The Occupiers Liability Ordinance (OLO) imposes a duty of care on the occupiers of premises to ensure that their visitors are reasonably safe in their permitted use of the premises. If a third party is a visitor to the property and suffers an injury within the premises controlled by the occupier due to the negligence of the occupier, the occupier would be liable. Occupier of the property It is important for organisations to determine what premises they are an occupier of, as the ordinance requires a party who is an “occupier” of the relevant premises to have the duty of care on it. The test to determine whether that party is an occupier is whether it has control over the premises. A property manager can be regarded as an occupier who has control over the daily management of a building, for example by allowing those with an access card to enter the building. For a company to determine which areas they occupy, they should review their contractual and practical arrangements, such as those with property management service providers. It is possible for a premise to have multiple occupiers. Visitors of the property A person expressly permitted to stay on the premises is a visitor, for example, guests staying in a hotel. If the occupier knowingly tolerates and takes no step to prevent another person from entering the premises, the person entering the premises may also be deemed as a visitor. In general, employees at work premises for employment purposes can be deemed to be visitors. Organisations should identify who may be the visitors of the premises, to determine to whom they may owe a duty of care. Duty of care A duty of care is imposed on the occupier to take reasonable care to ensure that visitors are reasonably safe in their permitted use of the premises. However, the occupier is not an absolute guarantor of safety. A breach of duty of care on the part of the occupier is, for example, causing a slippery floor and taking no steps to

The Building Management Ordinance and the Building Management (Third Party Risks Insurance) Regulation require an owners’ corporation (OC) to procure and keep in force a policy of third party risk insurance. Third-Party insurance provides compensation for financial loss in the case of the death of, or bodily injury to, a third party in relation to common parts and facilities of the building. The insurance can protect both the owners of the building, by reducing the risk of large compensation faced by owners in case of accidents, and the general public, as it offers better protection against potentially dangerous buildings. If the OC fails to procure third party risk insurance, every member of the management committee of the OC is guilty of an offence and is liable, upon conviction, to a fine of HK$50,000. What liabilities are covered by third party risk insurance? Third-party risk insurance covers liabilities that may be incurred by the OC in relation to the common parts of the building (e.g. external walls, passageways, corridors, staircases, roofs and lifts), in respect of the bodily injury to, and/or the death of, a third party. Third parties include owners, tenants, occupiers, visitors, or trespassers of the building. It is not mandatory for the OC to take out insurance covering property damage. But it is encouraged for OC to do so, or else they will be liable for compensation for damage done to a third party’s property due to the negligence of the OC. It is also not necessary to take out insurance covering liability from unauthorised building works. However, the OC may still be civilly liable for any accident caused by the works, if the court finds that they are responsible for the accident. Therefore, the OC should remove any unauthorised building works in the building to prevent any liabilities from arising. How much should be insured? The minimum insured amount must be $10 million per event. Notice to owners After the OC

The obligation to repair/maintain the leased property largely depends on what is specified in the lease/ tenancy agreement. To avoid unnecessary disputes, parties entering into tenancy agreements should clearly specify the obligations for repair and maintenance. Drafting the tenancy agreement A commonly adopted approach under tenancy agreements is that the landlord is responsible for external and structural repairs and maintenance, and the tenant is responsible for internal and non-structural ones. However, this may still be problematic because the words internal, external, structural and non-structural can have different interpretations under different circumstances. For example, If there is a plumbing issue, the landlord may say that it is the tenant’s fault, as they have failed to clear the toilet’s drain and to maintain the internal structure. The tenant may argue otherwise, that the plumbing is old and is a structural problem with the building. This may lead to a dispute on who is to fix the costly plumbing problem. Therefore, a well-drafted tenancy document will try to anticipate and accommodate all potential areas of dispute that are specific to the particular property, and clarify the parties' duties in detail. Tenant’s obligations The lease imposes an implied obligation on the tenant to use the property in a tenant-like manner, so a tenant is expected to use the property in a reasonable and proper manner and not to destroy or damage the property. Although the tenant has no obligation to carry out repair and maintenance works, a lease will often include a clause for a tenant to carry out such works to a limited extent. This is often due to common practice and on the parties’ unequal bargaining abilities. During the term of the tenancy, the tenant will be occupying and dealing with the property on an ongoing basis, so it is probably normal for the tenant to fix defects and carry out repair works which are necessary. It is

The purchaser and seller are both responsible for paying the stamp duty. However, the purchaser will usually contract to pay the stamp duty in full. The table below shows the stamp duty tax rate for commercial properties, after 20 November 2020. More details on the amount payable can be found here. Amount or value of the consideration(whichever is the higher)Stamp duty tax rate for non-residential properties. ExceedsDoes not exceed $2,000,000$100$2,000,000$2,351,760$100 + 10% of excess over $2,000,000$2,351,760$3,000,0001.5%$3,000,000$3,290,320$45,000 + 10% of excess over $3,000,000$3,290,320$4,000,0002.25%$4,000,000$4,428,570$90,000 + 10% of excess over $4,000,000 $4,428,570$6,000,0003%$6,000,000$6,720,000$180,000+ 10% of excess over $6,000,000 $6,720,000---3.75% You should note that the calculation of stamp duty for residential property is different.

A Formal Sale and Purchase Agreement (SPA) is a legally binding contract that outlines the terms and conditions agreed by the parties to the agreement i.e. the purchaser and seller of the property. The Conveyancing and Property Ordinance requires all contracts for sale of land (including house/property/building) to be made in writing to be enforced by the Court. Therefore, you cannot sell or buy a property through an oral agreement, as it will not be recognised by the court. The agreement is contractually binding and there may be severe consequences for breaching it. Terms of a formal SPA Based on the provisional agreement, and subsequent negotiations, usually the seller’s lawyer will draft a formal Sale and Purchase Agreement. It contains terms that are more detailed and is intended to replace the provisional agreement. A Formal SPA will have terms that are based on the agreed provisional SPA, including: Particulars of the seller and the purchaserAgreement to sell and purchaseThe seller agrees to transfer the title of the property to the buyerParticulars of the propertyThe description of the property should be identical to the one on the Land RegistryPurchase price and manner of payment Formal SPA terms will also contain additional terms from the provisional SPA, including: Condition of propertyUsually, the purchaser would take the property on an as-is basis, but there may be other conditions too, like delivery of machineryThe purchaser will usually have inspected the propertyFurniture and fixturesIf the price includes furniture and fittings, such items should be listed in the formal agreement. However the seller will likely not warrant the condition of the furniture or fixtures.Good titleThe seller agrees to prove and give good title to the property, and they are willing to provide title deeds of the property to the purchaserConsequence of breaching the formal agreementIf a party fails to complete the agreement, the other party can claim

A Sale and Purchase Agreement (SPA) is an agreement signed and agreed upon by both the seller and purchaser regarding the terms of the purchase. The provisional agreement is prepared by the estate agent and is signed by both the purchaser and seller. The agreement contains the preliminary terms of the sale of the property and is used as a basis for the formal agreement, which will be signed on a later date. The agreement is contractually binding and there may be severe consequences for breaching it. Terms in a Provisional SPA A provisional SPA must include the following terms: Particulars of the seller and purchaserIf the seller or purchaser is an individual, the agreement should state their name, address and Hong Kong Identity Card number. If the seller or purchaser is a limited company, the name, Business Registration Number and registered office of the limited company should be stated.Description of propertyThe property's postal address is usually sufficient to identify the property. PriceThe agreed price for the property is expressed in either words or figures or both.Completion date The date on which the seller disposes of the property to the purchaser. It may also include the following terms: Amount of initial and further deposit, and when it has to be paid The initial deposit is usually 1% to 3% of the total purchase price, and paid by the purchaser when they sign the provisional agreement;The further deposit is usually 10% of the total purchase price, inclusive of the initial deposit, and paid by the purchaser on the day the formal agreement is signed [9% or 10%]Balance of price to be paid upon completion of purchaseLegal cost and stamp dutyEach party will pay his own legal costs to their lawyersThe purchaser will usually pay the stamp dutyThe consequence for seller/ purchaser in case of withdrawal from the agreementAn "escape clause" allows a party to withdraw from the transaction within a short period of time after signing the

Property due diligence is a fact-finding process done by the purchaser, to ensure there are no legal and/or financial concerns relating to the property. The purchaser would usually instruct a lawyer to conduct property due diligence, and the lawyer should inform them of any encumbrances related to the property. An encumbrance is anything that can (i) reduce the value of a property or (ii) prevent the property owner from selling the property in the future. Sometimes, the purchase price is held back because issues have been identified in the due diligence process. The lawyer may also write to the seller to remedy the issue before the purchase will be completed. Due diligence period During the due diligence period, the purchaser has an opportunity to review and evaluate information and materials related to the property. The duration of the due diligence period is a negotiated, fixed amount of time, which varies between each transaction, but usually it is 14 -30 days from the time the sale and purchase contract is signed. Depending on the agreement, the purchaser may be able to rescind if they discover any major issue with the property. Content of property due diligence The areas covered by the due diligence and documents reviewed by the purchaser, their lawyer, and third party consultants will depend on each purchase. Generally, the following due diligence will be conducted: Title check The purchaser's lawyers will check the title documents of the property, by conducting searches at public registries including the Land Registry. This will reveal: the present owner and all the previous owners of the property;details of the property (e.g. the address of the relevant land lot);whether there is any government order in respect of the property that has not yet been obeyed (e.g. a repairing order, or an order to demolish an unauthorized structure);whether there is any existing mortgage;whether there is any lawsuit concerning the property

The process of selling/ purchasing a property is complicated, and generally speaking, there are 5 main steps associated with the process. However, this is a very broad overview of the sale/ purchase process of a property, and each transaction will be different, so you should consult your estate agent or lawyer if you are unsure of the process. Find an agent Both the seller and purchaser would find an estate agent to help with the sale and purchase of a property. If you would like to sell your property, your estate agent may: Get information about the property from you; Market your property to potential purchasers; Arrange for potential purchasers to inspect your property;Tell you about all offers in relation to your property;Help you negotiate and sign the provisional agreement with the purchaser. If you would like to buy a property, your estate agent may: Provide you with the necessary information about the property;Arrange for you to inspect the property;Pass on all your offers to the sellerHelp you negotiate and sign the provisional agreement with the seller. Do you need to sign the estate agency agreement? Will the agent provide property information? No, as per the Estate Agents Practice (General Duties and Hong Kong Residential Properties), the requirement of signing an estate agency agreement applies only to residential properties. In a commercial property transaction, the agent can provide general property information or information related to the transaction. As per the Code of Ethics issued by the EAA, estate agents must exercise due care and due diligence during a transaction i.e. they must protect the client’s interests and act in a fair and impartial manner. Sign the Provisional agreement The purchaser and the seller sign a Provisional Sale and Purchase Agreement of the selected property, which is usually prepared by the broker/estate agent in a prescribed standard form. The purchaser pays the seller an initial

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