Renting Property

Leasing agreement


You are free to agree with your landlord the length and terms of your leasing agreement. But, what are your options? This section provides a step-by-step guide.

1. How do I lease a residential property?


Once you have found a suitable property and agreed the terms and conditions of the tenancy, ask your estate agent for information on the designated property prescribed by the government. After confirming the identity of the landlord through an up-to-date land search, have a preliminary lease agreement specifying all the agreed terms drawn up, including the address of the property, lease commencement date and terms, any optional break clause, rental, deposit, any appliances or furniture provided, any work the landlord agreed to do before commencement of the lease and the date for the formal tenancy agreement to be executed. You will normally pay the landlord a preliminary deposit (usually equivalent to one month's rent) upon signing the preliminary lease agreement.

The preliminary lease agreement is binding to the extent that if the landlord changes his mind after this agreement, he will have to return to you any deposit received plus an equal sum as liquidated damage. If you change your mind, your deposit will be forfeited to the landlord. Furthermore, the defaulting party will be required to pay both the landlord and tenant's commission to the real estate agent.

Sometimes, and especially for more complicated leases, the landlord and tenant may agree to sign a non-binding "subject to contract" offer letter instead and any deposit paid will be refundable without further recourse if the two parties cannot agree on a tenancy agreement later.

A formal tenancy agreement is a more detailed agreement based on the terms set out in the preliminary lease agreement. Most real estate agencies and law firms have their own standard template. Some landlords will prefer to use their own standard template. In any case, it is important for you to understand the terms and conditions before you sign it.

If in doubt, consult a solicitor or a real estate agent that you trust. Upon signing the formal tenancy agreement, you will pay the landlord the balance of the security deposit. This is usually equivalent to two months' rental, of which one month should have already been paid as a preliminary deposit with the preliminary lease agreement. You will also pay the first month's rental in advance before the commencement of the lease.

After the formal tenancy agreement is executed, it must be reported to the government for adjudication and stamp duty should be paid. Your real estate agent usually helps you with this procedure.

2. Is there a standard tenancy agreement?


There is no legal provision in the Landlord and Tenancy (Consolidation) Ordinance regarding the format of the agreement. Landlords and tenants may freely agree on the format and all the terms. As long as it contained all the salient details to establish the tenancy, was properly executed, endorsed by the Rating and Valuation Department and stamp duty has been paid, it is admissible in court in case of future disputes between the landlord and tenant.

Landlords and tenants may refer to consumer guide lines published by the Estate Agents Authority (www.eaa.org.hk), which contains useful information on tenancy agreements and other helpful tips. The HK Consumer Council is also a useful resource. (www.consumer.org.hk)

3. Is there a standard leasing term?


While the most common residential lease is for a term of two years, it is possible to have a longer or shorter lease as long as both the landlord and the tenant agree. It is also common for the tenant and sometimes the landlord as well to have an option to terminate the lease after a certain fixed period (usually 12 months) by serving advance notice (usually two months) to the other party. However, all these points can be negotiated and ought to be clearly stated in the tenancy agreement.

4. What is a security deposit and is it negotiable?


A security deposit is normally paid by the tenant to the landlord upon signing the tenancy agreement as security for the due performance of the tenant. It is kept by the landlord during the term of the tenancy and returned to the tenant shortly (usually between seven to 14 days) after the tenant has delivered the property back to the landlord and discharged all his obligations according to the tenancy agreement.

The security deposit for residential leasing is typically equivalent to two months' rent. Although it is legally possible to agree on a bigger or smaller deposit, most landlords will be very cautious when considering a tenant who does not want to pay the standard security deposit.

5. The flat I want to rent is vacant now. Is it possible for me to use it before the commencement of the lease?


If you want to use the flat or have access to the flat before the lease commences, you should specify that in the offer you present to the landlord. Landlords will sometimes agree to a rent-free period in order to attract tenants. It is a subject for negotiation, so do not assume anything. If any agreement is made on this, insist on having it clearly written in the tenancy agreement, or at least the preliminary lease agreement.

6. Besides the agreed monthly rental, what other recurring expenses are there?


Nowadays, very often the rentals you see advertised exclude management fee, government rates and land rent. When you present a rental offer, you should specify whether the monthly rental is inclusive or exclusive of these outgoings.

Unless otherwise specified in the tenancy agreement, utilities such as water, gas, electricity and telephone shall be on the tenant's account, while property tax and expenses of a capital nature shall be on the landlord's account. 

7. How do I take care of the utility connections for my new flat?


You should check with the landlord in advance whether he is keeping his account on water, electricity and gas. If he is keeping his account, you should take the meter readings upon handover. Usually, your agent can help you with that and either get a cut-off bill or do an apportionment for you when you receive the next bill. You just need to make sure that future utility bills are sent to your designated address for payment.

Some landlords prefer to close their accounts before you move in. In that case, you should apply for your own account with the utilities companies before you move in. Your agent will be able to advise you how to do that.

You will usually need to apply for your own connection of telephone, internet and pay TV. 

8. Can I share a leasing contract with another party?


Yes, this is permissible as long as it is agreed by the landlord and is included in the signed tenancy agreement. Sub-letting of a property is not permitted without the landlord's express consent. 

9. Can I have my office in a residential building, and under which conditions?


Most domestic tenancy agreements specify that the premises may only be rented and used for residential, non-commercial uses. If you propose to use the property for business purposes, it would be best to consult your estate agent for advice.

10. What happens if I break the lease before the fixed term expires?


Contractually, the landlord can demand that you pay the rent up to the end of the fixed lease term unless otherwise provided in the tenancy agreement. However, it is worthwhile to try to negotiate a settlement with the landlord if such need arises. Some landlords may agree on an early termination with some compensation, or for you to leave as long as you can find him an acceptable replacement tenant and you bear all the cost of procuring the replacement.