Introduction

Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) (the Ordinance) came into effect on 22 January 2022, imposing regulations on tenancy of a subdivided unit (SDU) which is commonly known as "??" in Chinese.

Q1: What kind of tenancy is regulated?

A tenancy which fulfils all the following conditions is regulated:

(a) Commences on or after 22 January 2022
(b) Domestic tenancy
(c) The subject premises of the tenancy are a SDU
(d) Tenant is a natural person
(e) Purpose is for tenant's own dwelling
(f) Not an excluded tenancy (i.e. being one specified in Schedule 6 to the Ordinance).

Q2: What are some key features of the new regulations?

Topic Details
1. Security of Tenure
  • Regulated cycle: 2 consecutive "regulated tenancies" (i.e. first term tenancy and second term tenancy).
  • The term of each "regulated tenancy" is 2 years. Unless under certain circumstances (e.g., tenant failing to pay rent within 15 days after the due date, making structural alteration without prior consent, using the premises for immoral or illegal purpose, causing annoyance, etc.), the landlord cannot terminate the tenancy before the expiry of the term.
2. 2nd Term Offer
  • Landlord must make 2nd term offer by filling in Form AR1 and serving on tenant within the offer period (2nd calendar month immediately before the calendar month in which the purported 2nd term tenancy commences).
  • Example: if 2nd term tenancy commences on any date of January 2024, the offer period is the whole month of November 2023.
  • Terms and conditions of 2nd term tenancy are the same as those of 1st term, except the period of the tenancy and rental amount.
3. Submission of Notice of Tenancy
  • Landlord must submit Notice of Tenancy (Form AR2) to the Rating and Valuation Department (RVD) within 60 days from the commencement of the term.
4. Written Tenancy Agreement
  • If the tenancy is an oral one, tenant may demand landlord to serve written tenancy agreement1 reflecting contents of the oral tenancy.
  • If landlord fails to do so, tenant may (a) withhold rental payment or (b) terminate the tenancy by giving landlord not less than 30 days' prior notice in writing.
5. Rental Deposit
  • Deposit cannot exceed 2 months' rent.
6. Rent Control
  • Landlord and tenant are free to negotiate the rent for the 1st term tenancy.
  • However, the rate-of-rent increase for the 2nd term tenancy must not exceed the percentage change of the territory-wide index for all classes of private domestic properties published by RVD during the relevant period, and is capped at 10%. If the percentage is a negative figure, the rent for the second term tenancy is to be reduced at least by that percentage.2
7. Tenant's Early Termination
  • Tenant may, by giving 30 days prior written notice, terminate the tenancy.
  • The date of termination must not be a date earlier than the last day of the 1st term.
8.

Restriction on Miscellaneous Fees
  • Landlord commits a criminal offence if he/she requires tenant to pay any money in relation to the tenancy other than:
    • rents and rental deposits as permitted under Part IVA of the Ordinance.
    • reimbursement of charges for utilities and services (e.g., water, electricity, gas and communication services; and communications services include services enabling the Internet to be used).
    • damages for the tenant's breach of the tenancy.
  • First conviction: fine at level 3 (HK$10,000)
  • Second or subsequent conviction: fine at level 4 (HK$25,000).
9. Mandatory Implied Terms
  • Landlord's implied obligations:
    • Maintenance and repair: drains, pipes and electrical wire serving the premises exclusively; proper working order of fixtures and fittings provided by landlord; to carry out repair as soon as practicable upon receipt of tenant's notice.
    • Stamping: cause tenancy agreement to be stamped within 30 days upon receipt from tenants.
  • Standard tenant's implied obligations: pay rent on time, do not use premises for immoral or illegal purposes, do not cause unnecessary annoyance, etc., do not make structural alteration without landlord's prior consent, do not assign/ underlet premises, etc.


Conclusion

The above regulations took effect on tenancies commencing on or after 22 January 2022. Estate agents, landlords and relevant parties should take the opportunity to examine the current arrangements with the tenants of SDUs during the transition period, so as to ensure that their conduct of business complies with the requirements contained therein.

The Estate Agents Authority (EAA) has also issued a Practice Circular (no.22-01(CR)) on the handling of the tenancy of subdivided units. Estate agents who fail to comply with the guidelines in the Circular or the relevant law may be subject to disciplinary action.

The guideline could be found here: https://www.eaa.org.hk/Portals/0/Sections/CC/2022_Jan/20220112e.pdf

Please also see the Regulated Tenancies Booklet published by RVD for more information: https://www.rvd.gov.hk/doc/en/Regulated_Tenancies_Booklet_eng.pdf

Footnotes

1. Template for tenancy agreement for a "regulated tenancy" can be downloaded from RVD's webpage (www.rvd.gov.hk/en/our_services/tenancy_matters.html) for general reference.

2. Online calculator (a) showing the maximum percentage for an increase of rent for the relevant second term tenancy and (b) calculating the maximum amount of renewed rent as permitted under the Ordinance will be available at RVD's webpage from October 2023 for reference purpose.

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