1. The search
The rental process begins once you’ve found a suitable property and your agent makes an offer to the landlord. Virtually all landlords require a face-to-face meeting with prospective tenants before signing any agreements, and some may request proof of your employment and income, such as your working visa, employment contract and pay slips. Once this is done and the rental rate agreed upon, the terms and conditions of the lease are usually negotiated (eg. length of lease, furniture or fittings to be provided, any work the landlord agrees to do before commencement of the lease and the date for the formal tenancy agreement to be executed).
2. Provisional tenancy agreement
The landlord and the prospective tenant will then sign a provisional tenancy agreement setting out the agreed terms and conditions. At this point, a deposit, normally equivalent to one month’s rent, will have to be paid to the landlord. The provisional agreement is binding to the extent that if the landlord changes his mind after signing, he will have to return to you the deposit received plus an equal sum as compensation. If you change your mind, your deposit will be forfeited to the landlord. The defaulting party will also be required to pay both the landlord and tenant’s commission to the real estate agent.
3. Formal tenancy agreement
After the provisional agreement is signed, the agent will prepare the formal tenancy agreement usually within one to two weeks. The formal tenancy agreement is a more detailed contract based on the terms set out in the provisional agreement. Upon signing the formal agreement, the tenant will pay the landlord the balance of the security deposit. This is normally equivalent to two months’ rental, of which one month should have already been paid as a deposit with the provisional lease agreement. You will also have to pay the first month’s rental in advance before the commencement of the lease. The landlord will then hand over the keys to the premises to the tenant. Both parties will keep a signed copy of the formal agreement as evidence of the lease.
Usually, the rent mentioned in the lease agreement will be exclusive of management fee and rates. The rent level is set for the 2 year period of the lease.
• Rent payment
The agreement should state the payment period (usually on the first day of each month) and method (check, cash or bank transfer). Under the law, the landlord may begin eviction procedures against a tenant once the rent is more than 15 days overdue or if the tenant is consistently late in paying rent.
• Length of lease
Lease terms are typically for a period of two years. Most landlords do not accept a lease term which is less than one year, although some might agree to a six-month minimum lease.
• Break clause
The agreement should state whether there is a “break clause”, which allows either party to terminate the tenancy under certain circumstances. Termination is usually only allowed after one year, and the tenant is required to give one or two months’ notice.
• Security deposit
The security deposit, typically equivalent to two to three months’ rental, is kept by the landlord during the term of the tenancy. The deposit is returned to the tenant within seven to 14 days after the tenant has returned the property to the landlord, and discharged all his obligations according to the tenancy agreement.
• Stamp duty
A levy paid to the government upon the signing of the formal tenancy agreement. The figure is equivalent to 0.5% of the annual rent, and is equally divided and paid by the tenant and the landlord.
• Management fees
A management fee is charged on top of rent and covers the cost of building maintenance, security and the general upkeep of amenities. The more amenities offered in a complex (eg. swimming pool, gym etc), the higher the management fee will be. The agreement should clearly state which party is responsible for paying the fees.
• Government rates
A government charge by the Rating and Valuation department affecting all property, Government rates usually amount to 5% of the rental. Landlords typically pass this cost onto the tenant. Rates are charged quarterly and payable in advance. The agreement should clearly state which party is responsible for paying the charges.
Unless otherwise specified in the tenancy agreement, utility costs such as phone, gas and electricity are borne by the tenant, although this may be altered by negotiation and included in the contract.
• Maintenance and repairs
The agreement should state whether the landlord or the tenant will be responsible for maintenance and repair of the property. Make a thorough inspection of the premises; in particular, check water pressure, the number of electrical points and any signs of water leakage. Make sure that any defects or repairs needed are brought to the landlord’s attention.
An inventory list should be drawn up for any furniture and electrical appliances which are to be leased as part of the rental property. The inventory check is usually carried out a few days before the handover of the property. Kitchen appliances are sometimes, but not always, provided. Stove tops, refrigerators and washing machines are often the norm, but ovens and dryers are seldom included.
• Renewal option
When the lease term is complete, the tenant has the right to renew the tenancy agreement for another term should the landlord not require the premises, and if the tenant is prepared to pay the current market rental rate.
The landlord should inform the tenant if the rental property is insured and, if so, the scope of coverage. Specific provisions are sometimes included in the lease agreement to require the tenant to pay for additional premiums caused by any act on the part of the tenant.
There are numerous Hong Kong property websites which can give you an idea of the current rental market in Hong Kong. Rental prices are usually determined by location of the property, with rentals being the highest for highly coveted areas of Hong Kong Island like the Peak, the Mid-Levels and Repulse Bay and the surrounding areas. Rentals are also determined by the type of dwelling and, generally, full service buildings that offer a host of amenities command higher rentals than older buildings which have larger flats but not as many facilities. Properties located in the New Territories or Kowloon are generally believed to command lower rents than those on Hong Kong Island but this not always hold true for there are some areas of Kowloon like Kowloon Tong which are as sought after as areas located on Hong kong Island.