Common Terms in Leasing Click Property Agency 奇力地產有限公司
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Common Terms in Leasing
Rental
Rental refers to an amount paid in advance to landlord for the right to use a premise for a specified period. It is calculated on a per month basis and is quoted in HK$ per square feet of the gross, lettable or net area. Usually fees like management fee, rates or other service charges and costs are excluded from the rental. Rental can be further categorized into 3 types “Asking rental”, “Face rental” and “Effective rental”.
  • Asking Rental refers to the rental price at which the landlord is offering for rent but with rooms for negotiation.
  • Face Rental refers to the nominal rental achieved after negotiation between tenant and landlord.
  • Effective Rental refers to the average rental for the tenancy period after deducting the rent free period.
Area
Area of premises is usually quoted on a “per square feet” basis. There are 3 types of measurement in presenting area of premises - “Net Area”, “Lettable Area” and “Gross Area”.
  • Net Area refers to the actual useable space of premises. For food and beverage business, net area is a key data for simulation of sales amount. Net Area Efficiency of premises is usually ranging between 90-100%.
  • Lettable Area refers to net area plus communal areas inside the building such as service corridor and lift lobby etc of a certain proportion. Most of the Grade A office and shopping mall premises are quoted in lettable area. Lettable Area Efficiency of premises is affected by floor plate size and is on average ranging from 75-90%.
  • Gross Area is similar to lettable area but it includes not only communal areas inside the building but all communal areas of the building. Gross Area Efficiency of premises is also depended on floor plate size. Its average percentage is around 60-75%.
Lease Term
Lease Term refers to the period of leasing. Lease term of office premises are usually ranging from 2 to 3 years at fixed rental. However for larger office premises, in consider of ROI (Return of Investment), lease terms ranging from 6 to 9 years are preferred by tenants. There is rent review by the end of every third year based on the prevailing market rental for this kind of lease term.
Rent Free Period
Rent Free Period refers to the period in which the tenants are not required to pay any rental for the use of the premises. It is regarded as an incentive offered by landlords as an allowance for fitting-out or relocation of premises. The length of the rent free period depends on premises size and the prevailing market conditions. On average, rent free period of office premises is around 1 month while for shop premises, it is around 2 months.
Commencement Date
Commencement Date is the date when tenancy starts and tenants receives premises key from landlord. If there is rent free period, tenants may move in before the commencement date. In this case, rent becomes payable after the rent free period. For commercial premises, to safeguard tenants’ interest, tenants are advised to bring together the contractor for internal inspection and checking of technology problems on the date of handover.
Expiry
Expiry date is the date when tenancy ends and tenant has to return the premises back to landlord. Tenant should bear in mind the conditions (for example in bare-shell condition) for returning the premises which is stated in the Tenancy Agreement.
Option to renew
Option to renew refers to having priority in tenancy renewal upon expiry of the original lease terms. For tenants (usually for tenants of larger premises) who are allowed to secure the “Option to renew”, conditions such as issuing of notice and rental assessment method will be stated in the Tenancy Agreement.
Management Fee
Management fee is a non-negotiable fee which normally includes charges for central air-conditioning, building management, cleaning and use of public areas etc. However as it varies from different buildings, tenants are advised to confirm with building management what items are being included in the management fee (especially air-conditioning fee and promotion levy). Management fee is calculated on a per square feet basis and should be paid by tenant in advance on every month.
Holding Deposit
It is the deposit paid to landlord’s solicitor during the period when an offer on a premise is made but Tenancy Agreement draft is not yet ready to be received. When Tenancy Agreement is signed, this holding deposit becomes the rental payment of the first month. Usually the deposit amount is equivalent to one month’s rental fee but in some cases, it may be as much as three month’s rental fee depending on contract terms. Holding deposit is usually fully refundable in case of refusing to sign Tenancy Agreement by either party. (Sometimes offer letter is signed to serve as binding contract.
Security Deposit
The security deposit is a deposit held by the landlord during the tenancy period to secure that tenant fulfills all tenancy conditions (such as rent and bills payment and good property maintaining conditions etc.) It is usually equivalent to three months’ rental fee (plus three months management fees and government rates). It should be paid by tenant to landlord upon signing of Formal Tenancy Agreement and is refundable after the tenancy period. To let landlord having enough time to check payment record of tenants and property conditions, refund of security deposit is usually carried out within fourteen days to one month after the end of tenancy period. Tenants should pay attention to terms on refund of security deposit stated in the Formal Tenancy Agreement. Unlike many other countries, security deposit is repaid without interest in Hong Kong.
Landlord's Provisions
Landlord’s Provisions refers to items such as ceiling tiles, light boxes, A/C fan coil units, carpet etc which are provided by landlord to tenant free-of-charge. However, tenant should confirm with landlord regarding who should bear the installation cost.
Offer Letter
Offer letter is prepared by estate agent when tenant and landlord come to the stage of negotiations. It should be signed by both parties to make it effective. In offer letter, all major terms and conditions of tenancy such as agreed monthly rent, lease period, commencement date, landlord provision, repairing work and handover conditions etc. should be included. Sometimes offer letter is signed as binding contract or can be replaced by provisional agreement.
Tenancy agreement (TA)
Tenancy agreements are contracts signed between tenants and landlords to specify in detail the rights and obligations of each party during tenancy period. Tenancy agreements are legally valid documents and tenants are advised to consult legal advisors prior signing. Formerly, tenants of single-owned or Grade "A" buildings are expected to accept standard agreements and landlords are less willing to allow major amendments or changes in TA. However, recently stance of landlords becomes softer.
Early Termination
Early Termination refers to early leave of tenant from the premises before the tenancy period ends. It can be done in either one of the following two ways.
1. Surrender by compensation through negotiation and mutual agreement with landlord.
2. Introduction of replacement tenant to take up new lease terms and conditions that are agreeable to landlord.
Replacement Tenant
Replacement tenant can be divided into two types.
1. Replacement tenant that takes over the premises until the end of the existing tenancy period.
2. Replacement tenant who enjoys a lease granted by the landlord.
In either case, existing tenant has to seek permission and cooperation of the landlord and should be prepared to pay the agency fee, legal costs and stamp duty incurred from the introduction of replacement tenant for the landlord side.

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