Hong Kong:
Good News For "Subdivided Units" (劏房)? New Regulations On Subdivided Units In Hong Kong Came Into Effect On 22 January 2022
26 January 2022
Mayer Brown
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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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