Lecture 10 - Tenancy Practices and Procedures(1)

BST21764Estate Agency & Marketing

Lecture 10Tenancy Practices & Procedures; Effective Agency Management and Supervision of SalespersonsSemester B, 2012

Lecture 4 - BST21764 Prepared by Ernest Chan 2

Content Hong Kong Domestic Tenancy Tenancy Practices & Procedures Landlord and Tenant (Consolidation)

Ordinance The employer and employee relationship


Hong Kong Domestic Tenancy


Creation of a Tenancy The law on tenancy in Hong Kong is basically governed by

the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) ("the Ordinance"),

common law, and the terms and conditions contained in a tenancy agreement.

The creation of a domestic tenancy may be oral or by way of a tenancy agreement or a lease.

Differences between a tenancy agreement and a lease include duration and formality in execution.

When the duration of the tenancy is not more than three years, a tenancy agreement is usually arranged.


Registration Pursuant to Section 3 of the Land Registration

Ordinance (Cap. 128), all leases have to be registered at the Land Registry.

In practice, the solicitors who prepare the lease will submit the lease to the Land Registry for registration within one month of its execution by the landlord and tenant, in order to ensure that the priority of the lease shall commence from the date of its execution.


Registration If a lease is submitted for registration more than one

month after its execution, its priority will only commence from the date of registration and not the date of its execution.

A tenancy agreement is also registrable at the Land Registry.

This is often done if the tenancy agreement contains a clause giving the tenant the option to renew upon its expiry.


Form CR109 If the property under the tenancy agreement or lease is a domest

ic property, meaning that the property is primarily used by the tenant as his dwelling, the landlord must file Form CR 109 at the Rating and Valuation Department.

Form CR109 is a "Notice of New Letting or Renewal Agreement" and specifies, amongst other things, the following matters: (a) Address of the property; (b)Date of the new tenancy or renewal of tenancy; (c)Term of the tenancy; (d)Monthly rental; and (e)Amount of rates and management fees and the party responsible

for the same.


Form CR109 This form has to be lodged with the Commissioner

of Rating and Valuation within one month of signing a newly created tenancy or entering into a renewal of a tenancy.

There is a penalty of $310 for delay in lodging this form.

Failure to lodge this form with the Commissioner will prevent the landlord from recovering from the tenant the rental specified therein.

Form CR 109 has to be submitted to the Rating and Valuation Department in triplicate.


Form CR109 Once endorsed by the Commissioner of Rating and

Valuation, one copy will be returned to the landlord and another copy will be returned to the tenant.

Form CR 109 has to be filed at the Rating and Valuation Department within one month of the execution of the tenancy agreement or lease.

If Form CR 109 is filed after one month of the execution of the tenancy agreement or lease, a penalty of $310 will have to be paid.

Further, failure to file Form CR 109 will render the landlord unable to take legal action for recovery of the rent.

It is therefore of vital importance from the landlord's perspective that Form CR 109 should be filed at the Rating and Valuation Department.


Bank Consent Where a property is mortgaged to a bank or other financial

institution, the relevant mortgage deed or legal charge will usually contain a covenant by the owner of the property not to let the property or any part thereof.

Hence, if an owner lets a mortgaged property without the mortgagee's prior consent, the owner will be in breach of the mortgage deed or legal charge and the mortgagee may recover the property from the owner.

Where bank consent has been obtained, a tenant should inspect the same to see whether it is subject to any conditions.


Bank Consent If the landlord does not agree to seek the bank's consent,

the tenant should understand the potential risks that he/she may face.

If the property is let without consent, the mortgagee may take legal action against the landlord to enforce the relevant provision in the mortgage deed or legal charge to recover the property.

Further, if the mortgagee exercises its right of sale under the mortgage deed or legal charge upon failure of the owner to repay any instalment of the mortgage loan, it may apply to the court for the eviction of the tenant and the tenant will have to yield up vacant possession to the mortgagee within a fairly short period of time if the mortgagee has not consented to the letting.


Tenancy Practice & Procedure


Tenancy Practice & Procedure The procedure for letting a property commences

with the property being made available to let by the landlord.

In Hong Kong, it is fairly common for a landlord to let his property through estate agents.

The practice and procedure for letting a property through estate agents and solicitors is as follows: 1.The landlord makes his property available to let

through estate agents.



2.The tenant looks for a suitable property to let through an estate agent.

3.The landlord and the tenant enter into negotiations, usually through the estate agent, as to the basic terms for letting the property, for example, monthly rental, term of the tenancy (duration and commencement date), furniture and electrical appliances included, if any, etc.

4.The landlord writes to the mortgagee of the landlord's property to seek the mortgagee's consent to the letting of the property.



5.The landlord and the tenant sign a provisional tenancy agreement and the tenant pays the landlord an initial deposit.

6. The provisional tenancy agreement may provide that it shall not take effect unless and until the landlord's mortgagee consents to the letting of the property.

7.The parties appoint their respective solicitors (the parties may appoint one firm of solicitors to represent both provided that there is no conflict of interest).



8.The landlord's solicitors prepare the draft formal tenancy agreement ("the formal agreement"), and send the same to the tenant's solicitors for their approval.

9.If necessary, the tenant's solicitors will amend the draft formal agreement, to protect the tenant's interests.

10. The parties through their solicitors agree on the terms of the formal agreement. The landlord's solicitors engross the formal agreement and send the same (in duplicate) to the tenant's solicitors.



11.The tenant's solicitors arrange for the tenant to sign the formal agreement, and the tenant at the same time pays the balance of the deposit and one month's rental in advance (as advance payment of the rent for the first month of the tenancy) together with legal costs and stamp duty (to be shared equally with the landlord).

12. The tenant's solicitors send the formal agreement, the balance of the deposit and one month's rental in advance to the landlord's solicitors on or before the date specified in the provisional tenancy agreement for the signing of the formal agreement.



13.The landlord's solicitors arrange for the landlord to sign the formal agreement and release the balance of the deposit and one month's rental in advance to the landlord who also pays the legal costs and stamp duty (to be shared equally with the tenant).

14.The landlord's solicitors will also arrange for the landlord to sign Form CR 109 (in triplicate).

15.The landlord's solicitors will usually arrange to submit the tenancy agreement (in duplicate) for stamping at the Stamp Duty Office and Form CR 109 (in triplicate) at the Rating and Valuation Department.



16.After the tenancy agreement (in duplicate) is duly stamped, the landlord's solicitors will return the counterpart thereof to the tenant's solicitors for onward transmission to the tenant and return the tenancy agreement to the landlord.

In other situations, the landlord and the tenant may negotiate the terms through an estate agent and enter into a standard form of tenancy agreement commonly available in local bookstores.


Tenancy Practice & Procedure The actual practice and procedure for such

situations may be different from those described above.

The estate agent will normally assist the landlord and tenant to sign the tenancy agreement (in duplicate), arrange for the paying and receiving of deposits and the stamping of the tenancy agreement, and advise the landlord to submit Form CR109 to the Rating and Valuation Department.


Subletting Subletting is where a tenant sublets the property

or any part thereof to a sub-tenant. This, however, may be prohibited by a term in the

tenancy agreement between the tenant and the landlord ("the original tenancy agreement").

A tenant should therefore ascertain from the original tenancy agreement whether it contains any prohibition against subletting before entering into any sub-tenancy agreement with a sub-tenant.


Subletting Where the original tenancy agreement prohibits

subletting, the tenant has to obtain the written consent of the landlord before he/she can sublet the property.

Further, the terms of the sub-tenancy agreement will usually be subject to the terms of the original tenancy agreement.

The term of the sub-tenancy agreement cannot exceed the term of the original tenancy agreement.


The employer and employee relationship


The employer and employee relationship An employee is a person employed by

another person under a contract of service.

The contract of service is often distinguished from the contract for service.


The employer’s liability for the employee’s actions or omissions An employee is personally liable for wrongful acts

or omissions he commits. For example, if an employed estate agent who

has made a misrepresentation to a client about a property, or has omitted to reveal pertinent information about the property to a client.

He/she is personally liable to the client for the foreseeable loss and damages which the client has suffered from the misrepresentation or omission.


The employer’s liability for the employee’s actions or omissions In certain circumstances, an employer

may be legally responsible for certain acts or omissions his employee has committed, even though the employer is personally without fault.

In such a situation, it is said that the employer has vicarious liability for the acts and omissions of his employee.


The employer’s liability for the employee’s actions or omissions An employer has vicarious liability where

the wrongful acts or omissions of the employee are committed in “the course of the employee’s employment”.

The imposition of vicarious liability on the employer gives the victim of the employee’s wrongful acts or omissions a right to claim against the employer (who more likely than not has more resources to pay than the employee).


The employer’s liability for the employee’s actions or omissions Usually the relationship between an estate

agency company and the estate agents/salespersons working for it is that of an employer/employee relationship.

Generally speaking, that is so even where the estate agents/salespersons do not have a basic salary and are remunerated purely on a commission basis.


Data Protection(Personal data of clients)

(Confidential information) (Keeping clients’ account)


Personal data of clients Principle 4 of the Data Protection Principles of the Per

sonal Data (Privacy) Ordinance (PDPO), which are set out in Schedule 1 of the ordinance, requires all practical steps be taken to ensure that personal d

ata held by a data user are protected against unauthorised or accidental access, processing or erasure or other use.

The following are some measures which may be useful for the protection of personal data: a data user should ensure that personal data is stored in a saf

e and secure place;


Personal data of clients access to manual files should be restricted to autho

rised staff only; computer access to data should be restricted to au

thorised staff by the use of passwords which are changed regularly, and for which appropriate security is exercised;

when data is being processed, monitors should be so positioned to maintain confidentiality;

active terminals should not be left unattended; and


Personal data of clients active terminals should not be left unattended;

and security measures should apply to data

retention and data disposal. Floppy discs and computer printouts and other paper should be properly disposed of or shredded where appropriate.


Personal data of clients Principle 6 of the Data Protection

Principles of the PDPO provides that a data subject entitled to request access to personal data held by a data user and to request the correction of such data.

The Privacy Commissioner for Personal Data has issued a Data Access Request Form and a request for personal data should be made on such a form.


Personal data of clients Generally speaking, a data access request

should be complied with, but in the following circumstances a data user shall refuse to comply with the request: when not supplied with sufficient information

to identify the data subject; or if the personal data sought under the request

comprises personal data of another individual and the request cannot be complied with without disclosing the personal data of that other individual (unless that other individual consents to the disclosure).


Personal data of clients In the following circumstances a data user

may refuse to comply with a data access request: the request is not in writing in Chinese or

English; the party is not provided with sufficient

information to locate the data requested; the request follows two or more similar

requests;


Personal data of clients another party controls the use of the personal

data in a way that prohibits the data user receiving the request from complying with it;

the request is not made on the Privacy Commissioner’s specified form; or

there is an applicable exemption from the requirement to comply with an access request provided for in the PDPO.


Confidential Information Estate agents have a duty to their client not to

release information obtained from the client or otherwise passed onto the estate agent which is of a confidential nature without the client’s authorization.

W the estate agent is acting for both the vendor and the purchaser, situations may arise where there is a conflict between the duty of confidentiality owed to one client (for example, duty to keep confidential information

provided to him by the vendor about the vendor’s financial situation)


Confidential Information The agent’s duty to disclose all relevant

information which may affect the interest of the other client. (for example, duty to protect the interests of the

purchaser where the agent, knowing the vendor’s financial situation, may have to advise the purchaser of the risk of payment of deposits to the vendor).

In such situations, the estate agent should seek legal advice.

Where the conflict cannot be satisfactorily resolved without compromising the interests of each of the parties, the estate agent should cease to act.


Keeping clients’ account The management of an estate agency company shoul

d ensure compliance of the accounts regulations. The company’s accountants should be thoroughly fa

miliar with the relevant provisions in the EAO and the Practice Regulation.

As a general rule, licensees should be instructed to request that clients draw their cheques for payment of deposits in favour of the vendors or landlords, or their solicitors (as the case may be) and not the estate agency company.


Keeping clients’ account This will mean that, generally, the estate agen

cy company will not have to handle money on behalf of clients.

In special cases where the estate agency company has to handle money on behalf of clients the receipt of the money should be approved by th

e management and the money should be put in a trust account maintained at an authorised institution.


Keeping clients’ account Where an estate agent accepts money from a client to

be held by the estate agency company as a stakeholder for the parties the terms of the stakeholding should be clearly stated, in part

icular as to when and in what circumstances the money is to be released to the other party, and

what is to be done with the stakeheld money in the event of a dispute between the parties.

The stakeholding estate agency company should ensure that provision is made to indemnify the estate agency company in respect of any claims made by any party to the transaction.

Legal advice should be sought on the question of stakeholding.


The End

Lecture 10 - Tenancy Practices and Procedures(1)

Documents

estate agency

tenancy practice

keeping clients

original tenancy

provisional

data protection

vendors financial

personal data