How estate agents and landlords should implement Hong Kong’s new tenancy control regime for subdivided units

2022-05-17

• Part IVA of the Landlord and Tenant (Consolidation) Ordinance came into effect on 22 January this year
• As estate agents may handle tenancies relating to units that are subject to Part IVA, the Estate Agents Authority has issued a practice circular setting out the relevant guidelines for them to follow

The government has implemented a new tenancy control regime for subdivided units under Part IVA of the Landlord and Tenant (Consolidation) Ordinance, which came into effect on 22 January this year.

As estate agents may handle tenancies relating to units that are subject to Part IVA, the Estate Agents Authority (EAA) issued a practice circular setting out the relevant guidelines for estate agents to follow, which also came into effect on the same date as Part IVA.

Here I would like to bring to the attention of estate agents and the general public, particularly the landlords of subdivided units, some key points about the letting of these units. I hope that the landlords will understand more and cooperate with the estate agent accordingly.

First of all, about what types of buildings are under the new guidelines. Generally speaking, Part IVA covers subdivided units of domestic or composite buildings, and industrial or commercial buildings. However, squatters and New Territories Exempted Houses are not covered under Part IVA.

Secondly, please note the potential conflict of interest. When handling regulated tenancies of subdivided units, estate agents must disclose to the prospective tenants whether they act only for the landlord, only for the tenant, or for both the landlord and the tenant. In the case of dual agency, estate agents should disclose to the tenant and the landlord the respective amount or rate of commission or remuneration to be received separately from the relevant landlord and tenant.

If an estate agent holds himself out as an estate agent but he is also the landlord or the representative of the landlord, he must inform the prospective tenant of such a fact.

In addition, estate agents are required to explain the key requirements under Part IVA, including those relating to the security of tenure and rent regulation, and the mandatory terms to be implied for every regulated tenancy to the clients before arranging for them to enter into a tenancy agreement. Estate agents are also required to provide a copy of the summary mandatory terms to clients.

Estate agents should remind their clients to enter into a regulated tenancy in writing instead of orally, so as to clearly reflect the contents of the parties’ agreement and avoid any disputes in the future.

Moreover, estate agents must advise clients that the tenancy agreement should not contain provisions that are inconsistent with the security of tenure and rent control requirements under the ordinance.

Both estate agents and landlords should note that noncompliance with the requirements under Part IVA may constitute an offence. Estate agents should draw their clients’ attention to the relevant offences and penalties.

For instance, estate agents who act for the landlord in a regulated tenancy of a subdivided unit should remind the landlord to arrange for the stamping of the tenancy agreement after it has been entered into and the submission of the relevant Notice of Tenancy, Form AR2, to notify the Commissioner of Rating and Valuation of the particulars of the tenancy within 60 days after the term of a regulated tenancy commences.

On this, the EAA recently published a notice on its website to advise estate agents to remind their clients of the statutory requirement to submit Form AR2 and that if the relevant landlord, without reasonable excuse, refuses or neglects to comply with such a requirement, the landlord commits an offence and will be liable on conviction to a fine of HK$10,000 (US$1,274); and in the case of a continuing offence, to a further fine of HK$200 for each day during which the offence continues. In addition, the landlord of a regulated tenancy may not recover any rent under the tenancy unless Form AR2 is endorsed by the commissioner.

With a view to familiarising estate agents with the new guidelines on handling the letting of regulated tenancies, the EAA has organised relevant continuing professional development seminars for their participation. The EAA has also published a set of related questions and answers on its website for estate agents’ reference.

In case the landlords and tenants of subdivided units have any queries with respect to the statutory requirements under Part IVA, they may make an inquiry with the Rating and Valuation Department or consider seeking legal advice.