Leasing Office Space

  1. Introduction

If you have made up your mind to create a start-up company, you may choose to do it solo – working at home and setting up a virtual address to receive letters from others, or you may gather a team. If you choose to work as a team, your home may not be the best place to run your business. You may then need to consider renting an office for the daily operation of your company. This article first explains why you need an office for your business, followed by some basic legal ideas of a lease, the rights and obligations of a tenant and the potential legal problem that may arise in using co-working space.

2. Registered Office

Section 658 of Company Ordinance (Cap 622)[1] requires a company to have a registered office in Hong Kong, which allows other parties to address their correspondence or notice to the company. Section 27 also requires the Registrar to record the address of registered office of a company.[2]

Company Ordinance does not require the company to run its business in its registered office. It is possible to have a registered office in a commercial unit while the staff works in another office. It is not uncommon for companies to use external registered office address service, which is provided by company secretarial service providers by allowing companies to registered their office address for the purpose of s.658 CO.

3. Essentials for a lease

Instead of engaging a company secretarial service provider, you may also choose to rent a premise for the operation base of your company. If you call a leasing agent or the leasing department of a building, you may encounter a term – “lease”. A lease is a contract of renting a property. This type of contract is subject to both common law principles and statutory regulations.

3.1  Common law principles

A contract of lease typically contains the five elements:[3]

  1. the identity of the parties (the tenant and the landlord),
  2. the premise to be rent (the property),
  3. the commencement and duration of terms (with a clear commencement date),
  4. the rent or other consideration to be paid to the landlord,
  5. and other things that the parties intend to include in the contract.

Missing any one of the terms may render the lease void.

3.2 Statutory regulations

Statues usually regulate the formality of a lease. This section covers some statutory formalities regarding leases.

Lease be in writing and oral lease

To make a lease enforceable, section 3(1) of Conveyancing and Property Ordinance (Cap 219)[4] requires a lease (or a memorandum or note which contains all the essential terms of the lease) to be in writing and signed by the party to be charged. A lease will still be valid even if it is not in writing, but the parties cannot enforce the terms of the lease against another party.

In common law, it is possible to have a verbal contract. Accordingly, it is possible to have a verbal lease, but a verbal lease is only enforceable if there is part performance pursuant to the terms of the lease (see section 3(2) of Conveyancing and Property Ordinance (Cap 219)).[5]

Registration

Further, it should be noted that a written lease is required to be registered within one month of creation, unless the term of the lease not exceeding three years at a market rent. (see section 3(1) & (2) of Land Registration Ordinance (Cap128)).[6] An unregistered lease with a term exceeding three years is still valid, but the party will lose its priority against a competing claim.

Stamp duty

Sections 4(1) and 16(2) of Stamp Duty Ordinance (Cap 117)[7] provide that a lease agreement is chargeable with stamp duty. It is important to pay attention to the apportionment of the stamp duty in the lease.

Section 15(1)[8] provides that the lease cannot be used in court for civil dispute as evidence if the lease is not properly stamp.

Section 9 provides the penalties of late stamping. [9] If the stamping is late for less than one month, the penalty is double the amount of the stamp duty. If the stamping is late for less than two months, but more than one month, the penalty is 4 times the amount of the stamp duty. For late stamping exceeding two months, the penalty is 10 times the amount of the stamp duty.

4. Rights and duties of tenants

Exclusive possession

Apart from the statutory formalities and the common law requirements, a lease must also confer exclusive possession to the tenant. An occupier who does not enjoy exclusive possession of the premise is merely a licensee.

Exclusive possession is the right to use the premise to the exclusion of others, including the landlord. In other words, a landlord cannot enter the premise without the permission of the tenant under an effective lease. If, in the contract, the landlord retains the right to introduce other licensee to share the premises with the occupier, there is no exclusive possession of the premises.

Quiet Enjoyment

A tenant is entitled to quiet enjoyment of the premise during the term of the lease. However, it does not merely mean that the landlord cannot make noise to annoy the tenant. It also means that the tenant will be free from disturbance or substantial interference from the landlord. However, whether there is disturbance or substantial interference is a matter of degree. A temporary noise made by the landlord for renovation may not be enough to constitute disturbance or substantial interference.[10]

Duties of tenants

There are certain duties imposed on the tenants other than the express obligations stated in the lease. For example, the tenant is required to pay rent on or before the due date. Also, a tenant must not do anything that will damage the premise.[11]

5. Sharing work space

Co-working space has become more popular in Hong Kong in recent years.[12] It is a working premise shared by different companies where they share the common infrastructures and facilities while providing an office area with a lower budgetary threshold.

It should be noted that if your start-up does not have exclusive possession of the premise, you are not a tenant but a licensee and they may not be entitled to the rights that a tenant has (e.g. quiet enjoyment).

Start-ups should also heed another legal complication in renting a co-working space. When the co-working space is run by an operator, which is a tenant under a head lease, the start-up in the co-working space may become a sub-tenant (having a lease with an operator). Where the landlord terminates the lease with the operator, the sub-lease will also be terminated. However, section 58 (2) of Conveyancing and Property Ordinance (Cap 219)[13] provides for a remedy to the sub-tenant.


[1] Cap. 622 Companies Ordinance; https://www.elegislation.gov.hk/hk/cap622

[2] Ibid

[3] P.162; Hall S. Law of Contract in Hong Kong: Cases and Commentary (5th Ed)

[4] Cap 219 Conveyancing and Property Ordinance; https://www.elegislation.gov.hk/hk/cap219

[5] Ibid.

[6] Cap 128 Land Registration Ordinance; https://www.elegislation.gov.hk/hk/cap128

[7] Cap. 117 Stamp Duty Ordinance; https://www.elegislation.gov.hk/hk/cap117

[8] Ibid

[9] Ibid

[10] 10.6; Goo S. H. & Lee A. Land law in Hong Kong (4th Ed)

[11] Ibid.

[12] A 2016 blogpost written by Nicholas Yang, the Secretary for Innovation and Technology, https://www.itb.gov.hk/en/blog/2016/bg_20161212.html

[13] Above 4

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