There are two main types of arrangement allowing a person, company or other organization to occupy real estate for a limited period of time without buying it outright.
The first is a lease, which grants the right of exclusive possession of the property for an agreed period of time. A lease confers on the lessee contractual rights and a proprietary interest in the property, which can be transferred to a third party subject to specific restrictions set out in the lease.
The second is a licence which grants permission to occupy the property. Unlike a lease, the occupier of a property under a licence does not have a proprietary interest or the right to exclusive possession. A licence is not generally transferable to a third party nor is it binding on a successor in title of the person giving the licence, that is, the licensor. In addition, under a licence the period of occupation does not have to be fixed and it creates no interest in land.
In granting a licence, property owners need to ensure that they are not inadvertently granting a lease. The courts will not consider whether the document is called a lease or a licence but will instead look at the substance of the agreement to determine whether it constitutes a lease or a licence.
Last modified 7 Oct 2024
There is no minimum or maximum term for a commercial lease. Very long leases (for example 10 years) are possible, but are uncommon. For office leases, terms are usually much shorter, with two to three years being usual with or without an option to renew for another two to three years. For retail leases, terms are comparatively longer with three to five years being usual with or without an option to renew for another three to five years. The current market trend is towards shorter leases.
Last modified 7 Oct 2024
Both residential and commercial leases covering industrial property, offices, retail property and hotels are generally governed by the Landlord and Tenant (Consolidation) Ordinance (Cap. 7 of the Laws of Hong Kong), the Land Registration Ordinance (Cap. 128 of the Laws of Hong Kong) and the Occupiers' Liability Ordinance (Cap. 314 of the Laws of Hong Kong).
Last modified 7 Oct 2024
No. Since the Landlord and Tenant (Consolidation) (Amendment) Ordinance 2004 came into effect on 9 July 2004, the former security of tenure regime has been removed.
Last modified 7 Oct 2024
The landlord can provide oral or written notice within the time as stipulated in the lease to the tenant or within a reasonable time if the lease does not provide any requirement as to notice prior to the expiration of the date of the lease to ensure that the tenant has sufficient time and notice to move out of the premises.
Last modified 7 Oct 2024
Commercial leases in Hong Kong do not generally contain a break clause, but have a termination clause which allows the landlord to terminate the lease when it sells the whole or part of the building or premises, or upon demolition, refurbishment etc, of the building or premises. To exercise this right, the landlord will usually have to give not less than six months' notice in writing to the tenant, and the lease will terminate upon the expiry of the notice.
The landlord also has the right to terminate the lease upon the default of the tenant ie non-payment of rent or breach of the tenant’s obligations under the lease. Often, the parties to a lease may negotiate a cure period. This means that the landlord must first serve a notice on the tenant which specifies the breach and requests that the tenant remedies it within a certain period of time before the landlord can exercise its right to terminate the lease. If the tenant fails to remedy the breach in the time allowed the landlord can re-enter the premises subject to certain conditions. The tenant may still apply to the court for 'relief from forfeiture', however in the case of a residential tenancy, a landlord can only recover the premises with a court order.
Courts have a tendency to allow tenant’s to rectify breaches of the lease and stay in occupation of the premises. For example, if the tenant pays any rent arrears due then the court will normally allow it to stay in the premises unless it has a long history of rent arrears.
Last modified 7 Oct 2024
Local authorities have certain statutory rights under legislation, such as the Lands Resumption Ordinance (Cap. 124 of the Laws of Hong Kong) and the Mass Transit Railway (Land Resumption and Related Provisions) Ordinance (Cap. 276 of the Laws of Hong Kong), to acquire property on a compulsory basis, including leased property. The tenant will receive the market value of their interest in the property and perhaps further compensation in addition.
For the purposes of the redevelopment a right of compulsory purchase can be exercised by a party who owns a specified majority of the undivided shares in a lot and the majority owner can make an application to the Lands Tribunal for an order for the sale of remaining of the undivided shares in the lot. The tenant will be awarded compensation by the Lands Tribunal if the order for sale is made.
Last modified 7 Oct 2024
Parties are free to contract as they wish. The landlord may ask for a guarantee from the lessee's parent company or a bank, or require a deposit to be paid (usually only one of these). Deposits for breakages and damage are not normally provided in the case of commercial lettings.
The landlord may ask the tenant to maintain comprehensive insurance cover in respect of third party liability for loss injury or damage to any person or property in the premises whatsoever caused through or by any act default or neglect of the tenant.
Last modified 7 Oct 2024
The tenant must comply with the permitted use that is set out in the lease and certain activities which may cause a nuisance are generally prohibited. tenants in Hong Kong are also subject to any user restrictions set out in the lease from the Government under which all land in Hong Kong must be held and any subsequent lease modifications, the Occupation Permit for the building and the Deed of Mutual Covenant (a document governing the rights and obligations of owners and their tenants in a multistorey building). Laws and regulations relating to the permitted use of the premises (such as those in the Town Planning Ordinance (Cap. 131 of the Laws of Hong Kong) and Outline Zoning Plans) must also be complied with.
For commercial premises in large-scale development, there may be house rules set by the developer of the whole building to which the tenants will adhere.
Last modified 7 Oct 2024
Most leases limit a tenant’s right to alter or improve a property. Structural alterations which usually involve an alteration of the form and framework of the building are frequently prohibited, particularly where the tenant only leases part of the building. Non-structural alterations normally require the landlord’s consent.
Last modified 7 Oct 2024
Commercial leases generally prohibit assignment, subletting, the creation of a mortgage or any kind of alienation of the lease by the tenant. Sometimes, with the landlord’s consent, the corporate tenant will be allowed to share the premises with its parent company or any subsidiary companies which operate the same business as the tenant.
Due to the pro-landlord environment in Hong Kong, the restriction on alienation is often extended to restrict any change of control in the corporate tenant without the landlord’s consent through any acquisition, merger etc, and the tenant is even in default if it becomes insolvent (or bankrupt in the case of an individual).
Last modified 7 Oct 2024
Most leases provide for a fixed amount of rent for the duration of the term agreed between the parties. In certain commercial leases, the landlord may require the tenant to pay turnover rent depending on the gross receipts of the tenant – this amount is usually determined on a case-by-case basis.
Last modified 7 Oct 2024
Most leases contain a fixed amount rent for the duration of the term agreed between the parties.
A rental clause which allows for increases in rent is acceptable, provided it is clearly drafted. For example, annual percentage increases or periodic changes in rent by reference to some published index, such as the Consumer Price Index would be sufficiently certain.
Increases in rent may also be reviewed and determined by an independent third party valuer in accordance with the market rent at the time of review. The mechanism for determination should be agreed by the tenant and landlord and clearly stated in the lease to avoid any disputes.
Rents linked to turnover are also sometimes agreed for retail leases.
Last modified 7 Oct 2024
There is no value added tax in Hong Kong, instead, stamp duty is payable depending on the level of rent and the term of the lease. The responsibility for paying stamp duty is usually shared equally between the landlord and the tenant.
Last modified 7 Oct 2024
A half share of the stamp duty and registration fee is payable by the tenant on execution of the lease. The tenant may also have to pay a deposit on the rent, management fee and air-conditioning costs. Stamp duty is calculated at rates which vary with the term of the lease as follows:
| Term | Rate | |
| Not defined or is uncertain | 0.25% x of the yearly or average yearly rent | |
| Exceeds | Does not exceed | |
| 1 year | 0.25% x of the total rent payable over the term of the lease | |
| 1 year | 3 years | 0.5% x of the yearly or average yearly rent |
| 3 years | 1% x of the yearly or average yearly rent | |
| Key money, construction fee etc mentioned in the lease | 4.25% of the consideration if rent is also payable under the lease. Otherwise, same duty as for a sale of immovable property | |
| Duplicate or counterpart lease | HK$5 each copy | |
Further to the above, the tenant is also responsible for the fitting-out cost.
Last modified 7 Oct 2024
The costs for the maintenance and repair of communal areas are covered in the management charges that are payable by the tenant. The management charges are usually calculated based on the size of the premises they occupy in relation to the rentable space of the entire building or estate.
Last modified 7 Oct 2024
Tenants are responsible for the maintenance and repair of the interior of the premises they occupy.
Last modified 7 Oct 2024
Services such as electricity, water, gas and telecommunications services are normally subscribed to by the tenant directly with suppliers, although this may not be the case in a large development.
Last modified 7 Oct 2024
The landlord will pass on the cost of insuring the building to the tenant. Each tenant normally pays a proportion of the cost, based on the size of the premises they occupy in relation to the total rentable space in the entire building or estate. Usually, the landlord will also specify that the tenant must take out insurance policy which covers specific aspects, for example, third party liability and contractors’ all risks insurances, and the landlord must be endorsed on such insurance policies.
Last modified 7 Oct 2024
What is the usual length of each type of commercial lease?
There is no minimum or maximum term for a commercial lease. Very long leases (for example 10 years) are possible, but are uncommon. For office leases, terms are usually much shorter, with two to three years being usual with or without an option to renew for another two to three years. For retail leases, terms are comparatively longer with three to five years being usual with or without an option to renew for another three to five years. The current market trend is towards shorter leases.
Last modified 7 Oct 2024