likely to be flexible with break clauses, and are even more averse to vacancies than small investors like Julian’s landlord. “For larger and more complex issues, there is the District Court and the Court of First Instance.”

Tenants are on the hook for the full amount in the event of terminating a lease before the break-clause period. If a tenant moves out, and “If no replacement tenant is found at the time you have to terminate the lease… you will be responsible for paying rent until the end of the fixed contract period (first 12 months) plus two months’ notice, or the landlord begins letting the property to a replacement tenant,” says Wong. Only when the landlord is in breach of contract is the tenant off the hook.

Which, of course, rarely happens. “I’ve never seen a landlord get into any sort of trouble for being sneaky or bending the rules,” says a Mid-levels agent who wished to remain anonymous. “I’ve never seen anything truly awful, but shorting deposit refunds, brushing off repairs and not cleaning the property sufficiently is common.” Is there any way to protect yourself without any real tenants’ advocates? “Make sure you have a detailed, ironclad tenancy agreement. Put as many clauses on there as you like,” says the agent. “And maybe have a lawyer write it.”

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