Premises

Things to consider

• Whether to work from home, a shop, an office, a managed workspace or a factory
• The size of your premises and whether it will meet future requirements
• The location of your premises, particularly if you will be relying on passing trade
• Insurance, local crime rates and security requirements. Learn more about our Business Insurance products
• Car parking facilities
• Maintenance and running costs
• Refurbishment costs such as telephone, fax, office equipment and furniture. Learn more about raising finance for startups
• Whether to rent or buy, and the costs involved in financing your premises. Learn more about our Commercial Mortgage

Leasing customs and practices

Tenancy agreements
Rentals
Area
Lease terms
Options to renew
Rent-free periods
Service charges
Security deposits
Landlord provisions
Stamp duty
Rates and government rents
Legal fees
Insurance
Agency commission


Tenancy agreements

• A tenancy agreement is a legally binding contract which specifies the rights and obligations of both tenant and landlord during the agreed lease term.

• 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.

• There are three units of measurement on which rents and various charges are based - you should understand the difference between them in order to compare the true cost of the premises.
  
• Net area - the 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. The efficiency of a quoted net area will usually be 90% - 100%.
  
• Lettable area - the net area plus a proportion of communal areas such as lift lobbies, service corridors, etc. The efficiency of a lettable area depends on the size of the floor plate and typically ranges from 70% to 90%.
  
• Gross area - similar to lettable area. 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 is generally 60% - 80%.

• 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.

• You can negotiate for an option to renew your lease on the original lease terms upon expiry.

• This is a grace period offered by landlords for fitting out premises.
  
• The length of the rent-free period will depend on the size of the premises and the prevailing market conditions.

• Service charges cover items such as central air conditioning supply, building management, cleaning and the upkeep of common areas.
  
• They 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.

• When you sign a tenancy agreement you have to pay a non-interest bearing cash security deposit equivalent to two or three months' rental, inclusive of service charges.
  
• This deposit is refundable upon expiry of the lease.

• Landlord provisions are items provided by the landlord free of charge.

• 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.

• Rates are charged at a percentage of the rateable 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 rateable value of the property and will be adjusted in step with any subsequent changes in the rateable value.

• Each party will bear its own legal costs.

• Provisions for insurance liabilities are usually contained in the tenancy agreement.
  
• As a tenants you are normally responsible for additional cover such as contents and public liability. Learn more about our Business Insurance products

• You will be charged an agency fee if you lease premises introduced to you 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.

Disclaimer:
This section is intended as a general guide for reference only.
The information contained in this section should not be relied upon as a substitute for professional advice in individual cases. Future changes in legislation, tax levels and practice could affect the information in this site.
The information shown is based on data or information obtained from sources believed to be reliable but HSBC makes no representation and accepts no responsibility as to its accuracy or completeness and will not be hold liable for damages arising out of any person's reliance upon this information.

Information sourced from Inland Revenue Department, Labour Department, Trade and Industry Department and Productivity Council.

Back to top

Other useful information and services

• Raising Finance
• BusinessVantage Account
• Guide to Cash Management