This is the formal agreement stipulating all the terms and conditions of the tenancy. Agreements are usually prepared by the landlord's solicitor and run to several pages. It is often advisable for the tenant to have his own solicitor to review the Agreement and in this case the tenant would bear his own legal fees. Upon signing the Tenancy Agreement, the tenant must pay the security deposit to the landlord. The Tenancy Agreement is signed by both parties, in duplicate, and must have the stamp duty paid.
Office premises are normally offered on short lease terms of two (2) or three (3) years at a fixed rent for the period. Larger space users may request longer lease terms of six (6) or nine (9) years, with a provision for review of rent at the end of every third year to the then prevailing market rent.
Rents are quoted in HK$ per square foot (gross/lettable/net) per month, exclusive of service charge and additional costs, and are payable monthly in advance. The term effective rent is often mentioned in negotiations. The effective rent is the average rent payable over the initial term of the lease after factoring in all inducements and incentives.
These are primarily intended as an allowance to cover the period required for fitting-out the premises. In practice, and depending on various factors such as the size of the unit and the prevailing market conditions, landlords may offer longer rent-free periods as an incentive to tenants.
In general Hong Kong leases cannot be assigned and only limited subletting is permitted. Tenants may request a break clause to terminate the lease early. The landlord may request a break clause to terminate the lease early for either sale or redevelopment purposes. The ability to carry out such a break will be regulated by the required notice period.
Option To Renew
In some cases it may be possible to secure an option to renew the lease upon expiry of the original term for a further two- (2) or three- (3) year period.
The tenancy agreement will detail the conditions under which the option may be exercised, including the serving of notice and method for the assessment of the new rent to be paid during the renewal period.
Typically, the rent review clause within the lease agreement will set out how the open market rent should be determined under certain parameters otherwise known as Assumptions and Disregards. Furthermore, in the event that the landlord and tenant are unable to agree the rent, there is a mechanism within the lease to enable either party to refer the matter to an independent valuer, acting either as an expert or arbitrator.
In most cases landlords offer premises in a "bareshell" condition. Standards do vary, but for most Grade A buildings, the landlord will provide inter-tenancy partitions, raised or screeded flooring, and a suspended ceiling grid with ceiling tiles and light boxes. The primary air-conditioning plant will be provided, but secondary ducting as well as all electrical wiring will be the tenant's responsibility.
In order to ensure high standards throughout a building and to comply with building and fire regulations, it is usual for landlords to insist that all mechanical and electrical (M&E) works which require connection to the main building services, be undertaken by their nominated contractors.
At the end of the tenancy, landlords will usually reserve the right to require the tenant to reinstate the premises to the original condition. This is an additional cost to the tenant at the end of the lease term.
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