How long is a typical lease?
A standard lease for a residential property in Hong Kong is two years with the first year fixed and the second year flexible. Usually, the tenant and the landlord can serve two months’ notice to terminate the lease after the first 12 months, thus a minimum commitment of 14 months.
If you are a tenant, you can try to negotiate the break-clause on your side only, so that you can serve notice after the first year if you need to leave, but the landlord cannot serve you notice. Some landlords will accept this arrangement and others will insist on a two-way break-clause.
Other lease options include a two-year fixed lease where neither party can serve notice to terminate, or a two-plus-one, where the first two years are fixed and the third year is optional.
Short-term leases are not common in Hong Kong as there is a considerable amount of work and cost involved with reinstating an apartment for a new tenant. If you are looking for a short-term arrangement, your best bet would be a hotel, serviced apartment or Airbnb.
Do I need to use a property agent?
As a tenant, you do not have to use a property agent and many landlords will advertise their properties directly. However, it is advisable to use an agent unless you are very familiar with Hong Kong property law and procedures regarding the preparation of tenancy agreements, stamp duty payment, etc.
Aside from sourcing properties and arranging viewings, your property agent will check the land registry documents to verify that the landlord is indeed the registered owner of the property; check if there are any issues with leasing the property; negotiate the terms of the lease on your behalf; draft the necessary paperwork and check that everything is in correct order before you sign.
He/she should also clarify who will be responsible for maintenance of appliances, if the landlord or the building allows pets, etc., which might otherwise be overlooked.
How much are property agent fees?
Standard practice in Hong Kong is a half-month commission from the landlord and a half-month commission from the tenant. However, agency fees are negotiable and in some cases an agent may waive or reduce the fees if the landlord is paying more than a half-month commission.
It’s advisable to confirm fees with the agent before entering into any formal agreement with the landlord. The agent should prepare an EAA Form 6 for you to sign, which will include a summary of the agent’s duties and commission payable.
What is the procedure for renting a property?
Once you have found a property you would like to rent, the agent will negotiate the terms with the landlord on your behalf, e.g. lease start date, duration, break-clause, rental amount, special requests, etc. The initial terms are usually discussed by phone and the landlord will often request for the offer to be in writing. The agent should prepare an offer letter on your behalf and then present this to the landlord.
STEP 1: Offer Letter – Subject to Contract / Binding to Contract
There are two types of offer letter:
- Subject to Contract: If accepted, you will need to pay a one-month holding deposit to secure the apartment. However, this holding deposit is refundable so you can still change your mind and choose not to proceed to the Tenancy Agreement. At the same time, the landlord also has the right to change his/her mind at any time prior to the signing of the Tenancy Agreement and refund your holding deposit without any further penalty.
- Binding to Contract: If accepted, you will need to pay a one-month holding deposit to secure the apartment. However, this holding deposit is non-refundable if you later change your mind and don’t proceed to the tenancy agreement. At the same time, if the landlord doesn’t proceed to the tenancy agreement, he/she will need to refund your holding deposit and pay you the same again as a penalty.
So, which type of offer should you go with? If you’re both keen to get the deal done and there is a sense of urgency, an offer that is Binding to Contract is advisable. If you would like more flexibility to withdraw your offer if you later change your mind, then an offer that is Subject to Contract is advisable.
Assuming both parties proceed to the tenancy agreement, the one-month holding deposit will go on to become the first month’s rent.
STEP 2: Tenancy Agreement
Once all terms have been negotiated, the landlord or the agent will prepare a tenancy agreement which is the formal contract to rent the property. This is often a lengthy document and goes into detail about all of the landlord’s and the tenant’s obligations.
At the time of signing, the tenant will normally be required to pay a two-month security deposit. This will be held by the landlord until the end of the tenancy and returned to the tenant after the apartment has been handed back – assuming that the terms of the tenancy agreement have been followed and there is no damage to the apartment or the landlord’s furniture, etc. Fair wear and tear, i.e. normal wear and tear from standard occupancy, is exempted.
STEP 3: Stamp Duty
Once the tenancy agreement has been signed by both parties, it needs to be sent to the Government Stamping Office to be officiated. This may be handled by the landlord or by the agent. At this stage, stamp duty is payable and is normally shared equally between the landlord and the tenant. The amount for a standard two-year lease is 0.5% of the annual rental + HK$5.
Example:
- Lease Term: 2 years
- Rental: HK$50,000/month (inclusive of Management Fees, Government Rates & Rent
- Stamp Duty: HK$50,000 x 12 x 0.5% + HK$5 = HK$3,005
- Thus, HK$1,502.50 per party.
There are variations to stamp duty payable depending on the duration of the lease. For a detailed chart, please click the following link:
http://www.gov.hk/en/residents/taxes/etax/services/stamp_duty_computation.htm
After the tenancy agreement has been stamped, the landlord and the tenant will keep one original.
STEP 4: Setting Up of Utilities
Before you move into your new home, you should set up the utilities accounts for gas, water and electricity. Your agent may offer to assist with this or you may need to handle this yourself.
For telephone and Internet, you will probably need to wait until you have the keys as these will require visits by the telecom and Internet service provider.
STEP 5: Handover
On the day of handover, your agent may accompany you, or you may meet with the landlord or landlord’s representative directly. It is advisable at the handover to check that everything in the apartment is working – lights, locks, electricity, hot water, etc.
If there are any defects that require fixing, you can discuss with the landlord and he/she should take care of this as soon as possible. You should also sign a record of the keys you receive, air-con remotes, security passes, and anything else not mentioned on the tenancy agreement inventory list.
You might like to photograph the apartment on the day of handover, including the appliances and especially any defects for the landlord’s written acknowledgement, e.g. large scratch on the flooring, broken cupboard door, etc. This can help to avoid any disputes when the time comes to hand the apartment back.
STEP 6: Rental Payments
Now that you’ve moved in, it’s advisable to set up an auto-pay to the landlord’s designated bank account for the monthly rental. As Hong Kong can have some long public holidays, it’s best to arrange the auto-pay a few days ahead of the actual due date to ensure the funds are transferred on time.
STEP 7: Serving Notice
If you have entered the break-clause period and would like to terminate the lease, you should send the landlord a written notice. This can be done by a simple letter which should be sent by registered post. Make sure that you receive the landlord’s acknowledgement of your intention to terminate the lease.
STEP 8: Hand back
When the time comes to hand back the apartment, it is courteous to leave the apartment in a clean and tidy condition – much the same as how you received it. You don’t need to repaint the apartment unless you have changed the original paint colour, but you should fill any holes from hanging pictures, etc., and clear out any packing boxes and personal items.
Assuming that you have followed the terms of the tenancy agreement and handed the apartment back in the same condition as when you received it, fair wear and tear exempted, the landlord should pay back your security deposit in full within around 15 days according to the terms of the tenancy agreement.
