Tips for tenant
Leasing Residential Property in Hong Kong
- What is the procedure to create a lease on a residential property?
Once you have found a suitable property and agreed on the terms and conditions of the tenancy, you should enter into Tenancy Agreement or at least a Preliminary Lease Agreement in writing to secure the property. Your real estate agent can help you do that after confirming the identity of the landlord through an up to date land search. The Preliminary Lease Agreement shall specify all the agreed terms including monthly rental, lease commencement date and terms, any optional break clause, deposit, any appliances/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. Check it carefully before you sign to make sure it includes all the terms that you believe have been agreed. If it is not written you cannot assume it will happen. Normally you will pay to the landlord a preliminary deposit (usually equivalent to one month's rent) upon signing the Preliminary Lease Agreement. Only after the landlord has accepted the deposit and counter-signed the Preliminary Lease Agreement or Tenancy Agreement, there is a binding agreement.
Usually 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 and if you change your mind, your deposit will be forfeited to the landlord. Furthermore, the defaulting party shall be required to pay for both the landlord and tenant's commission to the real estate agent. Sometimes, and especially for more complicated lease, 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 version of the Tenancy Agreement based on the terms agreed in the Preliminary Lease Agreement. Most real estate agencies and law firms have their own standard template to base on. Some landlord will prefer to use their own standard template. "Standard" or not, it is important for you to understand the terms and conditions in it before you put your signature on it. If in doubt, you should consult with a solicitor or real estate agent whom you trust. Upon signing the formal Tenancy Agreement, you will pay to the Landlord the balance of the security deposit ( usually equivalent to two month's rental of which one month was already paid as preliminay 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 should be reported to the Government for adjudication and stamp duty should be paid. Usually your real estate agent can help you with this procedure.
- 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, adjudicated by the Rating and Valuation Department and stamp duty has been paid, it is admissible in Court in case of future dispute between the landlord and tenant.
- Is there a standard leasing term?
While the most common residential lease are 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 2 months) to the other party. However, all these can be negotiated and should be clearly stated in the tenancy agreement.
- What is a security deposit and is it negotiable?
Security deposit is normally paid by the tenant to the landlord upon signing the tenancy agreement as a security for the due performance of the tenant. It is to be kept by the landlord during the term of the tenancy and are to be returned to the tenant shortly (usually within around 7 to 14 days) upon the tenant having delivered the property back to the landlord and discharged all his obligations according to the tenancy agreement.
Usually the security deposit for residential lease is equivalent to two month's rental. Although legally it is possible to agree on a bigger or smaller deposit, most landlord will be very cautious in considering a tenant who does not want to pay the standard security deposit.
- The flat I want to rent is vacant now and 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 commencement of the lease, you should specify that in the offer you present to the landlord. Sometimes, landlord will agree to a certain rent free period in order to attract the tenant. It is a subject for negotiation and do not assume anything. If any agreement on this is made, insist to have it clearly written in the Tenancy Agreement (or at least the Preliminary Lease Agreement).
- Besides the agreed monthly rental, what are the other recurring expenses I shall be responsible for?
Nowadays, very often the rentals you see on advertisement are exclusive of management fee, government rates and land rent to make it seems more competitive. When you present a rental offer, you should specify whether the monthly rental is inclusive or exclusive of these out-goings.
Unless otherwise specified in the tenancy agreement, utilities such as water, gas, electricity, telephone etc. shall be on the account of the tenant while property tax and expenses of capital nature shall be on the account of the landlord.
- Can I enter into a tenancy with the landlord directly without using a real estate agent?
If you have found a suitable property without the help of a real estate agent and you are familiar with the procedures yourself, it is possible to do a tenancy directly with the landlord. However, if you are not using a real estate agent, you are strongly advised to employ a solicitor. Before you put your signature down and part with your money, at least you will want your agent or solicitor to advise you on whether you are dealing with the bona fide landlord, whether there are anything in the title of the property that you should be aware of and whether there are any restrictions on the use of the property concerned.
- If I use a real estate agent, what should I expect from him/her?
Legally your real estate agent should introduce the properties to you, help you in negotiation and once you have found a suitable property through him/her, help you enter into a legally binding tenancy agreement. His/her performance is governed by the Estate Agents Ordinance and he/she owes you due care and due diligence.
Besides the legal requirements, many responsible agents will also provide their clients with a range of useful after-sales service before you move in and during your tenancy term.
If possible you should check out the track record of the agent you are dealing with. If he is as good as he said he is, he should have no problem in giving you recent references whom you can check with.
- What is the Estate Agency Agreement and should I sign it with the agent?
Under the Estate Agents Ordinance, an estate agent is required to enter into a standardized Estate Agency Agreement with any client he/she serves. This agreement establishes the agency/client relation and clearly specify the responsibilities of each party. Under this Agreement, there are certain things that your agent are not allowed to do and there are certain duties he/she has to perform to protect your interest as client. In return,you agree to pay the agent the agreed commission if you buy any of the properties listed in the Agreement during the validity period of the Agreement. If you do not rent any of the properties he introduced to you, you do not have to pay him any commission. It also does not limit you to use another agent for other properties.
If you have chosen to work with an agent (at least for the properties he/she introduces you), you should sign the Agreement for better mutual protection.
- Is there a standard fee charged by real estate agents?
The law does not dictate the commission a real estate agent can charge a tenant. However over the last 20 years or so, the industry standard commission has been half a month's rental from the tenant and half a month's rental to one month from the landlord. Whatever commission you have agreed with your agent, it should be clearly stated in the Estate Agency Agreement you have entered with him/her.
- Can I use more than one agent?
You can use as many agents as you want. However, you should not employ more than one agent to serve you on any one single property. Otherwise, you may end up having to pay commission to more than one agent if you rent that property.
- What do I have to do in regard to utilities connection 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 hand-over. 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 will prefer to close their accounts before you move in. In that case, you should apply for your own account with the utilities before you move in. Your agent should be able to advise you how to do that.
Usually you need to apply for your own connection of telephone, internet and cable TV.
- Can I share a leasing contract with another party?
Yes, this is permissible so long as it is agreed by the landlord and is included in the signed tenancy agreement. Sub-letting of property is not permitted without the landlord’s express consent.
- Can I have my office in a residential building?
Most domestic tenancy agreements specify that the premises may only be rented and used for residential, non-commercial uses. However, as more and more people are setting up home office, the distinction is sometimes difficult. If you propose to use the property for business purposes, it would be best to consult your estate agent for advice.
- Do I need the landlord’s consent to renovate my flat?
It is advisable to seek your landlord’s consent prior to undertaking major and substantial changes. Though it may seems to you that the works you have done is improvement to the property, be prepare to restore the property to its original condition when you leave or upon termination of the tenancy if so required by the landlord. Any express consent by the landlord for you to do renovation and waiver for re-instatement should be in writing to avoid future disputes.
- What happens if something needs repair in the flat?
Unless otherwise specified by the tenancy agreement, the following rules will usually be accepted:
- the landlord shall provide the furniture/appliances in the tenancy agreement in good working condition at the commencement of the lease and the tenant shall return the same to the landlord at the end of the tenancy (fair wear and tear excepted)
- during the tenancy, the tenant shall exercise due care in using and protecting the premises including furniture/appliances provided by the landlord. Generally speaking the landlord shall be responsible for the maintenance of the structure and exterior of the property unless damage is caused by the fault of the tenant. The tenant is normally responsible for general maintenance (cleaning of filters, changing burnt light bulbs, clearing of blocked drains etc.) and upkeep of the interior (fair wear and tear and inherent defect excepted)
- if the furniture/appliances need repair due to fair wear and tear, the landlord shall arrange for fix within reasonable period of time
- if the need for repair is caused by the fault of the tenant, the tenant shall be responsible
- What happen if I need to break the lease before the fix term expires?
Contractually, the landlord can demand you to pay 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 landlord may agree on an early termination with some compensation. Some landlord may agree for you to leave so long as you can find him an acceptable replacement tenant and you bear all the cost of procurring the replacement.
- What insurance do I need to buy?
It is always advisable to take out a household insurance. This will give you protection on your own household contents and more importantly third party liabilities incurred by you in using the property. It is not expensive and you can get it from most banks and insurance companies.
Disclaimer: Whilst every effort has been made to ensure the accuracy of the information provided here, it is intended as general guidance and should not be not be regarded as a substitute for appropriate professional guidance and legal advice.