This guide assists the reader to better understand the office lease process in Hong Kong. The guide is meant for entrepreneurs who are unfamiliar with Hong Kong’s office rental market and the tenancy process. Like in any other country, the rental process consists of selecting a suitable neighborhood, finding an office rental space, drawing up a rental agreement and related protocols.

Starting Your Search For Office Space

As you start your search for office space in Hong Kong, keep in mind the following:

• Familiarize yourself with the various business districts in Hong Kong and shortlist the ones that suit your business and budgetary needs.
• Finding the right office space that meets your specific requirements and budget is a time consuming and tedious process. If you decide to look for office space on your own, you will need to look at the local newspapers, classified ads, and internet websites for office rental advertisements. However, the common practice in Hong Kong is to hire a real estate agent. The agent will ensure that:
  • You find office premises to suit your needs and budget
  • All the appropriate documentation is in place
  • You deal with the rightful owner of the property
  • You get the best possible rental price by negotiating on your behalf with the owner/owner’s agent
• Several agents sometimes represent the same office space. In such cases, it is advisable to approach only one agent and deal with him/her. However, if a particular agent’s services are unsatisfactory, you can contact an alternate agent.
• You must be prudent and exercise caution while dealing with real estate agents. Always collect the agent’s business card and work only with those agents who are licensed by the Estate Agents Authority, as they operate by a set of regulations. Agents must clearly display their license number on all documentation including their business cards.

Tenancy Agreement Process

Once you have found the office space suitable to your needs, the office lease agreement process in Hong Kong typically involves the following steps:

1. Submitting an offer letter and paying a holding deposit
2. Signing the tenancy agreement
3. Paying the fees associated with the tenancy process, the first month’s rent and the security deposit
4. Moving in

Hiring a lawyer to represent you is not mandatory under Hong Kong law. However, if you wish to better protect your legal rights and if you can afford to hire a lawyer, you should do so. A lawyer will identify issues that could potentially lead to disputes and include them in the tenancy agreement. Spelling out terms and conditions in relation to these issues reduces the chance of future disputes between the landlord and yourself.

Offer Letter and Holding Deposit

The first step in the rental agreement process is submitting an offer letter and paying a holding deposit. The offer letter (also known as the provisional tenancy agreement) is a letter of intent to indicate the parties’ seriousness about renting the office space. The holding deposit is usually paid by the tenant to the landlord in order to temporarily secure the premises.

The offer letter must be signed by both the landlord and tenant and must include the following details:

• The name of the parties
• The name and address of the office premises
• The tenant’s intention to lease the premises
• The monthly rental fee against which the tenant intends to lease the premises
• The intended commencement date of the lease
• The intended lease duration
• Requisitions for repair, renovation, etc. and whether the rental fee is inclusive of these costs

The holding deposit is a token deposit, usually equivalent to 1 month’s rent. Sometimes, landlords may ask for 3 months rent as the holding deposit. The holding deposit will be absorbed in the security deposit or advance rental once the tenancy agreement is signed. The holding deposit is fully refundable in the event that the tenancy agreement is not acceptable to either party.

Your agent will present the offer letter along with the holding deposit to the landlord’s representative. If it is acceptable to the landlord, he/she will sign the offer letter and return it to you along with the acknowledge receipt of the holding deposit. Basically, this step ensures that the premises cannot be let out to anyone else.

Tenancy Agreement

Once the landlord accepts the offer letter and holding deposit, it is time to sign the tenancy agreement. The tenancy agreement is a legally binding contract and spells out the detailed rights and obligations of both the tenant and landlord. Some of the common terms and conditions of a tenancy agreement in Hong Kong include:

• Rental amount and due date for payment of rent: The common practice for payment of rent is an advance monthly payment on the date of tenancy commencement and thereafter on the same date of each subsequent month. Rents are quoted in HK$ per square foot either on the carpet area or net area (i.e. carpet area and a proportion of common area such as lift lobby, service corridor, etc.). Normally, the rental fee does not include any additional costs such as management fee, service charge, etc.
• The value of security deposit paid: Tenants have to pay a rental deposit, usually equivalent to 2 or 3 months rent, at the time of signing the lease agreement. This deposit will be returned to the tenant (without any interest) at the end of the lease term, provided there are no payment dues and the leased premise is left in the agreed condition. The tenancy agreement must specify the terms on which the deposit will be refunded. Usually, landlords return the security deposit within 14-30 days, after the tenant has vacated the premises.
• Lease duration, with or without the option to renew: The normal duration of a lease agreement in Hong Kong is 2-3 years. Upon the end of the lease term, the lease can be renewed for a similar duration if both the tenant and the landlord mutually agree to do so. However, the rental value may vary depending on the market price prevalent at the time of renewal. Usually, tenants who are leasing large office space tend to prefer a longer lease term of 6-9 years with rent review every 3 years, as per the prevalent market value.
• Terms and conditions for pre-mature termination of lease: There are no standard terms regarding the pre-mature termination of lease. The terms can be drawn up in the agreement depending on what is mutually agreed upon by both parties.
• Landlord’s provisions: The tenancy agreement must contain the landlord’s provisions for the tenant’s use in the premises to be leased. The standard provisions normally include a suspended ceiling with light fixtures and sprinkler system, and fan coil units for central air-conditioning. However, some offices may come with fixtures and fittings that were installed by previous tenants and retained by the landlord.
• Date of commencement of lease, expiry date and rent-free period: The tenancy agreement must specify the date on which the tenancy starts and ends. It should also mention if there is any rent-free period and the duration of the same. During this period the tenant can carry out decoration work and fitting out of the premises, without having to pay rent. Normally, the rent-free period ranges from 2 weeks-3 months depending on the floor area of the premises. All fitting out work will have to be done in accordance with the landlord’s terms and conditions.
• Management/Maintenance Fees: Tenants usually have to pay a fixed monthly management fee or maintenance charge for central air conditioning supply, building management, cleaning and service of the common areas etc. The monthly amount payable is calculated on a per square foot basis and is non-negotiable. The fee is subject to periodic revisions.
• Conditions regarding sub letting of premises by the tenant: Generally, tenants are not allowed to sub-let full or part of the premises to another party unless the landlord gives written consent. The tenancy agreement usually contains a clause on the conditions for sub leasing.
• Repairs: A common approach regarding repair of the premises is that the landlord is responsible for external and structural repairs, while the tenant takes care of internal non-structural repair and maintenance. Alternatively, the tenants may be asked to bear the full expense of carrying out repair works, by virtue of the tenant being in possession of the premises. The final arrangement depends on the agreement between the landlord and tenant.
• Use of premises: Most tenancy agreements will specify that the premises should not be used for domestic, gambling, illegal, immoral or political purposes.
• Stamp Duty: Stamp duty is a one-time tax payable to Hong Kong’s Inland Revenue Department. The exact stamp duty payable is calculated based on the term of tenancy and the total rental value for the tenancy period. Please click here for stamp duty rates.
  The law requires stamp duty to be paid on a tenancy agreement for the lease of any immovable property. However, the law does not specify which party should pay the stamp duty and it is left to the mutual agreement between the landlord and tenant. In most cases, both parties will agree to pay the stamp duty fees in equal proportion.
• Property Tax: Property tax (known as Government Rate in Hong Kong) is an indirect tax on property, payable on a quarterly basis in advance. Property tax is calculated as 5% of the estimated annual rental value of a property. Annual rental value is calculated on the basis of the prevailing market rental rates.
  It’s advisable to specify in the tenancy agreement which party is responsible for paying the property tax since in the absence of any such clause, the tenant is liable to pay the property tax. As the usual practice in the Hong Kong office rental market, the landlord pays the property tax.
• Land Lease Tax: Privately owned land in Hong Kong is normally obtained from the government by way of a ‘land grant’ known as a Government Lease. The owner pays the lease tax in return for the right to hold and occupy the land for a specified term.
  As the usual practice in the Hong Kong office rental market, the landlord pays the lease tax. It’s advisable to specify in the tenancy agreement which party is responsible for paying the lease tax.
• Agency Fee: Often referred to as “commission”, this is the fee charged by property agencies for the services of their real estate consultants. Normally, real estate agents will charge tenants a fee of either a month’s rent or half a month’s rent, for successful transactions.
  As the usual practice in Hong Kong, each party pays its own agent’s fee.
• Inventory List: It’s advisable to attach an itemised list to the tenancy agreement detailing furniture and fittings supplied with the property. Unless otherwise negotiated or specified, all items provided with the premises are to be left in the property at the end of the tenancy term.

Having a well-prepared tenancy agreement is important as it proclaims the rights and responsibilities of the tenant and landlord. Both know where they stand and what are their limits in regard to the tenancy. In the absence of a well-prepared tenancy agreement, there is often ambiguity and misunderstandings which in turn can lead to disputes.

Handling Tenancy Disputes

In case of a tenancy dispute, the landlord and tenant are advised to first approach the property agent who brokered the deal and seek his/her advice. If the dispute remains unresolved, the parties can approach the Lands Tribunal – the major body responsible for handling tenancy disputes. Alternatively, the parties can approach the Small Claims Tribunal if the dispute is related to a monetary claim of HK$ 50,000 or less. For disputes that involve a higher monetary claim or involve other complex legal issues, the District Court or High Court can be approached.