Hong Kong Office

	Home > Customs & Practice

	1) Tenancy Agreement Tenancy agreements are legally binding contracts specifying the detailed right and obligations of both the tenants and landlords during the lease term. Tenants are advised to have the document reviewed by their legal advisors prior to signing. Formerly, most landlords of single-owned or Grade "A" buildings are less willing to accept major amendments and tenants are expected to accept the standard agreements "as its". Recently, landlords are taking a much softer stance.
	2) Rent Rental is quoted in HK$ per square foot on gross, lettable or net area on a per month basis. Rents are payable monthly in advance and are usually exclusive of management fee, rates, service charge or any additional costs. a) Asking Rental Rental quoted by landlord, usually with rooms for negotiation. b) Face Rental Nominal rental achieved after negotiation. c) Effective Rental Average rental achieved for the lease period after deduction of rent free period. 3) Area There are 3 bases of measurement in which rents and various charges are quoted. Tenants should understand the difference between them in order to compare the true cost on actual space of the premises. a) Net Area The actual usable "carpet" area of the premises and in most case also include all structural columns and external face of the exterior walls of a building. Efficiency of net area quoted is typically in the range of 90 - 100%. b) Lettable Area Net area (a) plus a proportion communal areas such as lift lobby, service corridor, etc. Efficiency of lettable area depends on the size of the floor plate and usually ranges from 70 - 90%. c) Gross Area Similar to lettable area as defined in (b) above with a proportion, on a pro-rata basis, of various elements of the common areas.Also depending on the size of the floorplate, the efficiency of gross area is in the range of 60 - 80%.
	4) Lease Term In common practice, office premises are leased for terms of 2 or 3 years at fixed rental. Tenants occupying larger space tend to prefer a longer lease terms of 6 to 9 years with rent review by the end of every third year to the then prevailing market rental.
	5) Option to renew Tenants may prefer to secure an option to renew their lease on expiry of lease on original lease terms. Conditions such as serving of notice and method of assessment of the rental will be stated in the Tenancy Agreement. 6) Rent Free Period An incentive offered by the landlords to the tenants as an allowance for the fitting-out of the premises. The length of the rent free period depends on the size of the premises and the prevailing market conditions.
	7) Management Fee A fee applicable to each tenant calculated on the area of the premises. The fee is quoted on per square foot per month and is non-negotiable and may be revised from time to time. This fee normally includes charges for the central air conditioning supply, building management, cleaning and service of the common areas etc.
	8) Landlord's Provisions Items provided by the landlord free-of-charge such as acoustic ceiling tiles, florescent light boxes, A/C fan coil units, carpet… etc. 9) Commencement Date The date that the tenancy starts. Rent becomes payable after the rent free period. The tenant may move in before the commencement date if he has a rent-free licence period or later if he carries out his own renovation or decoration works. 10) Expiry The date that the tenancy ends.
	11) Holding Deposit Usually equivalent to one month's rent and generally paid subject to contract (to the landlord's solicitor) when an offer is made on a property and prior to receiving a draft Tenancy Agreement. This deposit becomes the first month's rent when the Tenancy Agreement is signed. Sometimes, the amount of holding deposit may be as much as three months' rent. This deposit is usually fully refundable in the event that the Tenancy Agreement is not signed by both parties. Sometimes, the offer letter may be signed as a binding contract.
	12) Security Deposit This is usually equivalent to two or three months' rent (plus, two or three months' management fees and government rates) and is payable by the tenant to the landlord upon signing the Formal Tenancy Agreement. The security deposit is held by the landlord for the period of the tenancy and, provided that the tenant has upheld all conditions of the tenancy (such as paying the rent and bills, and maintaining the property in good condition), is refundable after the tenancy period. Terms on which the deposit is refunded should be stated in the Formal Tenancy Agreement; most tenancy agreements stipulate that the security deposit will be returned within fourteen days to one month after the tenant moves out to give the landlord time to check the condition of the property and see that all bills have been settled. Unlike many other countries, in Hong Kong the security deposit is repaid without interest. 13) Offer Letter Once a property has been found and negotiations begun between the tenant and the landlord, the estate agent will prepare an offer letter. The letter should be signed by both parties, is subject to contract and details all the main terms and conditions of the tenancy including rent, term, commencement date and any decoration or renovation works necessary. Sometimes the parties may wish to sign the offer letter as binding contract. 14) Early Termination If the tenant needs to leave the premises earlier than allowed for in the tenancy agreement. This can be done in one of two ways:1. Through negotiation and mutual agreement to surrender by compensation. 2. Through introduction of replacement tenant to take up a new lease with terms and condition agreeable to the landlord.
	15) Replacement Tenant Early Termination may be achieved through introduction of a replacement tenant to take over the lease. This can be done in one of two ways:1. The new or replacement tenant takes over the property until the expiry of the existing lease. 2. The new or replacement tenant has a lease granted by the landlord. In either case, the outgoing tenant will need the permission and co-operation of the landlord and should expect to pay the landlord's share of the agency fee, legal costs and stamp duty payable.