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Normally, commercial leases do not have a break clause in Hong Kong. However, if the lease agreement contains a termination clause then a tenancy may be brought to an end by the landlord due to:
- Non-payment of rent
- Breach of agreement by tenant
- Sale/development of property
To exercise this right, the landlord will have to give a written notice to the tenant and the lease will terminate upon the expiry of the notice.
Non-payment of rent
A tenancy agreement may contain an express clause which entitles the landlord to terminate (or ‘forfeit’) the lease/ tenancy agreement upon non-payment of rent subject to written notice.
It is implied per the Landlord and Tenancy Ordinance that non-payment of rent for more than 15 days of the due date would give rise to a right for the landlord to forfeit/terminate the tenancy agreement.
The tenant can apply for a relief against forfeiture (for non-payment of rent) if they had defaulted in payment of rent for the first time. The Court or the Lands Tribunal will usually give them a chance to pay up for all outstanding rent within a specified period of time. If the tenant complies, the term of the tenancy agreement will be ‘resurrected’ and will continue under its original terms as if there was no default on rental payment before.
Serious breach of agreement
If the tenant pays rent on time but commits serious breach(s) of the tenancy agreement (e.g. subletting, conducting illegal activities, causing nuisance), the landlord may wish to terminate the tenancy.
When this happens, the landlord will first serve a notice to the tenant, specifying what they are in breach of. The notice will request the tenant to remedy the breach within a certain period of time, before the landlord will exercise their right to terminate the lease. If the lessee fails to remedy the breach within that period of time, the landlord may rely on any forfeiture/termination clause as expressly provided under the tenancy agreement immediately to end the tenancy and claim possession from the tenant
Sale/Redevelopment of the property
A termination clause may also allow the landlord to terminate the lease when they sell the whole or part of the building or premises. To exercise this right, the landlord will usually have to give at least 6 months’ notice in writing to the tenant, and the lease will terminate upon the expiry of the notice. The clause may also apply upon demolition, refurbishment, etc., of the building or premises.
Key takeaways
- A termination clause allows a commercial lease to be terminated before it expires.
- The termination clause allows the landlord to terminate the tenancy in advance if the tenant fails to pay the rent or seriously breached the tenancy agreement, or if the landlord decides to sell the property.
