Section B: Estate Management and Rent Policy Chapter 23: Letting of Commercial Premises by Direct Negotiation I. Guidelines for Letting by Negotiation   1. Shops in Hong Kong Housing Authority Shopping Centres are let by tender and by negotiation. Typically around 30% of premises in new centres are let by negotiation. Letting by negotiation may be considered in the following circumstances:-     a. where the amount of space to be leased exceeds 250m2 and (for non-factory premises) where the type of trade can attract more customers to the shopping centre, or can provide a desirable facility for residents; or               b. where the vacant premises concerned have failed to attract suitable bidders in at least one open tender exercise; or               c. where an attraction is offered by the brand name under which the premises are to be operated, or by the tenant's ability to develop his business through substantial promotional activities, which will enhance the trading potential of the shopping centre; or               d. where a sitting tenant has demonstrated his capability for expansion of his business, as indicated by-       i. the tenant currently operating a minimum of three outlets under the same trade name with a total area of not less than 250m2; and                 ii. the tenant having a clear tenancy record in the last three years e.g. without rent arrears, shop-front obstruction or encroachment, complaints from residents etc.; and                 iii. the tenant's existing operation or product providing a service which will meet the demands of estate residents; and                 iv. the standard of fitting-out and shop display of the tenant's existing outlets being of high standard.               e. where an individual or company has demonstrated adequate financial resources and management capability in non-retail sectors to demonstrate capability for successful management of a retail outlet, by having-       i. a minimum of 5 years successful operation of a business; and                 ii. employment of not less than 10 staff, and                 iii. personal involvement in a managerial capacity, and                 iv. financial resources adequate to sustain a retail operation of the size proposed, i.e. to cover:         payment of deposit                     fitting out and decoration costs                     overheads including rent for six months             2. Expansion of Existing Leased Area   Under negotiation procedures, expansion of an existing leased area may be considered subject to rent adjustment and -     a. the additional area adjoining or being adjacent to the existing premises so as both parts can be operated as a single unit; and               b. the trade previously operated in the premises for expansion, if still viable, is operated elsewhere in the centre; and               c. the tenant has a clean tenancy record for the past three years, and has an acceptable standard of fitting out, shop display and overall operation.           d. expansion may be considered particularly appropriate where the expansion would assist in overcoming problems in the existing unit, such as lack of frontage or inadequate size for efficient operation; or               e. the expansion would benefit the operation of the shopping centre as a whole through consolidation of a major anchor, improved pedestrian flow, etc; or               f. the premises has failed to attract suitable bidders in at least one tender exercise.           3. Voluntary Relocation of Existing Tenant   Under negotiation procedures, relocation of an existing tenant at the tenant's request may be considered subject to rent adjustment and -     a. if the relocation involves a change of trade in the new premises, the trade previously operated if still viable is provided elsewhere in the estate; and               b. the tenant has a clean tenancy record for the past three years and has an acceptable standard of fitting out, shop display and overall operation.           Relocation may be considered particularly appropriate where -     c. the premises vacated on relocation can be readily used for other beneficial purposes; or               d. the relocation achieves an improved distribution of trades or provide increased convenience to shoppers; or               e. the premises has failed to attract suitable bidders in at least one tender exercise.                 Notes: In considering proposals for business expansion or voluntary relocation, the potential interest of other tenants in the estate will be evaluated and if appropriate multiple invitations to bid issued.           II. Eligibility of Client   1. Clients, if in individual capacity, must be 18 years of age or over or in the form of a limited company.             2. If any person who signs as client does so as an agent or a trustee for any other company or companies, he shall disclose in his leasing proposal the names and addresses of such person or persons. If no such disclosure is made, the person signing the leasing proposal shall be deemed to be a principal and no subsequent disclosure of any trust, agencies, etc. will be recognized by Hong Kong Housing Authority.           III. Ways of Submitting the Leasing Proposal   1. All leasing proposals should contain the following:     a. Name of the prospective tenant;               b. Proposed trade name;               c. Location and size of the premises to be leased;               d. Rental offered;               e. Duration of term;               f. Precise nature of trade;               g. Any special conditions such as rent-free period, liability of the landlord, and/or the tenant to meet technical requirements, etc.; and               h. A true copy of the Memorandum and Articles of Association of the company, if submitted by a limited company.             2. Clients may propose various patterns of rent payment as follows:     a. Fixed monthly rent;               b. Fixed monthly rent linked to staged increases at annual, biennial and triennial intervals, etc.;               c. Base rent plus a certain percentage of turnover; and               d. Base rent or a certain percentage of turnover, whichever is the higher.               In the case of a rent pattern involving turnover as illustrated in sub-paragraphs 2c and 2d above, clients should state in their leasing proposal the anticipated amount of turnover for the first 12 months and subsequent annual growth, in percentage term, throughout the entire term of the prospective tenancy.             3. Clients may also propose various ways to maximize the use of the proposed leased premises subject to meeting the fitting-out requirements as stated in Paragraph V.             4. To ensure confidentiality, clients are reminded to seal their leasing proposals under a pre-addressed envelope as prepared by the Non-domestic (Headquarters) Management Unit. All leasing proposals must be deposited by hand in the Leasing Proposal Collection Box located at Podium Level 1, Hong Kong Housing Authority Customer Service Centre, 3 Wang Tau Hom South Road, Kowloon on or before the specified closing time and date.             5. Clients are reminded to note the specified closing time and date for submission of leasing proposals. Submissions after the specified closing time and date will not be considered. Hong Kong Housing Authority will not be responsible for any mislaid leasing proposal.             6. The closing time and date will automatically be deferred to 10:00 a.m. on the following Monday or the next earliest possible working day of the following week in the following circumstances:     a. if Tropical Cyclone Warning Signal No. 8 or above is hoisted before and remains hoisted beyond the closing time;               b. if a "Black" Rainstorm Warning is announced and remains in force beyond the closing time.               However, the closing time and date will remain unchanged if Tropical Cyclone Warning Signal No. 8 or above or the "Black" Rainstorm Warning is lowered or withdrawn two hours or more before the closing time.           IV. Basic Leasing Terms and Conditions   1. All tenancies are normally granted on a fixed term of 3 years without an option to renew. However, terms other than the normal 3 years may also be considered. In case of large premises, with an area over 250m2, a fixed term of 6 years without an option to renew is preferred.             2. Leasing proposals will only be accepted from persons or limited companies who/which will occupy the premises for their own use and no assignment, sub-letting or parting with the possession of the premises or any part thereof will be permitted without the prior written approval from Hong Kong Housing Authority.             3a. Subject to the conditions set out in 3(b), the tenant will have a rent-free period.  The period may range from 1 month to 3 months according to the followings:     Size of Premises Rent-free Period Less than 100m2 One month Between 100m2 - 250m2 Two months Larger than 250m2 Three months             3b. The rent-free period is to be granted subject to:- (i)   no breach of any terms and conditions of the tenancy agreement; and (ii)   no termination of the tenancy by the tenant during the period of 6 months from the commencement of the tenancy (the "Period").  If at any time during the Period there is any breach of the terms of the tenancy and the tenancy is terminated by the Housing Authority in consequence of such breach or if the tenancy is terminated by the tenant prior to the expiration of the Period, without prejudice to any other rights of the Housing Authority under the tenancy agreement, the tenant shall forthwith pay to the Housing Authority the rent for the period as set out in 3(a) above.           4a. Extra rent free period will be granted to all those long-standing vacant shops and shopstalls which had been offered to let unsuccessfully at least thrice through open tender exercise.  Consecutive Vacant Period  Extra Rent Free Period 2 - 3 years  2 months 3 - 4 years 4 months  over 4 years  6 months In order to deter abuse of the concession, the extra rent free period will be granted in stages during the tenancy terms. 4b. If the tenancy is terminated in whatsoever manner before the expiration of the term of the tenancy, any holding over after date of termination will not be eligible for the extra rent free period unless the Notice of Termination is cancelled by the Appeal Panel. 4c. The following lettings are not eligible for extra rent free:  (i)  letting of shops on short term basis;  (ii) letting of councilor office;    (iii) conversion of short term licence to fixed term tenancy;    (iv) letting of additional area for expansion of existing leased area;   (v) relocation of shops and shopstalls; and    (vi) restricted tenders such as tender exercises for tenants affected by redevelopment and market re-ordering, etc.    5. Clients should note that under the tenancy agreement, interest will be charged on the amount of rent, air-conditioning charges, if any, and rates in arrears at the rate of 2% per month, from the date upon which such payment fell due.             6. Clients should note that all prospective tenancies granted are fixed term tenancies and cannot be terminated early before their natural expiry dates.             7. The attention of clients is drawn to the fact that whenever the tenancy is terminated for whatever reasons, the tenant is required to deliver up vacant possession of the premises to Hong Kong Housing Authority unconditionally, and shall not be entitled to any claim for compensation. Hong Kong Housing Authority shall have the full right to relet the premises or otherwise dispose of the premises in such manner and to such person as it may think fit, free from the interference of any person.             8. Client should note that the granting of a commercial tenancy does not confer upon the tenant any exclusive right to any particular trade in the estate concerned, and that Hong Kong Housing Authority reserves the right to let other premises in the estate concerned in whatever manner for the same trade according to the needs as assessed by Hong Kong Housing Authority. Change of user of the premises during the term of the tenancy shall not be permitted without the written consent of Hong Kong Housing Authority.           V. The General Requirements for Fitting-out   1. Clients are advised to note the maximum electricity loading available to the premises. Should additional loading beyond the designed capacity be required, the expenses incurred in upgrading, plus on-cost currently at the rate of 28.7% as supervision charge, will be wholly borne by the prospective tenant, provided that the upgrading is approved by the Housing Department.             2. The prospective tenant shall accept the premises in the state and condition in which they are found at the date when possession is given and shall be responsible for the fitting-out of the premises, including air-conditioning system, enclosing walls, shop fronts, toilet facilities and other building services items on the premises, to meet the requirements of Hong Kong Housing Authority and other competent authorities. All modifications to the building services installations, including fire services sprinklers must be carried out by contractors appointed by the Housing Department subject to agreement of the Housing Department. The expenses incurred in all modifications, plus on-cost currently at the rate of 28.7% as supervision charge, will be wholly borne by the prospective tenant.             3. In responding to Hong Kong Housing Authority's invitation for leasing proposals for single operator markets and single operator shopping centres, prospective tenants should note that their proposed conversion plan should only lie within the leased area and meet the requirements of all other competent authorities. Any increase in retail space as a result of such conversion shall be subject to the final approval of Hong Kong Housing Authority and other relevant authorities.             4. The prospective tenant is required to submit plans for the intended conversion to the Housing Department and no conversion work shall be started until written approval is obtained from the Housing Department. In case of large scale fitting-out works, the prospective tenant is requested to appoint an Authorized Person under the Buildings Ordinance to submit the drawings in a proper manner.             5. The prospective tenant will be allowed to install his own air-conditioning system on the premises if no central air-conditioning is provided but installation of air-conditioning plant and routing of pipe/duct are subject to prior approval from the Housing Department. Besides, properly connected drainage for condensation should be provided where air-conditioning units are used.             6. No installation likely to cause disturbance to persons and properties, (e.g. exhaust fans, fume-extractors, etc.) will be permitted without prior approval from the Housing Department.             7. No alteration to shop front is permitted unless approval has been obtained from the Housing Department.             8. Installation of signage outside the premises is allowed only at designated locations. The location, layout, lettering and colour scheme of the proposed signs are to be approved by the Housing Department.           9. The Single Operator of Market or Shopping Centre has to submit Safety Supervision Plan for Housing Department's vetting and approval when Authorized Person and / or Registered Structural Engineer are required in the course of fitting-out works. Forms for Safety Supervision Plan are available in the Estate / Court office upon request. Besides, submission of Management Plan and Maintenance Plan are also required. 10. A pre-letting meeting can be arranged upon request to answer questions from prospective tenants before submission of fitting-out plans. A guideline has been developed to help the prospective tenants to identify what types of fitting-out works would require submission to Independent Checking Unit and licensing authority. Respective Shopping Centre Manager will provide the guideline to the prospective tenants before they submit their applications. For complicated submission, a case conference can be arranged with the tenant to collate input from the different disciplines simultaneously.   11. We will vet from Landlord' s role and approve the applications for fitting-out works by 3 classes according to complexity as below. Class 1 : Simple case : No alteration of BS installations, structure, waterproofing, drainage, compartmentation, outlook of the building. To be completed within 7 days excluding Saturdays, Sundays and public holidays.  Class 2 : Normal case : Considerable amount of building works, relocation of internal partitions, forming of openings in floor or wall. To be completed within 14 days excluding Saturdays, Sundays and public holidays..   Class 3 : Complicated case : Involved major building works, additional floor or wall, installation of heavy machine or equipment. To be completed within 21 days excluding Saturdays, Sundays and public holidays.  Note: Time count will stop when reminder to call for supplementary information is sent out to tenant and resumes when full set of required information is received. VI. Normal Leasing Procedures through Negotiation   1. Clients will be notified in writing the result of their leasing proposals as soon as decision is made by Hong Kong Housing Authority.             2. Upon receipt of a formal notice that a tenancy of the premises is offered by Hong Kong Housing Authority, the successful client will be required to confirm in writing within 14 days from the date of such notice and should pay by cheque a non-refundable deposit equivalent to 1 month's rent applicable to the tenancy. This amount of money will be offset as part of the rent deposit or rent at the time when a formal tenancy agreement is signed.             3. Hong Kong Housing Authority will give prior written notice to the successful client to take possession of the leased premises. The date of commencement of the tenancy shall be the date on which possession of the leased premises is given.             4. On signing the tenancy agreement, in addition to the payment of the offered rent for the first month, the successful client shall be required to pay a cash deposit equivalent to two months' the average bidded rent of the tenancy term, either in cash or bank guarantee or a combination of either, to Hong Kong Housing Authority. For Single Operator Market, a deposit equivalent to 3 months' average rent in cash of which two months' average rent may be in the form of a bank guarantee. This deposit, without any interest thereon, shall be refunded on termination of the tenancy provided that there shall be no outstanding rent, and/or rates, air-conditioning charge or other outstanding breaches of the tenancy agreement.           VII. Special Rules and Regulations   1. Hong Kong Housing Authority does not bind itself to accept any leasing proposal.             2. Clients are reminded that if manipulation of Hong Kong Housing Authority's negotiation system is discovered, and such has been proved to the satisfaction of the Director of Housing, then the said Director can at his discretion reject the leasing proposals from such clients. The decision by the Director of Housing as to whether the negotiation system has been manipulated and as to whether the clients are involved in the manipulation is final.             3. No charge is made for the processing of any leasing proposal. Reports should be made to the appropriate authority immediately for any person purporting to offer assistance in respect of the leasing proposal in return for a reward.             4. Clients should note that offering or giving any gratuity, money or gift as an inducement to any employee of the Housing Department in relation to the leasing proposal constitutes an offence under the Prevention of Bribery Ordinance and such cases will be reported to the Independent Commission Against Corruption.             5. To ensure the confidentiality of all leasing proposals, clients must submit their leasing proposals by the method as mentioned in paragraph III.4. Hong Kong Housing Authority holds no responsibility for the confidentiality of any leasing proposal submitted by methods otherwise.

Index Page | Previous Chapter | Next Chapter | Back to top |