As per the Landlord and Tenant (Consolidation) (Amendment) Ordinance 2004, the tenant does not have a right to continue to occupy the property after the expiry of a commercial lease. Returning the property At the end of the lease, a tenant should return the property to the landlord in the original handover condition at the tenant’s own cost. Whilst a tenant is under no obligation to ‘improve’ the property into a better state than what was given to him at the commencement of the tenancy, the tenant is expected to return the property to its “original state”. For commercial premises, it is common for lease/ tenancy agreements to include an express obligation to return the premises at a ‘bare-shell’ state to the reasonable satisfaction of the landlord (i.e. removal of all fixtures and leaving behind only the plastering/concrete surfaces). The landlord should reasonably accept that at the time of handover, the property will inevitably suffer from some wear and tear due to ageing and normal use. Additionally, ‘landlord’s fixtures’, as listed out in the lease/ tenancy agreement, should be handed back to the landlord at the handover of the property at a reasonable status. For example, the air-conditioners should be functional when the property is handed back to the landlord. To avoid unnecessary disputes about the state of the property at handover, it is advised for both parties to sign a written acknowledgement after inspecting the property. Collecting security deposit When the lease comes to an end, the tenant will be entitled to the return of the deposit, less any sums that the landlord has properly withheld. Terms on which the deposit will be refunded are stated in the lease/tenancy agreement, and if satisfied, the landlord should return the security deposit in full to the tenant. The agreement should also stipulate when the security deposit will be returned (usually within fourteen days to one month after the tenant

Normally, commercial leases do not have a break clause in Hong Kong. However, if the lease agreement contains a termination clause then a tenancy may be brought to an end by the landlord due to: Non-payment of rentBreach of agreement by tenantSale/development of property To exercise this right, the landlord will have to give a written notice to the tenant and the lease will terminate upon the expiry of the notice. Non-payment of rent A tenancy agreement may contain an express clause which entitles the landlord to terminate (or ‘forfeit’) the lease/ tenancy agreement upon non-payment of rent subject to written notice. It is implied per the Landlord and Tenancy Ordinance that non-payment of rent for more than 15 days of the due date would give rise to a right for the landlord to forfeit/terminate the tenancy agreement. The tenant can apply for a relief against forfeiture (for non-payment of rent) if they had defaulted in payment of rent for the first time. The Court or the Lands Tribunal will usually give them a chance to pay up for all outstanding rent within a specified period of time. If the tenant complies, the term of the tenancy agreement will be ‘resurrected’ and will continue under its original terms as if there was no default on rental payment before. Serious breach of agreement If the tenant pays rent on time but commits serious breach(s) of the tenancy agreement (e.g. subletting, conducting illegal activities, causing nuisance), the landlord may wish to terminate the tenancy. When this happens, the landlord will first serve a notice to the tenant, specifying what they are in breach of. The notice will request the tenant to remedy the breach within a certain period of time, before the landlord will exercise their right to terminate the lease. If the lessee fails to remedy the breach within that period of time, the landlord may rely on any forfeiture/termination clause as expressly provided under the tenancy agreement

Mostly, commercial leases provide an option to the tenant to renew an existing tenancy. This option to renew gives the tenant a right to continue to rent the property after the expiry of the existing tenancy. However, in absence of such an option to renew, you must negotiate a new lease before the expiration of the tenancy. What is an ‘Option to Renew’? Generally, the option to renew clause: requires the tenant to give a written notice within a specified period before the expiry of the tenancy. Usually, for a commercial lease, this will be 3-9 months before the tenancy expires. states the terms for determining the new rental. For example, whether the new rent will be adjusted based on a fixed rate of the current rent, or whether the new rent will be adjusted by negotiation. contains a reference to the terms of the new tenancy such as on the same terms as the existing tenancy agreement. An example of the option to renew clause is: “Provided that Lessee is not in default in the performance of this Lease, Lessee may have the right to renew the Lease with a total of one renewal period with each term being 12 months (“Renewal Term”) which may be exercised by giving written notice to Lessor no fewer than sixty (60) days prior to the expiration of the Lease or renewal period. In case the Lessee wishes to extend the lease, the Lessee is entitled to have the priority to renew, provided the Lessee shall give the Lessor 2 months’ prior written notice. The renewed rental amount shall be renegotiated between the two parties under the same conditions. The Lessee shall have the first priority to renew the current lease if there are other parties interested in the property. The Lessor will advise the Lessee of the terms and conditions under which the property to be leased are and the Lessee shall have three (3) days (72 hours) in which to accept or reject such terms. The Parties shall negotiate and enter into a new agreement based on this

When entering into a commercial lease, there are initial costs that you, as the tenant, must pay when signing a lease. Additionally there are on-going costs a tenant must pay when they are leasing the property, and it will depend on the terms of the lease. Initial costs Security deposits The tenant needs to pay a security deposit equivalent to 1 to 3 months of the rent to the landlord at the time of signing the tenancy agreement. This deposit is refundable upon expiry of the lease, however the landlord is entitled from the contract to deduct from the deposit the amount of rent and fees in arrears. Stamp duty In case of lease, both the tenant and the landlord generally share the stamp duty payable to the Government. Usually it is 1% of the yearly or average yearly rent, and you can calculate the amount of the stamp duty by utilising the “Stamp Duty Computation” website provided by the Inland Revenue Department. Registration Fee A lease should be registered with the Land Registry within 30 days of its execution, otherwise it will lose its priority against other registered documents that affect the same property. In such an event, the existing tenant may become evicted. The lease agreement should specify whether the landlord or tenant pays the registration fee. Legal fees If you have hired a lawyer to draft/review the Lease agreement, you will need to pay them. Agency commissions Agents may charge both landlords and tenants if the leasing premises had been facilitated by an estate agent. On-going costs Rent A tenant must pay their landlord rent as specified in the lease deed. Property Tax The landlord usually pays the property tax annually. The standard tax rate for Hong Kong is 15%, and the assessable value of the property is based on the rent paid. However if the landlord is a limited company carrying on a business in Hong Kong, it is likely they will be exempt from paying Property tax. The company can

There are 2 main differences between a Tenancy Agreement and a Lease Agreement. Length/ period of tenancy A Lease is a document that creates a fixed term tenancy for more than 3 years. To execute the lease, there must be a deed, meaning that the agreement has to be signed, sealed and the parties should exchange copies of the lease. A lease should be registered in the Lands Registry. A Tenancy Agreement creates a tenancy for a period not exceeding 3 years. To enforce a tenancy agreement, it can be signed or verbally agreed between the parties. However, to protect their interests, both parties should keep a copy of the Tenancy Agreement as signed. Capacities of the parties The capacities of the parties entering into the Lease/Tenancy Agreement affects the formalities for the execution of the agreement. Generally, a party entering a lease must affix a red seal next to the signature of each signing person. A party entering into a tenancy agreement should affix a chop next to every signature. Capacity of partiesFormality requirements (wording commonly used for the execution clause) LeaseTenancy AgreementIndividualSigned, sealed and delivered by [name of party]Signed by [name of party]Sole proprietorshipSigned, sealed and delivered by [name of the sole proprietor] trading as [trading name of the sole proprietorship]CHOPPED WITH the chop of the [Landlord/Tenant] and signed by [name of the sole proprietor] trading as [trading name of the sole proprietorship]PartnershipSigned, sealed and delivered by [names of all partners of the partnership] trading as [trading name of the partnership]CHOPPED WITH the chop of the [Landlord/Tenant] and signed by [names of all the partners] trading as [trading name of the partnership]Limited companySealed with the common seal of [name of the company] and signed by [name(s) of the signatory(ies)], duly authorised by its Board of Directors Signed for and on behalf of the [Landlord/Tenant, with company chop] by [name of

When you decide that you’d want to open a physical store, have a work office or find a place to store your company’s inventory, you may choose to lease a property. A commercial lease is a contract between the landlord and the business to lease a property for business purposes. It is a complicated document because of the legal terminologies used in it. A copy of a commercial lease can be found here. It is different from a residential lease as a commercial lease is used for the property being leased for non-residential purposes. Before signing a commercial lease, it is important to understand the following terms of a commercial lease agreement: The parties The lease will identify the landlord and the tenant in the agreement. As a tenant, you can either take the lease in your personal name or in the company’s name. It is important to ensure the legal names of the parties are correct and that it is clear who is involved in the lease – as companies can be structured in complex ways. Depending on whether the lease is in your name or business name, the lease agreement should include both parties: Name / Business nameHK Identity card number/ Business Registration numberCorrespondence addressContact telephone and fax number You should check the Land Registry to ensure that first, the ‘landlord’ is indeed the registered owner of the property and second, that the property is not mortgaged. If the property is mortgaged, you must check to ensure that the bank has agreed to rent the property out. Description of the Property In addition to the details of the parties, the lease will identify the property as well. You must ensure the property address and the total area being leased to you is correctly mentioned in the lease. You should check whether the land is suitable for the purpose it is rented for with the Town Planning Board. For example, if you would like to open a restaurant, you should first check whether the property can be