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Glossary of Common Terms found in Residential Leasing in Hong Kong.
Please note that in this glossary, the terms "lease" and "tenancy" are used interchangeably.
Agency Fees
Often referred to as "commission", this is the fee charged by all agencies for the services of their consultants. The fee is payable on any premises leased, purchased or introduced to you by your agent. Agents reserve the right to charge the landlord or vendor on the same fee structure. For rental the standard agency fee is one half of one month's rental and is payable upon signing the Formal Tenancy Agreement. For sale and purchase the standard fee is 1% of the purchase price and is payable upon signing the Formal Agreement for Sale and Purchase.
Air-Conditioning
An essential in Hong Kong's hot and humid climate, air-conditioning units are usually installed in the property by the Landlord. Air-conditioning can be centrally installed and controllable in each room (known as "Central Air-Conditioning"), or provided by individual units. Individual units may be "window-type" (usually manually controlled) or "split-type" (usually remote controlled).
Break Clause
Sometimes the landlord will grant a clause in the Formal Tenancy Agreement allowing the tenant to give early notice after a specified period of occupation of the premises. The standard arrangement is for a two-year lease with a two (or three) month "break clause" after twelve (or fifteen) months. This means that, after twelve months of the lease, the tenant can give the landlord not less than two months' written notice of his intention to leave the premises. The advantage to the tenant is that the amount of the rent is guaranteed for two years although he may leave the premises after fourteen months.
Break Lease
If the tenant needs to leave the premises earlier than allowed for in the tenancy agreement, he will try to find 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 new two-year 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 and stamp duty payable.
Commencement Date
The date that the tenancy starts and from which rent is payable. The tenant may move in before the commencement date if he has a rent-free period or later if he carries out his own renovation or decoration works.
Communal Facility
A facility, such as a swimming pool or garden, shared by some or all of the occupants in the building or development.
Company Lease
Where the employee's company signs the lease and is named as the Tenant. The employee is then known as the Occupant. The company usually requires the permission of the landlord before substituting another occupant, even another company employee, although this is rarely opposed by the landlord. The company is responsible for the payment of rent and associated costs. (See also Personal Lease)
Decoration
The state of internal decoration of the premises. Not to be confused with renovation. Most rental premises will have basic decoration of walls and ceilings painted in white and polished wooden floors. Carpet is rarely fitted due to the high humidity levels although many tenants introduce rugs as part of their own decoration.
Duplex
A two-storey apartment.
Electrical Appliances
Unless otherwise stated, you can assume that all properties have air-conditioning units installed. Other appliances often supplied/requested would be a fridge/freezer, washer/dryer, and a cooker. Note that unless you specifically ask for a "Western-style cooker" you will usually be supplied with a Chinese-style two-ring gas burner. Smaller appliances such as TV, hi-fi, or small kitchen appliances such as a kettle are rarely supplied by the landlord (except in Serviced Apartments). Note that even if the electrical appliances are provided by the landlord, it is still the tenant's responsibility to maintain, repair and replace the units. Appliances run on 220 or 240-volts and North Americans are recommended to purchase new appliances upon arrival in Hong Kong.
Estate Agency Agreement - Forms 1 to 6
Estate agents in Hong Kong have been licensed since January 1999, regulated by a governing ordinance (the Estate Agents Ordinance) and monitored by a body known as the Estate Agents Authority or EAA. The EAA have introduced several prescribed documents regulating the relationship between the estate agent and the client.
Form 1 - The Property Information Form detailing information of a property for sale
Form 2 - The Leasing Information Form detailing information of a property for lease
Form 3 - The Estate Agency Agreement for sale of residential properties in Hong Kong for use between an Estate Agent and a Vendor
Form 4 - The Estate Agency Agreement for purchase of residential properties in Hong Kong for use between an Estate Agent and a Purchaser
Form 5 - The Estate Agency Agreement for leasing of residential properties in Hong Kong for use between an Estate Agent and a Landlord
Form 6 - The Estate Agency Agreement for leasing of residential properties in Hong Kong for use between an Estate Agent and a Tenant
For the tenant, the relevant forms are Form 6 and Form 2:
· Form 6 includes details of the appointment of the Agent by the client, the validity period of the agreement, the agency relationship and duties of the Agent, agency fees, property information, disclosure of pecuniary or beneficial interest by the Agent, and details of properties introduced to the client by the Agent (including the amount of commission payable by the property owner).
· An Estate Agent must also provide more specific information for each property introduced on the Form 2 or Leasing Information Form, including details of the correct address, the registered owner, subsisting encumbrances, floor area, year of completion, user restrictions, and any restrictions on leasing. The client may waive his right to receive this information.
Please note that it is a legal requirement that the Form 6 should be signed by both the Estate Agent and the Tenant and the Tenant must be given a copy for his or her information.
Estate Agent
An individual or a company that carries out the business of estate agency. In Hong Kong, all estate agents (individual and company) must be licensed and clearly display their licence number on all documentation including advertising. Complaints about an Estate Agent may be made to the Estate Agents Authority.
Estate Agents Authority (EAA)
The body set up to regulate the Estate Agency industry in accordance with the Estate Agents Ordinance. The body acts as an educator and regulator.
Exclusive Rental
This is the usual arrangement in Hong Kong and denotes that the Management Fees and Government Rates are payable by the tenant. (See also Inclusive Rental).
Facilities
Used to denote recreational facilities such as swimming pool, tennis or squash courts, gym, children's play area, residents' shuttle bus service, etc. Facilities are common in larger developments and usually entail a higher management fee. The use of facilities is usually included in the rent although additional charges may be made for tennis or squash courts.
Formal Tenancy Agreement
Fully Furnished
A property which is furnished in full. Most properties in Hong Kong are supplied on an unfurnished basis. A fully furnished property will usually include basic furniture such as sofa and easy chairs, TV unit, dining table and chairs, beds and wardrobes. Soft furnishings will include curtains or blinds for the windows, and may include lamps and pictures. Items such as bed linen,crockery, cutlery and utensils are rarely provided by landlords except in serviced apartments.
Government Rates
A property tax levied quarterly by the Hong Kong government, rates are a tax on occupation and are paid as 5.5% of the "rateable value" of the property, which is approximately equivalent to the monthly rent. Unless specified otherwise, Government Rates are payable by the Tenant.
Government Rent
Formerly "Crown Rent," this is a tax levied by the government on some, but not all, properties depending on the term of the Crown Lease of the property. Generally, all properties in Kowloon and the New Territories are liable to pay Government Rent whilst those on Hong Kong Island are less likely to be liable at this moment. The owner of the property should know at which point it will become liable for the tax. If applicable, Government Rent is calculated at 3% of the rateable value of the property and is charged quarterly together with Government Rates. Unless specified otherwise, Government Rent is payable by the tenant.
Hand-over
This is the procedure of handing the property from the landlord to the tenant. At this stage, your estate agent will assist you to check the internal and external condition of the property, check the inventory, take details of meter readings, etc. A detailed hand-over report will be prepared and a copy given to both the landlord and the tenant. At the end of the tenancy, a similar procedure is carried out, known as a "hand-back".
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 or is usually fully refundable in the event that the Tenancy Agreement is not signed by both parties.
House
Houses are rare in Hong Kong due to the high price of land. Most houses will actually be "townhouses" meaning that they are attached on one or both sides to another house within a development. In this instance, each house will have its own garden or terrace and often a roof terrace. Detached houses are usually found on The Peak and in certain areas of the South Side, Kowloon, and New Territories; they are extremely rare and accordingly very expensive!
Inclusive Rental
This denotes that the Management Fees and Government Rates are payable by the landlord. Unless otherwise negotiated or specified, an Exclusive Rental is the usual arrangement in Hong Kong. (See also Exclusive Rental).
Inventory
An itemised list attached 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.
Landlord
This may be a single individual who owns one property in a block, or a company which owns several units in various buildings, or a major developer who owns the entire development.
Landlord and Tenant (Consolidation) Ordinance
This is the government ordinance that regulates the relationship between the landlord and the tenant, and enforces certain rights and obligations on both parties.
Lease
Legal Fees
The Tenancy Agreement is usually prepared by the landlord's solicitor and each party pays its own solicitor's fee. However, some landlords insist that the tenant bear half of the landlord's solicitor's fee. Any expenses resulting from the tenant consulting his own legal advisors will be his own responsibility.
Management Fees
Paid in addition to rent, these cover the cost of staffing, security, cleaning, and lighting of public areas and are generally paid monthly direct to the appointed management company of the building. Unless specified otherwise, the management fees are payable by the tenant.
Occupant
Where the tenancy is held under a company lease, the company is the tenant and the employee is the occupant. The landlord's permission is required to change the occupant.
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.
Personal Lease
Where the individual signs the lease in his own name and is responsible for paying the rent and associated costs. See also Company Lease.
Purchaser
The buyer of a property for sale.
Relocation Allowance
Executives newly arrived from overseas will sometimes be given a relocation allowance by their company. This is to assist in the purchase of furniture, soft furnishings, electrical appliances and other necessary equipment but may also be used to assist with decoration and renovation costs.
Renovation
Usually denotes the state of internal repair of a property. To be fully renovated, a property should have new bathrooms and kitchen, electrical wiring and plumbing, and often new windows and doors. This should not be confused with decoration which is usually basic.
Rent
This is the agreed monthly amount which remains constant for the term of the lease. Rent is normally payable monthly and in advance by the tenant to the landlord. Normally it excludes the monthly management fees and the government rates (payable quarterly).
Rent-Free Period
As part of the negotiations, a landlord may offer a rent-free period ranging from a couple of days to one or two months. This is much more commonly found in a slow-moving market.
Roof
Used to refer to a terrace on the roof of a building rather than the ceiling of a unit. A roof terrace can be private (and therefore highly sought-after) or communal and shared by either all the occupants of the building or just those units on the top floor.
Sale and Purchase Agreement
This is the legal agreement drawn up between the vendor and the purchaser of a property and is signed in two stages:
1. Provisional Agreement for Sale and Purchase
Once the vendor and the purchaser have agreed on all of the terms, the Provisional Agreement is signed. This identifies both parties and the property, states the sale price and the amounts to be paid at various stages, and stipulates the commission to be paid by both parties to the estate agent. Upon signing the Agreement, the purchaser must pay an initial deposit (usually equivalent to 3% of the purchase price) to the vendor. Once this Agreement is signed, neither party can back out of the sale and purchase except by forfeiting the amount of the initial deposit and agency fees, plus the total amount of the stamp duty due.
2. Formal Agreement for Sale and Purchase
A detailed agreement stipulating all of the terms and conditions of the sale and purchase. This is always drawn up and handled by lawyers as part of the conveyancing procedure.
Security Deposit
This is usually equivalent to two months' rent (somtimes plus, two 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 seven to fourteen days 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.
Security of Tenure or Right to Renew
After the passing Landlord and Tenant (Consolidation) (Amendment) Ordinance 2004 (the "Amendment Ordinance") on 30 June 2004, the security of tenure provisions for domestic tenancies under Part IV of the L&TO was removed. The Amendment Ordinance removed the security of tenure introduced in 1981 and allows the landlord and the tenant to freely agree their own terms of tenancies. After being published in the Hong Kong Government Gazette on 9 July 2004, the Amendment Ordinance and came into operation on the same day. For tenancies in existence prior to 9 July 2004, landlords and tenants can rely on the prescribed mechanism to renew their tenancy during the transition period. For details, please check with government web site or seek independent expert advice.
Serviced Apartments
These apartments are fully furnished and fully equipped with items such as bedlinen, towels, crockery, cutlery and kitchen appliances. Maid service is usually provided on a daily basis (with the exception of Sundays and Public Holidays) and includes general cleaning and changing of linen and towels. Rents at serviced apartments range from HK$15,000 per month for a small unit to over HK$120,000 for a luxury suite, and terms range from one month to two years although many developments have a minimum term of three months. Many developments have a wide range of recreational facilities.
Stamp Duty
A duty payable to the government on the signing of a lease and generally calculated as 0.5% of the annual rent, this charge is usually shared equally by the landlord and the tenant. A tenancy agreement that is not stamped cannot be produced as evidence in a court of law, nor does it protect the landlord or the tenant under the Landlord and Tenant (Consolidation) Ordinance and is therefore virtually useless. For a sale, the amount of stamp duty varies from HK$100 to 3.75% of the purchase price and is paid totally by the purchaser.
Tenancy
A tenancy or lease is a legal contract between the landlord and the tenant. Normally it lasts for two years.
Tenancy Agreement
This is the formal agreement stipulating all the terms and conditions of the tenancy. Agreements are usually prepared by the landlord's solicitor and run to several pages. It is often advisable for the tenant to have his own solicitor to review the Agreement and in this case the tenant would bear his own legal fees. Upon signing the Tenancy Agreement, the tenant must pay the security deposit to the landlord. The Tenancy Agreement is signed by both parties, in duplicate, and must have the stamp duty paid.
Tenant
Under a company lease, the company is usually termed the "Tenant" whilst the employee is the "Occupant". Occasionally, Landlords may grant a personal lease which allows the individual to sign the Tenancy Agreement.
Term
Tenancies in Hong Kong normally last for two years. Sometimes, landlords will agree to a break clause which means that the tenant can give early notice of termination, usually with 2 or 3 months' written notice to be given to the landlord after twelve or fifteen months' occupancy.
Triplex
A three-storey apartment.
Utilities
Except for serviced apartments, it is the tenant's obligation to arrange for connection of utilities such as gas, electricity and telephone/fax lines. A deposit or connection fee is payable to each provider, roughly equivalent to two months' estimated usage, refundable on termination of the service.
Utilities
The term used to cover the supply of electricity, gas, water and telephone to a property. Sometimes the landlord will leave the utilities in his name (except the telephone account); in this case the bills will arrive in the landlord's name but must be paid by the tenant. Usually however, the tenant should have the utility accounts in their own name. To change the accounts to the tenant's name, the utility companies will ask for a deposit which is usually charged to the first bill and is refundable when the account is closed. All utility companies will ask for a copy of the individual's Hong Kong Identity card or the company's business registration certificate.
Vendor
The owner of a property for sale.