Legal update: Are Hong Kong’s Tenants Being Left Out in the Cold?

Post-SARS Hong Kong is experiencing a revival in the residential property market, with many people taking the plunge and buying their first apartment. However, for a large majority of the population, particularly the expatriate community, renting a flat is the most practical option. The rights of tenants will become increasingly important as the property market continues to flourish and, inevitably, rental costs increase. However, recent changes in the law have swung the balance of power away from tenants in favour of landlords in terms of security of tenure. Despite this shift, there are transitional arrangements and exceptions that protect tenants as old tenancy agreements expire and new agreements are made under the new law.

Old Law

Under the Landlord and Tenant Ordinance, a tenant was entitled to renew his/her tenancy by serving a form on the Landlord, providing he/she was willing to pay the prevailing market rent. In order for the landlord to oppose the granting of a new tenancy, he/she had to serve a form on the tenant and rely on one or more of six grounds of opposition. These included self-use, re-development, self-occupation and failure by the tenant to pay rent. If the parties could not agree on the terms of the new tenancy, the matter was then referred to the Lands Tribunal for determination.

New Law

Legislative amendments to the Landlord and Tenant Ordinance took effect on 9 July 2004 and the new system has made a number of fundamental changes to residential tenancies, the most important of which being the removal of security of tenure.

Transitional Provisions

The amended Ordinance provides a transitional arrangement for removing security of tenure for residential tenancies created before the commencement date. These arrangements are as follows:

1. If the landlord has served a notice of termination on the tenant before the commencement date and the tenant has succeeded in opposing the termination, the tenant will be entitled to one more tenancy renewal.
2. If the tenant has served a notice of renewal on the landlord before the commencement date and he is successful, the tenant will be entitled to one more tenancy renewal.
3. On or after the commencement date, if the landlord or tenant under a tenancy created before the commencement date wishes to terminate the tenancy, he/she may do so only by serving a transitional termination notice (TTN). A TTN may be served by the landlord on the tenant after the expiry of the existing tenancy but not less than 12 months before the intended termination, or by the tenant on the landlord not less than one month before the intended termination.

The TTN requirement dictates that notice can be served at any time on or after the commencement date, but must not be earlier than the last day of the term for a fixed-term tenancy.

Exceptions to the TTN

The TTN will not be required if the landlord and tenant mutually agree to vary any of the terms of the tenancy, for example by changing the amount of rent to be paid, as is often the case. Thus, if the tenant wishes to enjoy this transitional protection, he/she should not agree to vary any terms of the tenancy agreement at any time on or after the commencement date, unless the negotiations are for a new tenancy agreement.

Another exception not requiring a TTN is if the landlord makes an application to the Lands Tribunal to make an order for possession on the basis that the premises are reasonably required by the landlord for occupation as a residence for himself/herself, his/her father, his/her mother or any son or daughter over the age of 18.

The New Regime

For tenancies created after 9 July 2004, landlords and tenants are subject to the new regime, which means (in essence) that tenants have no statutory protection from being required to move out on the expiry of the tenancy agreement if the landlord so asks.

Conclusion

As can be seen, the new statutory provisions do provide security of tenure to those tenants who entered into tenancies before 9 July 2004. The transitional protection will continue to offer security to tenants typically until 9 July 2006, when usual two-year fixed-term residential tenancies expire. Thereafter, the relationship between landlord and tenant is very much on a contractual basis agreed between the respective parties. In a rising property market, the upper hand will certainly be with the landlord and reflected in the drafting of the tenancy agreement. Therefore, it is more important than ever for tenants to fully understand the contents of the tenancy agreement that they are signing and, if necessary, seek legal advice.