Recent changes in the law such as the removal of the security of tenure and the ability to forfeit a contract after 15 days of delay in rental payment (or persistent delays in payment) have changed the balance of power in favor of the landlord.

Rent: Can landlord and tenant freely agree rents in Hong Kong?

Rents are freely negotiated in the private sector, which comprises about half of the rental market. Only a small proportion of the public rental market is actually rent subsidized. Subsidies provided by the Hong Kong Housing Authority (HKHA) and Hong Kong Housing Society (HKHS) are based strictly on the tenants' ability to pay. Young, working tenants are not subsidized at all, while elderly and disabled people can apply up to 50% rent reduction.

Deposits

Security deposits are equivalent to two, occasionally three, months' rental. Once the Tenancy Agreement is signed, the deposit is held by the landlord without interest and refunded to the tenant upon expiration of lease. The cost of any damage or reinstatement work necessary to the apartment, other than fair wear and tear, will be deducted from the deposit before repayment.

What rights do landlords and tenants have in Hong Kong, especially as to duration of contract, and eviction?

There are two types of rental arrangements in Hong Kong, a Lease (for tenancies greater than 3 years) and a Tenancy Agreement (for tenancies not exceeding 3 years). There are no significant differences between the two except for the length of tenancy.

The Landlord and Tenant (Consolidation) Ordinance 2004 removed security of tenure, i.e. domestic tenants no longer have the statutory rights to renew their tenancy at prevailing market rates.

For tenancies created after July 9, 2004, termination of contracts is done in accordance to the terms of the tenancy or as agreed between the parties. Unless both parties agree, there is no way to end a fixed term tenancy before the expiration of the lease agreement.

A periodic tenancy, however, will be terminated by a notice to quit in accordance with the common law, typically one rental period (e.g. 1 month's notice for a month-to-month tenancy).

The landlord can prematurely terminate a domestic tenancy for the following reasons:

1. non-payment of rent within 15 days of the due date;
2. use of the premises for immoral or illegal purposes;
3. unnecessary annoyance, inconvenience or disturbance including persistent delay in payment of rent; and
4. structural alteration to the premises without the landlord's consent

If a tenant refuses to vacate the property after the tenancy agreement expires, the landlord should apply for possession from the Lands Tribunal (if the outstanding rent is below HK$1,000,000 (US$129,025)) or other Courts before the tenant can be made to leave. The other courts are:

• the District Court if the outstanding rent does not exceed HK$1,000,000 and the rateable value of the property does not exceed HK$240,000 (US$30,966); or
• the Court of First Instance of the High Court for outstanding rent of any amount (however, they will not entertain cases falling under the jurisdiction of the Lands Tribunal and the District Court).

If the landlord is successful in obtaining a judgment against the tenant, he will be able to apply to the tribunal/appropriate court for a Writ of Possession. Upon the issue of the Writ of Possession, the court bailiff will recover the possession of the property on the landlord's behalf. It is a criminal offense to harass and illegally evict tenants and sub-tenants. Tenancy contracts usually contain a clause that prohibits the tenant from subletting the property to another party. Any subletting by the tenant will be a breach and the landlord can institute legal action for compensation.

How effective is the legal system in Hong Kong?

The Lands Tribunal is the major body responsible for handling tenancy disputes. The tribunal is characterized by informality. The presiding officer plays a more intervening role and is more ready to discuss the issues with the parties. If a tenant fails to pay rent and the landlord intends to recover the outstanding rent but not to regain possession of the properties, then the landlord may make his claim for rent arrears at one of the followings.

• The Small Claims Tribunal : for claims of HK$50,000 (US$6,451.27) or less
• The District Court: for claims that exceed HK$50,000 but do not exceed HK$1,000,000
• The Court of First Instance of the High Court, which has unlimited jurisdiction.

Legislation

The laws on tenancy in Hong Kong are largely governed by the Landlord and Tenant (Consolidation) Ordinance 2004 and implemented by The Rating and Valuation Department, supplemented by Common Law (i.e. the case law that has been built up over many years).

Stamp Duty

A person who leases out or sells property is subject to Stamp Duty. The rates of Stamp Duty for selling properties are different from the rates for leasing out properties. Stamp Duty for leasing out properties varies depending on the term of the lease agreement. Stamp Duty is borne both by the tenant and landlord.