Guide to Leasing Office Premises in Hong Kong

1. Office Premises

When deciding on premises for your company, you should consider:

(1) Whether to work from home, a shop, an office, a managed workspace or a factory;
(2) The size of your workplace and whether it will be sufficient for future requirements;
(3) The location of your premises, particularly if you will be relying on passing trade;
(4) Whether to rent or buy, and the costs involved in each;
(5) Insurance, local crime rates and security requirements;
(6) Car parking facilities;
(7) Maintenance and running costs: and
(8) Necessary refurbishment costs such as telephone, fax, office equipment and furniture.

2. Leasing Customs and Practices in Hong Kong

When renting office/retail shop premises for business purposes, you should bear in mind the following leasing customs and practices:

(1) Tenancy agreements
A tenancy agreement is a legally binding contract which specifies the detailed rights and obligations of both the tenant and landlord during the agreed lease term.

(2) Rentals
Rentals are quoted in Hong Kong dollars per square foot on gross, lettable or net area on a monthly basis. Rents are payable monthly in advance and are usually exclusive of management fees, rates, service charges and any additional costs.

(3) Area
There are three units of measurement on which rents and various charges are based. Tenants should understand the difference between them in order to compare the true cost of the actual space of the premises.
(a) Net area
Means the actual usable area of the premises. In most cases this will also include all structural columns and the external faces of the exterior walls of the building in which the premises are located. Efficiency of a quoted net area will usually be in the 90% to 100% range.
(b) Lettable area
Means the net area plus a proportion of communal areas such as the lift lobbies, service corridors, etc. Efficiency of lettable area depends on the size of the floor plate and typically ranges from 70% to 90%.
(c) Gross area
Similar to lettable area (as defined in section (b) above). Will also include a proportion, on a pro-rata basis, of various elements of the common areas. Depending on the size of the floor plate, the efficiency of gross areas generally falls in the 60% to 80% range.

(4) Lease terms
Office premises are normally leased for terms of two or three years at pre-agreed, fixed rentals. Tenants occupying larger premises tend to prefer a longer lease term of, say, six to nine years with rent reviews at the end of every third year in line with the current prevailing market rental.

(5) Options to renew
Tenants may negotiate for an option to renew their lease on the original lease terms upon expiry.

(6) Rent-free periods
This is a grace period offered by the landlords for the fitting-out of the premises. The length of the period will depend on the size of the premises and the prevailing market conditions.

(7) Service charges
Service charges cover items such as central air conditioning supply, building management, cleaning and the upkeep of common areas and are calculated on the area of the premises to be rented. The charges are quoted on a per square foot per month basis and are non-negotiable. Charges may be revised from time to time.

(8) Security deposits
A non-interest-bearing cash security deposit equivalent to two or three months rental inclusive of service charges must be paid by tenants at the time of signing the tenancy agreement. This deposit is refundable upon expiry of the lease.

(9) Landlord provisions
Landlord provisions are items provided by the landlord free of charge.

(10) Stamp duty
Stamp Duty is a one-off tax on the conveyance on sale, agreement for sale of residential property and lease of immovable property. The duty is shared equally between the landlord and the tenant. Documents chargeable with stamp duty should be presented, in person or by post, to the Stamp Office (of the Inland Revenue Department) for stamping.

(11) Rates and government rents
Rates are charged at a percentage of the ratable value which is the estimated annual rental value of a property at a designated valuation reference date, assuming that the property was then vacant and to let. The current rates percentage charge is 5%.

Government rent is paid by the owner in return for the right to hold and occupy the land for the term specified in the lease document. It is calculated at 3% of the ratable value of the property and will be adjusted in step with any subsequent changes in the ratable value.

(12) Legal fees
Each party will bear its own legal costs.

(13) Insurance
Provisions for insurance liabilities are usually contained in the tenancy agreement. Tenants are normally responsible for additional cover such as contents and public liability.

(14) Agency commissions
Tenants will be charged an agency fee upon their leasing premises for they have been introduced to through an estate agent. It is common for agents to charge both landlords and tenants. The fee ranges from between half to one month’s rent.