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3. Renting

3.1 Letter of Offer/Provisional Agreement & Holdings Deposit
3.2 Proof of Ownership
3.3 Length of Lease
3.4 Mortgagee Consent
3.5 Tenancy Agreement
3.6 What to expect when signing the Tenancy Agreement
3.7 Security Deposit
3.8 Stamp Duty
3.9 Cost incurred when starting of Tenancy

3.1 Letter of Offer/Provisional Agreement & Holdings Deposit

Once you have verbally agreed the rental amount and the improvements needed to the property with the Landlord, he may want you to sign a Letter of Offer/Provisional Agreement and pay a holding deposit to indicate your initial acceptance.

It is wise to only commit to an offer letter that is ‘subject to contract’ whereby this initial deposit is refundable.

You should avoid signing a binding provisional agreement at the time the landlord agrees to the offer. This ties you to the transaction without any right to negotiate on the terms of the tenancy.

A ‘legally binding’ offer is a Provisional Agreement stating all the material terms and conditions of the offer which once confirmed will bind both parties. This agreement however does not mention the conditions stated in the formal tenancy agreement containing the responsibilities of each party during the lease term. In addition the initial deposit paid to the landlord is non refundable once this agreement is executed.

In addition a “legally binding” offer letter eliminates your right to amend the formal tenancy agreement which in Hong Kong is normally more favorable to the landlord than the tenant and offers more protection to the landlord.

In other words if you withdraw your offer after you have signed this agreement in addition to loosing your initial deposit you may end up compensating the landlord for any loss which could mean having to pay rent for the complete term of the lease if the landlord cannot find a replacement tenant within the tenancy term of two years. You may also be liable for the real estate agency fee even though you did not eventually sign a formal tenancy agreement.

The initial holding deposit is paid as a sign of good intent for the Landlord to hold the property whilst awaiting preparation and completion of the contract documents. The amount of this deposit is usually one month of the agreed rent. Whenever a holding deposit is paid, a receipt should be obtained.

Before signing this letter, you should consult Housing Services for advice on whether or not the rent being asked for the property is a market rent. Please note that Cathay Pacific will pay Housing Benefits only if the rent for the accommodation reflects the market rental level of unfurnished accommodation.

Special attention should be paid to the deadline detailed in the Letter of Offer/Provisional Agreement, for accepting the offer as delay in confirming acceptance might result in forfeiture of the holding deposit paid. If you delay, you may also have to pay the agreed Agency Fee to your Estate Agent.

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3.2 Proof of Ownership

Your estate agent should provide you with the latest land search confirming the party executing the tenancy agreement is the legal owner of the property.

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3.3 Length of Lease

The general term in Hong Kong is for 2 years and subject to negotiations, after the first 12 months of the lease a 2 or 3 month written notice may be served to the landlord to early terminate the lease (break clause). We strongly advise you to include a break-clause in the tenancy agreement.

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3.4 Mortgagee Consent

When the property is under mortgage it is advisable to request the landlord to confirm that they have acquired the consent of the bank to lease the property out. Without this the bank have the legally right to terminate the lease and request for vacation of the occupant should they discovered the existing of a tenant mainly because the mortgage payment can be substantially different between a self use and investment property.

For cases whereby the landlord is unable to get the consent and for your protection the landlord should give you an undertaking for all the expenses incurred by your relocation. A copy of the “Letter of Undertaking” is enclosed for your reference.

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3.5 Tenancy Agreement

All residential leases are personal leases meaning that you will be responsible for agreeing on and signing the tenancy agreement.

It is advisable to use the standard tenancy agreement drafted up by Cathay Pacific as the basis of your Tenancy Agreement with your Landlord, whenever possible. However, your landlord may wish his own solicitor to draw up a Tenancy Agreement.

Acceptance of accommodation or other dwelling and the terms of the related Tenancy Agreement are your responsibility, as the Tenant. It is therefore advisable to obtain a copy of the draft Tenancy Agreement for inspection. You must satisfy yourself with the terms of the agreement before signing. It is legally binding.

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3.6 What to expect when signing the Tenancy Agreement

If your landlord uses a solicitor to draw up the Tenancy Agreement, you are likely to attend the solicitor’s office in person for signing. You should take your passport of Hong Kong I.D. Card as proof of identity.

The Tenancy Agreement is in duplicate and a third person must witness the signing. Check that the Tenancy Agreement and the duplicate are properly signed, witnessed and dated.

The Landlord’s solicitor immediately upon signing of the agreement. Please note that it is customary for each party to be responsible for their own legal cost. Upon execution of the Tenancy Agreement. You will also be expected to pay the security deposit as well as your share of the stamp duty.

If you used a Estate Agent to find the property, you will be expected to pay the agreed Agency Fee on signing the Tenancy Agreement.

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3.7 Security Deposit

This is normally equivalent to two months rent which the landlord will hold without interest throughout the lease term. This deposit is refundable and will be returned to the tenant at the expiration of the Tenancy Agreement provided that all the terms of the lease have been compiled with and all utility bills are fully settled.

Cathay Pacific offers an interest free deposit loan which you shall need to reimburse to them over a period of 3 months, through salary deduction after determination of the lease.

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3.8 Stamp Duty

This is shared equally between the Landlord and Tenant and is paid to the Government of the Hong Kong Special Administrative Region for the stamping of the Lease Agreement after it is signed. The duty on a lease must be paid within 30 days of its execution, failing which the contractual parties are liable to a penalty for lateness. If the stamping is more than two months late, the penalty is ten times the amount of duty, though the collector has power to remit some or the entire penalty.

Your agent, landlord, solicitor or yourself will need to present the signed tenancy agreement for stamping. The duty incurred will be shared equally between you and your landlord . A separate cheque should be made payable for the duty to 'The Government of HKSAR’.

Time for Stamping is within 30 days after the date of execution (note : this is the Date of tenancy not the commencement day).

Penalty

Length of Delay Penalty
Not exceeding one month Double the amount of stamp duty
Exceeding one month but not exceeding two months Four times the amount of stamp duty
In any case Ten times the amount of stamp duty

Stamping Arrangement

Stamp Duty Office
Submit an application for stamping in paper form at Stamp Office Counter:
- 3/F, Revenue Tower, 5 Gloucester Road, Wanchai (near Grand Hyatt Hotel)
(Tel.: 2594 3201/2)

e-Stamping Service
May use the 24 hours e-Stamping service (details) at ESD web site (http://www.esd.gov.hk) to submit electronic stamping applications. For details, please refer to the government web site http://www.ird.gov.hk/eng/ese/e_stamp.htm#1

How to Calculate Stamp Duty

A. 0.25% of the total annual rent where the length of lease is unspecified or is one year or shorter;
B. 0.5% of the annual rent where the lease is for between one and three years;
C. 1% of annual rent where the lease is for three years or longer.

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3.9 Cost incurred when starting of Tenancy

Housing Assistance:

A. Rental deposit (normally equivalent to 2 months rent)
B. 1st month advance rent

Personal Account:

A. Stamp duty
B. Agency fees (if applicable)
C. Solicitor’s fee (if applicable)
D. Utility deposits

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